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Macy's Misses on Q1 Earnings & Sales, Keeps Outlook Intact - Analyst Blog

After registering two consecutive quarters of earnings beat, Macy's Inc.M disappointed investors by posting lower-than-expected first-quarter fiscal 2015 results. The quarterly earnings of 56 cents a share fell short of the Zacks Consensus Estimate of 61 cents, and declined 6.7% from 60 cents delivered in the year-ago quarter.

Macy's Inc. - Earnings Surprise | FindTheCompany

Unfavorable weather conditions, the West Coast port dispute and lower spending by international tourists dampened the company's performance. Consequently, shares of this Zacks Rank #4 (Sell) stock fell 1.1% during pre-market trading hours. However, the announcement of dividend hike and increase in share buyback program did provide some respite to investors.

This Cincinnati, OH-based company generated sales of $6,232 million that fell 0.7% year over year, and also came below the Zacks Consensus Estimate of $6,316 million. Comparable-store sales on an owned plus licensed basis dropped 0.1% during the quarter, while on an owned basis, comparable-store sales decreased 0.7%.

However, management indicated that the issues which the company had grappled with during the quarter are now over. Also, management highlighted that the company has now undertaken initiatives - Macy's Backstage off-price business, the launch of new Plenti loyalty rewards program, the introduction of the new Thalia Sodi private brand, and expansion of Bluemercury - to bring itself back on the growth trajectory.

Gross profit in the quarter edged down 0.5% year over year to $2,432 million, whereas, gross profit margin contracted 10 basis points to 39%. Operating income also declined 7.7% to $409 million, whereas operating margin shriveled 50 basis points to 6.6%.

Store Update

Management now plans to open a new Macy's outlet in Ponce, PR, a Bloomingdale's in Honolulu, HI and a new Bloomingdale's Outlet store in Manhattan in fiscal 2015. The company also plans to open four Macy's Backstage off-price stores in the New York metro area and 18 Bluemercury outlets, of which four are already opened in the first quarter. In the next fiscal year, a new Macy's outlet will be opened in Kapolei, HI, along with a replacement Macy's outlet in Los Angeles, CA.

For fiscal 2017, the company had already announced plan for new stores, including new Macy's and Bloomingdale's in Miami, FL, and a new Bloomingdale's in San Jose, CA. In addition to these, the company plans to open new Macy's and Bloomingdale's outlets in Abu Dhabi in 2018, under license agreements with Al Tayer Group. The company also plans to open a new Bloomingdale's in Norwalk, CT.

Other Financial Aspects

Macy's ended the quarter with cash and cash equivalents of $1,509 million, long-term debt of $7,260 million, and shareholders' equity of $5,207 million.

Macy's has been actively managing its cash flow, returning much of its free cash to shareholders via dividends or share repurchase activity.

During the quarter under review, the company bought back approximately 5.9 million shares for about $385 million. The company's board also enhanced the share buyback program by $1.5 billion, thereby bringing the total authorization to approximately $2.1 billion at the quarter end.

Since recommencing the share buyback program in Aug 2011, the company had repurchased approximately 123.3 million shares for approximately $5.7 billion through May 2, 2015.

Macy's also hiked its quarterly dividend to 36 cents a share from 31.25 cents currently. The new dividend will be paid on Jul 1, 2015 to shareholders of record as of Jun 15, 2015. This is the fifth time that the company has raised its dividend in the span of four years.

Guidance

Management continues to project fiscal 2015 earnings in the band of $4.70-$4.80 per share. Analysts polled by Zacks had forecasted earnings of $4.74 for the fiscal. Macy's anticipates comparable-store sales growth of approximately 2% on an owned plus licensed basis, and marginally lower on an owned basis in fiscal year. Total sales are expected to increase 1% during the fiscal.

Other Stocks to Consider

Better-ranked stocks in the retail sector include Kohl's Corp. KSS , Columbia Sportswear Co. COLM and Hanesbrands Inc. HBI . All these stocks carry 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.


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

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