Macy's Beats Zacks' Expectations - Analyst Blog

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Macy's Inc. ( M ) posted better-than-expected fourth-quarter fiscal 2012 results, and provided an upbeat guidance for fiscal 2013. The company's relentless endeavors to keep itself on the growth trajectory have paid off in an economy, which still lacks luster.

The quarterly earnings of $2.05 per share beat the Zacks Consensus Estimate of $1.98, and surged 20.6% from $1.70 earned in the prior-year quarter on the back of My Macy's localization initiatives, omnichannel integration, robust online sales and effective cost management. The earnings also came ahead of the previously provided guidance range of $1.94 to $1.99 per share.

The Cincinnati, Ohio-based Macy's said that total sales grew 7.2% to $9,350 million in the quarter from $8,724 million in the year-ago period, and came ahead of the Zacks Consensus Estimate of $9,327 million. Comparable-store sales for the quarter climbed 3.9%.


Online sales, which include sales from macys.com and bloomingdales.com, continued to show growth momentum. For the quarter, online sales soared 47.7%. Online sales favorably impacted comparable-store sales by 3.3%. The company seeks to expand both Macy's and Bloomingdale's brands online.

Despite a 7.8% increase in cost of sales, gross profit in the quarter climbed 6.2% to $3,796 million, aided by top-line growth, however, gross profit margin contracted 40 basis points to 40.6%. Adjusted operating income jumped 10.9% to $1,396 million, whereas operating margin expanded 50 basis points to 14.9%.

Stores Update

Macy's during fiscal 2012 opened 7 outlets - 2 Macy's outlets opened in Salt Lake City and Greendale, 5 Bloomingdale's Outlet stores in Livermore, Merrimack, Garden City, Grand Prairie and Dallas. The company during the fiscal year also closed 8 locations: in Pasadena, Belmont, Honolulu, St. Paul, and Houston.

The company closed a Macy's furniture clearance center in Houston; whereas Macy's men's and home store in Santa Ana was closed and merged with the main store. The company also closed Bloomingdale's Home Store in Las Vegas.

During fiscal 2013, the company plans to open Macy's stores in Victorville and Gurnee, and a Macy's Men's Store in Las Vegas. The company will open a new Macy's in Bay Shore to substitute the old. A new Bloomingdale's store will be opened in Glendale and a new Bloomingdale's Outlet store in Rosemont.

Other Financial Aspects

Macy's ended fiscal 2012 with cash and cash equivalents of $1,836 million, long-term debt of $6,806 million, reflecting a debt-to-capitalization ratio of 52.9% and shareholders' equity of $6,051 million.

Macy's has been actively managing its cash flows, 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. The share repurchases and dividend increasing strategies not only enhance shareholders' return but also raise the market value of the stock.

During fiscal 2012, the company paid dividend of $324 million and repaid debt of $1,803 million. The company bought back approximately 35.6 million shares, aggregating about $1,350 million. The company at its disposal had approximately $1,502 million of share repurchase authorization remaining as of Feb 2, 2013.

Macy's generated net cash flow of $2,261 million from operating activities in fiscal 2012 compared with $2,093 million in the year-ago period.

Strolling Through Guidance

Buoyed by Macy's healthy results management projects fiscal 2013 earnings between $3.90 and $3.95, which lies ahead of the current Zacks Consensus Estimate of $3.81. The company expects comparable-store sales growth of 3.5% for the fiscal year and forecasted capital expenditures of $925 million.

Let's Conclude

The U.S. economy is still not fully recovered. Amid such a scenario, Macy's has been moving on and keeping its upbeat note. The company's sound fundamentals across its Macy's and Bloomingdale's business are mirrored through strong fourth quarter results, and management believes that it will sustain the same momentum going forward.

In an attempt to increase sales, profitability and cash flows, the company has been taking steps such as integration of operations, consolidation of divisions, customer-centric localization initiatives, as well as developing e-commerce business and online order fulfillment centers. Moreover, Macy's continues to focus on price optimization, inventory management and merchandise planning to drive traffic.

However, the company's expansion in regions where it already serves could cannibalize its sales performance and bring down traffic counts at its existing stores in these areas. Consequently, this may have a negative impact on the company's overall performance. Moreover, a sluggish economic recovery and erratic consumer behavior remain causes for concern.

Macy's department stores sell a wide range of merchandise. Its products include men's, women's and children's apparel and accessories, cosmetics, home furnishings and other consumer goods.

Currently, Macy's holds a Zacks Rank #3 (Hold), and we could witness an upward revision in the rank in the coming days. There are other stocks worth considering in the non-food retail, wholesale sector. This includes Express Inc. ( EXPR ), which holds a Zacks Rank #1 (Strong Buy) and is expected to continue with its upbeat performance. Other stocks that should  be merited include American Eagle Outfitters, Inc. ( AEO ) and Gap Inc. ( GPS ) both carry a Zacks Rank #2 (Buy).



AMER EAGLE OUTF (AEO): Free Stock Analysis Report

EXPRESS INC (EXPR): Free Stock Analysis Report

GAP INC (GPS): Free Stock Analysis Report

MACYS INC (M): Free Stock Analysis Report

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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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AEO , EXPR , GPS , M

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