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Macy's (M) Stock Rallies 6% Despite Soft Outlook for Q1

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Shares of Macy’s, Inc. (M - Free Report) jumped 5.9% during the trading hours on May 21 despite soft preliminary results range for the first quarter of fiscal 2020. The company projects adjusted operating loss in the band of $905-$1,110 million for the fiscal first quarter, slated to release on Jul 1. Still, the stock might have been driven by strong digital performance and updates on store-reopening process. Management stated that it witnessed a “steady uptick” in the digital business for April, however this was not enough to make up for the lost sales from closed stores in wake of coronavirus pandemic.

Apart from loss expectations for fiscal first quarter, management projects net sales in the range of $3,000-$3,030 million that shows a decline of about 44-46% from the same quarter a year ago. The sales projection also stands below the Zacks Consensus Estimate of $3,651 million for the quarter under review. It recorded operating income of $203 million in the first quarter of fiscal 2019. The operating loss expectation for the first quarter of fiscal 2020 stands close to operating income of $970 million generated for full fiscal 2019. The coronavirus had a profound impact on its first-quarter results, witnessing significant sales decline on account of stores closures during March.

In addition, the company estimates total debt of $5,657 million for fiscal first quarter, up nearly 36% sequentially and 20% year over year. Furthermore, management expects to generate cash and cash equivalents of about $1,523 million, higher than $737 million in the year-ago period. Macy’s ended the fourth quarter of fiscal 2019 (as of Feb 1, 2020) with cash and cash equivalents of $685 million.

On a brighter note, Macy’s started the process of reopening stores on May 4 and expects opening 80 more namesake stores for the Memorial Day weekend. Majority of its stores will be reopened by late June. As of now, this Zacks Rank #3 (Hold) company had reopened nearly 190 Macy’s and Bloomingdale’s stores in full formats. The company shut all its Macy’s, Bloomingdale’s and Bluemercury stores on Mar 18.

Management stated that performance in February matched its expectations. Also, the company has been offering curbside pickup across many of its stores, including some closed ones. Impressively, it saw moderately greater-than-anticipated demand from the reopened outlets in a span of about two weeks. Notably, the company has been improving financial flexibility and anticipates business to recover gradually.

Concurrently, Macy’s informed that its CFO has decided to leave the company as of May 31, but will remain the company’s advisor through Nov 2020. Meanwhile, the company’s existing senior vice president, Felicia Williams will be the interim CFO and will continue to serve till a permanent replacement is named.

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Sprouts Farmers Market (SFM - Free Report) delivered a trailing four-quarter positive earnings surprise of 37.2% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SpartanNash (SPTN - Free Report) , also a Zacks Rank #1 stock, which delivered a positive earnings surprise of 15% in the last reported quarter.

Office Depot (ODP - Free Report) has a long-term earnings growth rate of 6.8%. Currently, it carries a Zacks Rank #2.

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