Macy's 2Q Earnings Misses but Climbs Y/Y as Sales Improve - Analyst Blog

By Zacks Equity Research,

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Macy's Inc. ( M ) posted second-quarter fiscal 2014 results, wherein earnings of 80 cents a share missed the Zacks Consensus Estimate of 86 cents as discounts thwarted the profit margin. However, earnings rose 11.1% from 72 cents a share earned in the prior-year quarter as an improved sales trend across Macy's and Bloomingdale's brands and share repurchase activity provided a cushion to the bottom line.

Macy's, Inc - Earnings Surprise | FindTheBest

This Cincinnati, OH-based company generated sales of $6,267 million in the quarter that fell short of the Zacks Consensus Estimate of $6,294 million but increased 3.3% year over year. My Macy's localization initiatives, omnichannel integration and magic selling remained the driving factors. Favorable weather conditions and calendar shift for its major event in the first two days of the quarter also had a positive impact on sales.

Comparable-store sales for the quarter grew 3.4%, while including sales generated from third party licensed departments, comparable sales jumped 4%.

Despite year-over-year growth in both the top and the bottom lines, shares of this Zacks Rank #3 (Hold) stock slid roughly 5% during pre-market trading hours, as investors showed concerns over the company's lower-than-expected results. Moreover, trimming of comparable-store sales forecast for the fiscal year by management - citing that improved sales trend in the quarter was not enough to recoup the lower sales in the first quarter - also kept investors skeptical.

Gross profit in the quarter rose 2.4% to $2,595 million. However, gross profit margin shriveled 40 basis points to 41.4%. Operating income grew 6.9% to $571 million, whereas operating margin expanded 30 basis points to 9.1%.

Store Update

In the second half of fiscal 2014, management plans to open 3 new Macy's outlets in Sarasota, FL, Las Vegas, NV, and The Bronx in New York City. A new Bloomingdale's replacement outlet will be opened in Palo Alto, CA. In August, the company shuttered Macy's stores in Bradenton, FL, and York, PA.

Other Financial Aspects

Macy's ended the quarter with cash and cash equivalents of $1,630 million, long-term debt of $6,742 million, and shareholders' equity of $5,807 million.

Macy's has been actively managing its cash flow, returning much of its free cash to shareholders via dividends or share repurchase activity, while maintaining a healthy balance sheet and credit ratios that are necessary for an investment-grade rating.

During the quarter, the company bought back approximately 8.9 million shares for about $517 million. So far in the fiscal year, the company has bought back about 16.3 million shares for approximately $949 million. As of Aug 2, the company had about $2 billion remaining at its disposal under the share repurchase authorization.

The company generated net cash flow of $646 million from operating activities in the first half of 2014 compared with $664 million in the prior-year period.

Strolling Through Guidance

Management now forecasts comparable-store sales growth of 1.5% to 2% in fiscal 2014. Including sales generated from third party licensed departments, comparable-store sales are expected to increase between 2% and 2.5%. Earlier, the company had projected comparable-store sales growth of 2.5% to 3% for the full year.

Macy's maintained the full-year earnings projection of $4.40 to $4.50 per share. The current Zacks Consensus Estimate for the fiscal year is $4.48 per share.

Other Stocks to Consider

Better-ranked stocks in the retail sector include Hanesbrands Inc. ( HBI ) sporting a Zacks Rank #1 (Strong Buy), and V.F. Corporation ( VFC ) and Michael Kors Holdings Limited ( KORS ) both carrying a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: M , KORS , VFC , HBI

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