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Macy's (M) Down 0.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Macy's (M - Free Report) . Shares have lost about 0.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Macy's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Macy's Tops on Q2 Earnings, Raises FY18 View

Macy’s, Inc. delivered the fifth straight quarter of positive earnings surprise, when it reported second-quarter fiscal 2018 results. However, total sales fell short of the consensus mark after a beat in the preceding quarter. With this, the company delivered negative sales surprise in three of the last four quarters.

The company highlighted that impressive performance across Macy’s, Bloomingdale’s and Bluemercury brands boosted results. Management hinted that its Growth50 stores initiative is aiding growth at its brick-and-mortar stores. This along with robust e-commerce and mobile-commerce bode well for the company.

Confidence in its strategic initiatives, solid execution and a robust consumer spending environment has prompted this U.S. department store chain to lift the sales and earnings view for fiscal 2018.

Let’s Delve Deep

Macy’s posted adjusted earnings of 70 cents a share, excluding impairment and other costs, compared with 46 cents reported in the year-ago period. Excluding gain from sales of assets, earnings came in at 59 cents, up 59.5% from 37 cents delivered in the prior-year quarter. We note that the bottom line comfortably surpassed the Zacks Consensus Estimate of 49 cents. Earnings gained from solid performance across stores as well as persistent digital growth.

The company generated net sales of $5,572 million that lagged the Zacks Consensus Estimate of $5,619 million and slipped 1.1% year over year. The company’s digital business registered double-digit growth. Credit card revenue totaled $186 million, up 11% year over year.

Comparable sales (comps) on an owned plus licensed basis jumped 0.5%, while on an owned basis, comps were flat with the prior-year quarter. This was the third straight quarter of comps growth. The shift in the spring Friends & Family promotion due to the 53-week calendar in fiscal 2017, mainly impacted comps in the fiscal second quarter. Adjusting for this shift, comps on an owned plus licensed basis increased 2.9% in the fiscal second quarter. This marked the third straight quarter of comps growth for the company. Strategic investments across stores, technology and merchandising are aiding comparable sales growth.

Gross margin expanded 80 basis points to 40.4% due to improved inventory position and solid sales performance. Adjusted operating income surged 13.5% to $320 million, while adjusted operating margin increased 70 basis points to 5.7%. Management expects gross margin to improve marginally during the fiscal year.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $1,068 million, long-term debt of $5,473 million, and shareholders’ equity of $5,916 million, excluding non-controlling interest of $22 million.

FY18 View

Backed by the confidence in its strategic initiatives, solid execution and a robust consumer spending environment, Macy’s raised earnings and sales projections for fiscal 2018. The company now anticipates total sales to be flat to up 0.7% compared with the prior guidance of 1% decline to 0.5% increase. Credit card revenue is anticipated to be in the band of $720-$735 million.

Comps on an owned plus licensed basis are projected to increase 2-5% in the second half of fiscal 2018. This brings the fiscal 2018 comps growth guidance to 2.1-2.5% increase compared with the previous guidance of 1-2% growth. However, the company continues to expect comps on an owned basis to be 20-30 basis points lower than comps on an owned plus licensed basis.

Management now envisions adjusted earnings in the range of $3.95-$4.15 per share for fiscal 2018, up from the prior view of $3.75-$3.95.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -23.38% due to these changes.

VGM Scores

At this time, Macy's has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Macy's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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