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Macy's (M) Up 1.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Macy's (M - Free Report) . Shares have added about 1.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Macy's due for a pullback? 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 Beats on Q1 Earnings, Strategic Efforts on Track

Macy’s, Inc. delivered eighth straight quarter of positive earnings surprise, when it reported first-quarter fiscal 2019 results. The company continued to register positive comparable sales and witnessed double-digit growth in the digital business. Management hinted that its Growth50 stores initiative and Backstage is aiding its brick-and-mortar performance and the company is progressing well with its North Star Strategy. Also, management reaffirmed fiscal 2019 view.

The company posted adjusted earnings of 44 cents a share that comfortably surpassed the Zacks Consensus Estimate of 31 cents but declined 8.3% from the year-ago period. Fall in earnings may be attributed to higher cost of sales and increased SG&A expenses. The company generated net sales of $5,504 million that fell short of the Zacks Consensus Estimate of $5,529.3 million and decreased marginally by 0.7% year over year.

Comparable sales (comps) on an owned plus licensed basis rose 0.7%, while on an owned basis, the metric improved 0.6%. This marked the sixth straight quarter of comps growth for the company. Strategic investments across stores, technology and merchandising are aiding comparable sales growth. Total transactions jumped 5.7% in the quarter, however, average units per transaction declined 2.2%.

The company registered sturdy performance across dresses, fine jewelry, men's tailored, women's shoes, fragrances, skincare, active and kids. However, performance in handbags was disappointing.

Gross margin shrunk 80 basis points to 38.2% due to higher delivery expense. Management expects gross margin to be down moderately in the first half and down marginally in the second half of fiscal 2019. Gross margin is likely to see marginal improvement on a sequential basis. Adjusted EBITDA declined 11.5% to $447 million, while adjusted EBITDA margin contracted 100 basis points to 8.1%.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $737 million, long-term debt of $4,680 million, and shareholders’ equity of $6,323 million. Management incurred capital expenditures of about $264 million during the quarter and projects the same to be approximately $1 billion in fiscal 2019.

FY19 View

Macy’s continues to anticipate fiscal 2019 net sales to be roughly flat with both comps on an owned plus licensed basis and comps on an owned projected to be flat to up 1%. Management retained adjusted earnings view of $3.05-$3.25 per share for fiscal 2019, down from $4.18 reported in fiscal 2018.

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 -10.47% due to these changes.

VGM Scores

At this time, Macy's has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, 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 C. 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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