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The Zacks Analyst Blog Highlights: Macy's, Dillard's, Buckle, Urban Outfitters and Gap

For Immediate Release

Chicago, IL - January 08, 2016 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Macy's Inc. ( M ), Dillard's Inc. ( DDS ), Buckle, Inc. ( BKE ), Urban Outfitters Inc. ( URBN ) and Gap, Inc. ( GPS ).

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Here are highlights from Thursday's Analyst Blog:

Stocks to Watch as Warm Winter Burns Macy's

Unseasonably warm weather and lower spending by international tourists due to a stronger dollar dampened the performance of department-store chain, Macy's Inc. ( M ) during the holiday season. This period is crucial for any retailer as it accounts for a sizeable chunk of yearly revenues and profits. Macy's sluggish performance must not be taken lightly as it signals toward similar issues that other retailers might also have battled with.

Disappointing holiday sales prompted Macy's to trim its earnings forecast and undertake cost containment initiatives, involving headcount reduction and store closures to better withstand competitive pressure from both brick-and-mortar discount stores and online retailers.

Dismal Holiday Sales Results

Macy's informed that comparable sales on an owned plus licensed basis fell 4.7% in the combined November/December period of 2015, while on an owned basis, comparable sales declined 5.2% over the same period. Management hinted that roughly 80% of the decline in comparable sale was due to weak demand for cold-weather goods such as coats, sweaters, boots, hats, gloves and scarves. However, the only bright spot was the digital business that registered an increase of 25% in sales, meeting 17 million online orders at macys.com and bloomingdales.com.

Guidance Slashed

In response to its subdued holiday season performance and not anticipating any turnaround in sales trend during this month, Macy's now expects fourth-quarter fiscal 2015 comparable sales on an owned plus licensed basis to decline approximately 4.7%. For the fiscal year, management envisions a decrease of 2.7% in comparable sales on an owned plus licensed basis. On an owned basis, fourth-quarter comparable sales are expected to contract roughly 50 basis points more than owned plus licensed basis.

Earlier, this Zacks Rank #3 (Hold) company anticipated comparable sales on an owned plus licensed basis to fall 2%-3% for the final quarter, and between 1.8% and 2.2% for fiscal 2015.

For fiscal 2015, management now envisions earnings in the band of $3.85-$3.90 per share, down from $4.20-$4.30 projected earlier. For the fourth quarter, earnings are expected in the band of $2.18-$2.23 per share, down from the previous estimate of $2.54-$2.64. The current Zacks Consensus Estimate for the final quarter and fiscal 2015 now stands at $2.54 per share and $4.24 per share, respectively, and could witness a downward revision in the coming days.

Strategic Measures

In order to become more cost effective and enhance productivity, management has undertaken a series of strategic measures. These will help the company to put itself back on the growth trajectory and gain market share. Macy's aims at generating annual SG&A savings of nearly $400 million in 2016 through extensive restructuring comprising store closures and job cuts.

Amid soft holiday sales, Macy's listed 40 stores from 770 outlets to be closed, of which 4 were closed last year and 36 will be closed in early spring 2016. These stores account for about $375 million in annual sales. The company now remains focused on opening stores at locations from where it can serve its patrons better.

The company plans to consolidate existing Macy's stores into 5 regions and 47 local districts, and will lower the current Macy's credit and customer services center facilities to 3 from 4. Management intends to conduct 3,000 layoffs at Macy's and Bloomingdale's stores, and slash 165 executive positions and 600 positions in the back office. However, the company plans to move some of its associates, whose jobs would be affected, to other positions.

Management had earlier highlighted that the company has 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 augment sales and profitability. The company has been taking steps such as omnichannel integration and development of online order fulfillment centers.

Macy's has entered into a deal with Luxottica Group - the designer, manufacturer and distributor of fashion, luxury and sports eyewear - to open LensCrafters licensed departments in approximately 500 Macy's outlets over a three-year time frame. Prior to this, the company entered into a joint venture with Fung Retailing Limited - one of the leading retailers in Greater China - in an attempt to tap retailing opportunities in the fast-growing Chinese markets.

5 Retail Stocks to Watch Out For

Unfavorable weather conditions, a strong dollar and shift toward online shopping played spoilsport for Macy's, which went on to post dismal holiday sales results. These are some common issues that most other brick-and-mortar retailers may have encountered as well during the holiday season. Some analysts even pointed out that consumers spend more on electronics, cars, home goods and travel, and less on apparel and cosmetics. So, it is necessary to be watchful on a few retail stocks that hold a Zacks Rank #4 (Sell) or Zacks Rank #5 (Strong Sell) and might not prove to be good additions to your portfolio.

Dillard's Inc. ( DDS ), a departmental store chain, carries a Zacks Rank #4. The company posted dismal third-quarter fiscal 2015 results, wherein both the top and bottom lines declined year over year and fell short of expectations. Further, the company has underperformed the Zacks Consensus Estimate in three out of the trailing four quarters, with an average negative surprise of 3.4%. In the past three months, shares have declined about 29%.

The Buckle, Inc. ( BKE ), retailer of casual apparel, footwear, and accessories, has not been able to turn the performance of its struggling Women's business around. This has been impacting the performance of this Zacks Rank #4 stock. The company posted dismal November comparable-store sales. Comparable sales decreased 7.9% year over year, following a 5.8% decline registered in October. Buckle's net sales for November dropped 6.8%. In the preceding month, net sales decreased 4.7%. In the past three months, shares have nosedived about 25%.

Urban Outfitters Inc. ( URBN ), a lifestyle specialty retail company, disappointed investors on the revenue front, as the figure missed the Zacks Consensus Estimate for the third straight quarter. Soft customer traffic acted as a deterrent. This Zacks Rank #4 company generated net sales of $825.3 million during the third quarter of fiscal 2016 that fell short of the Zacks Consensus Estimate of $870.9 million.

Moreover, we observe that the pace of growth in the top line slowed to 1.3% in the third quarter from 6.9% and 7.7% in the second and first quarters, respectively. Currency headwinds hurt sales growth by roughly 130 basis points. In the past three months, the stock has lost 29%.

The Gap, Inc. ( GPS ), which operates as an apparel retailer, has been portraying dismal sales trends for a while now, mainly hurt by intensifying currency headwinds. Further, disappointing performance of its core Gap and Banana Republic Global brands are pressing concerns for the company. Continuing with this trend, the company reported comparable-store sales and sales decline of 8% and 9%, respectively, for the month of November. In the past three months, shares of this Zacks Rank #5 company have plunged about 11%.

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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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