Macy's Slow but Steady Start - Analyst Blog

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The U.S. economy is still not out of the woods and the European debt-crisis continues to take its toll on the financial arena. Amid such an economic upheaval, Macy's Inc. ( M ) has been moving on and keeping its upbeat note on the back of relentless endeavors to keep itself on the growth trajectory.

Looking at the current scenario, the holiday season is over and the consumers are giving their wallets a relief as they await another round of austerity measures. Investors have entered 2012 with a cautious stance amidst an uncertain economic situation. This was evident from Macy's lower-than-expected January comparable-store sales results. However, it marked the 26th successive month of year-over-year comps growth.

Riding on Healthy Sales Results

Macy's, the leading department store retailer in the U.S. saw its comparable-store sales rising 2.4% for the four-week period ended January 28, 2012. Management hinted that January is the company's smallest-volume month of the year. Comparable-store sales increased 6.2% in December 2011 and 2.6% in January 2011.

For the fourth-quarter and fiscal 2011 comparable-store sales climbed 5.2% and 5.3%, respectively.

Cincinnati, Ohio-based Macy's said that its total sales for January grew 2% to $1,336 million compared with $1,310 million in the same month last year. For the fourth quarter sales rose 5.5% to $8,723 million from $8,269 million reported in the prior-year period. Sales climbed 5.6% to $26,404 million from $25,003 million for fiscal 2011.

Online sales, which include sales from macys.com and bloomingdales.com, continued to show growth momentum in January soaring 38.7%. The company seeks to expand both Macy's and Bloomingdale's brands online. For the fourth quarter and fiscal 2011, online sales were up 40% and 39.6%, respectively. Online sales favorably impacted comparable-store sales by 1.7% in the fourth quarter and 1.5% in fiscal 2011.

An Upbeat Guidance on a Steady Start

Macy's is becoming a favorite stock pick. So far in calendar year 2012, the stock has jumped approximately 10% to close at $35.87 on Tuesday, and is trading close to its 52-week high of $36.37 (attained on February 3, 2012).

Supporting this view is the current valuation of the company. On a P/E basis, Macy's shares trade at 11x, a 27% discount to the 15.1x for the industry average.  

The company's sound fundamentals across its Macy's and Bloomingdale's business, is mirrored through strong fourth quarter results and management believes that it will sustain the tempo in 2012, as the year present enormous opportunity to enhance market share.

Delivering healthy sales performance, the company went on to announce increased earnings guidance, thereby further bolstering investors' confidence in the stock.   

Macy's now projects earnings in the range of $1.63 to $1.65 for the fourth quarter and between $2.81 and $2.83 per share for fiscal 2011. Management had earlier forecasted earnings between $1.55 and $1.60 for the fourth quarter and between $2.73 and $2.78 for the full year.

The earnings guidance does not take into account - pre-tax expense of $29 million in conjunction with the closure of Macy's and Bloomingdale's stores announced on January 4, 2012, and pre-tax gain of about $54 million related to the sale of store leases.

The current Zacks Consensus Estimate for the fourth quarter is $1.65, which has risen by 3 cents a share with 7 out of 15 analysts covering the stock revised their estimates upward in the last 7 days. For fiscal 2011, the Zacks Consensus Estimate is $2.83, which portrays an increase of 4 cents with 8 analysts increasing their estimates in the last 7 days. None of the analysts made a downward revision in their estimates.

Let's Conclude

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.

Macy's, which competes with Dillard's Inc. ( DDS ) and Saks Incorporated ( SKS ), currently operates approximately 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico.

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.

Currently, we have a long-term Outperform rating on the stock. Moreover, Macy's holds a Zacks #1 Rank that translates into a short-term Strong Buy rating, and correlates with our long-term view.


 
DILLARDS INC-A ( DDS ): Free Stock Analysis Report
 
MACYS INC ( M ): Free Stock Analysis Report
 
SAKS INC ( SKS ): 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: DDS , M , SKS

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