We expect Macy's, Inc. ( M ), one of the leading department store retailers, to beat expectations when it reports second-quarter fiscal 2014 results on Aug 13. In the last quarter, it posted a positive surprise of 1.7%.
Why a Likely Positive Surprise?
Our proven model shows that Macy's is likely to beat earnings estimate this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 or 2 or 3 for this to happen. Macy's has the right combination of two key components.
Zacks ESP: Macy's currently has an Earnings ESP of +1.16%. This is because the Most Accurate estimate stands at 87 cents, while the Zacks Consensus Estimate is pegged at 86 cents.
Zacks Rank: The company carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings estimates. The Sell-rated stocks (Rank #4 and 5) should never be considered going into an earnings announcement.
The combination of Macy's Zacks Rank #3 and +1.16% Earnings ESP makes us confident of an earnings beat this release.
What is Driving Better-than-Expected Earnings?
We believe Macy's sustained focus on price optimization, inventory management, merchandise planning, and private label offerings are the primary catalysts driving traffic, facilitating customer-oriented demand fulfillment and improving in-store shopping experience. In an attempt to increase sales, profitability and cash flows, the company has been taking steps such as integration of operations, consolidation of divisions as well as developing e-commerce business and online order fulfillment centers. Management is also optimistic about capturing sales opportunities with its fresh inventory along with My Macy's localization initiatives, omnichannel integration and Magic Selling.
In the last four quarters, Macy's outperformed the Zacks Consensus Estimate by an average of 6%.
Stocks that Warrant a Look
Here are some other companies you may want to consider as our model shows that these have the right combination of elements:
Chipotle Mexican Grill, Inc. ( CMG ) has an Earnings ESP of +0.79% and a Zacks Rank #1 (Strong Buy).
Abercrombie & Fitch Co. ( ANF ) has an Earnings ESP of +20.00% and a Zacks Rank #3.
GameStop Corp. ( GME ) has an Earnings ESP of +26.32% and a Zacks Rank #3.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.