Back to top

Image: Bigstock

Macy's (M) Beats on Q4 Earnings, Lags Sales; Gives FY17 View

Read MoreHide Full Article

After witnessing a negative earnings surprise of 57.5% in the third quarter, Macy’s, Inc. (M - Free Report) ended fiscal 2016 with earnings beat. The company posted fourth-quarter adjusted earnings of $2.02 per share that beat the Zacks Consensus Estimate of $1.97 but declined 3.3% from $2.09 reported in the year-ago period.

Including one-time items, earnings came in at $1.54 per share, significantly down from $1.73 delivered in the year-ago quarter.

This Cincinnati, OH-based company generated net sales of $8,515 million that marginally came below the Zacks Consensus Estimate of $8,582 million, and also fell 4% year over year. Comparable sales (comps) on an owned plus licensed basis dipped 2.1%, while on an owned basis comps fell 2.7%.

We observed that Macy’s continues with its dwindling top- and bottom-line performance, as both declined for the fourth straight quarter this fiscal. We noticed that in the past six months shares of Macy’s – which partnered with Brookfield Asset Management to create increased value in its real estate portfolio – has declined roughly 17.9% compared with the Zacks categorized Retail-Regional Department Stores industry that has fallen 16%. However, the stock is up 3.3% during pre-market trading hours today.

In an attempt to augment sales, profitability and cash flows, the company has been taking steps such as cost containment, integration of operations as well as developing its eCommerce business and Macy’s Backstage off-price business, along with the expansion of Bluemercury and online order fulfillment centers.

Moreover, as a part of store rationalization program, the company plans to shut down underperforming stores. These are seen as a part of the company’s endeavors to better withstand competitive pressure from both brick-and-mortar discount stores and online retailers, such as Amazon.com, Inc. (AMZN - Free Report) .

Coming back to results, gross profit in the quarter declined 1.7% year over year to $3,264 million, however, gross profit margin expanded 90 basis points to 38.3%. Adjusted operating income decreased 4.6% to $1,062 million, while adjusted operating margin contracted 10 basis points to 12.5%.

Store Update

Macy’s opened 27 outlets and shuttered 66 stores in fiscal 2016. The company plans to shutter about 34 more stores over the next few years for a total of about 100 stores. The company opened one Macy’s store in Kapolei, HI, 24 Bluemercury freestanding stores, one Macy’s Backstage freestanding store in San Antonio, TX, and one Bloomingdale’s Outlet in Orange, CA in the fiscal year.

The company expects to open Macy’s stores in Westfield Century City, Los Angeles, CA and Fashion Place, Murray, UT, as well as about 30 more Bluemercury locations and approximately 30 Macy’s Backstage locations inside Macy’s stores in fiscal 2017. Under the license agreements with Al Tayer Group, a new Bloomingdale’s outlet is planned to open in 360 Mall in Al Zahra, Kuwait in spring 2017 and new Macy’s and Bloomingdale’s stores are planned to open in Al Maryah Central in Abu Dhabi, UAE in 2018.

Macy's Inc Price, Consensus and EPS Surprise

 

Macy's Inc Price, Consensus and EPS Surprise | Macy's Inc Quote

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $1,297 million, long-term debt of $6,562 million, and shareholders’ equity of $4,323 million, excluding non-controlling interest of $1 million.

During fiscal 2016, the company bought back about 7.9 million shares for an aggregate amount of approximately $316 million. As of Jan 28, 2017, the company still had $1.716 billion remaining under its share buyback program. Management expects to incur capital expenditures of approximately $900 million in fiscal 2017.

Guidance

Macy’s now projects comps on an owned plus licensed basis to decrease in the band of 2–3% during fiscal 2017. On an owned basis, comps are expected to decline between 2.2% and 3.3%. Management now envisions total sales to decline in the band of 3.2–4.3% in fiscal 2017 on account of 66 stores closed in fiscal 2016. The company now projects adjusted earnings of $2.90 to $3.15 per share for fiscal 2017. The current Zacks Consensus Estimate for fiscal 2017 is pegged at $3.11.

Zacks Rank

Macy’s carries a Zacks Rank #5 (Strong Sell). Better ranked stocks in the retail sector include Burlington Stores, Inc. (BURL - Free Report) and The Children's Place, Inc. (PLCE - Free Report) both carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores delivered an average positive earnings surprise of 25.6% over the trailing four quarters and has a long-term earnings growth rate of 19.9%.

Children's Place delivered an average positive earnings surprise of 36.3% over the trailing four quarters and has a long-term earnings growth rate of 10.3%.

The Best Place to Start Your Stock Search

Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>

Published in