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Factors Likely to Decide Macy's (M) Fate in Q4 Earnings

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Macy's, Inc. (M - Free Report) is scheduled to report fourth-quarter fiscal 2018 results on Feb 26, before the opening bell. In the last reported quarter, this department store retailer delivered a positive earnings surprise of 92.9%. The company’s bottom-line has also outperformed the Zacks Consensus Estimate by average of 37.9% in the trailing four quarters.

How Are Estimates Faring?

The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $2.65, which reflects a sharp decline from $2.82 recorded in the year-ago quarter. We note that the Zacks Consensus Estimate has been stable in 30 days. The Zacks Consensus Estimate for revenues currently stands at $8,461 million, exhibiting year-over-year decline of roughly 2.4%. In the last reported quarter, the company’s net sales grew 2.3%.

For fiscal 2018, the consensus estimates for top and bottom lines are pegged at $24.9 billion and $4.01, respectively.

Macy's, Inc. Price, Consensus and EPS Surprise


 

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

Factors at Play

Dismal Holiday Sales Numbers to Impact Q4 Performance

In spite of taking a slew of measures such as Backstage, Vendor Direct, Store Pickup, Loyalty Program and Growth50 stores, Macy’s posted weaker-than-expected sales figures for the holiday season, which coincides with the fourth quarter. Comparable sales on an owned plus licensed basis increased 1.1% during November and December period combined, while on an owned basis, comparable sales inched up 0.7%. However, digital business remained robust and recorded double-digit growth.

Management informed that Macy’s kick-started the season on a solid note primarily during Black Friday and the following Cyber Week but lost momentum in the mid-December period only to regain some pace during Christmas.

Trimmed Forecast Raises Concern

Following an unimpressive holiday sales report, Macy’s lowered fiscal 2018 view. The company now expects comparable sales on an owned plus licensed basis to increase about 2%, down from the prior expectation of 2.3-2.5% growth. Net sales are anticipated to remain flat year over year compared with earlier expectation of a 0.3-0.7% increase. The company now envisions earnings in the band of $3.95-$4.00 per share, down from its prior view of $4.10-$4.30.

Other Factors to Note

Certainly, Macy's has been focusing on price optimization, inventory management, merchandise planning and private label offering, and developing omni-channel capabilities and online order fulfillment centers. The company added a new feature to its mobile app called Mobile Checkout and also bought minority stake in b8ta, a technology retailer.

The aforementioned endeavors are viewed as steps to safeguard against industry challenges and stiff competition from online retailers. Management expects selling, general and administrative expenses to increase on account of strategic investments. However, any significant increase in the same may hurt margins and in turn the bottom line.

What the Zacks Model Unveils

Our proven model does not conclusively show that Macy’s is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Macy’s has a Zacks Rank #4 (Sell) and an Earnings ESP of -7.37%, which makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Zumiez (ZUMZ - Free Report) has an Earnings ESP of +0.45% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch (ANF - Free Report) has an Earnings ESP of +0.94% and a Zacks Rank #2.

Costco (COST - Free Report) has an Earnings ESP of +3.38% and a Zacks Rank #3.

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