Macy’s, Inc. (M Quick QuoteM - Free Report) reported first-quarter fiscal 2023 results, wherein the top line missed the Zacks Consensus Estimate while the bottom line beat the same. Both the metrics declined from the respective year-ago fiscal quarter’s reported figures. Comparable sales fell on an owned basis and an owned-plus-licensed basis.

Shares of Macy’s have decreased 40.1% over the past three months, compared with the industry’s 32% decline.

Sales & Earnings Picture

Macy’s, currently carrying a Zacks Rank #3 (Hold), reported adjusted earnings of 56 cents per share, surpassing the Zacks Consensus Estimate of adjusted earnings of 46 cents per share. However, the bottom line declined 42.9% from the adjusted earnings of 98 cents per share reported in the year-ago fiscal period.

Net sales of $4,982 million came below the consensus estimate of $5,112 million. Also, the top line dipped 7% from the year-ago fiscal quarter’s reported figure. Comparable sales fell 7.9% on an owned basis and 7.2% on an owned-plus-licensed basis from the prior-year fiscal quarter’s tally.

Macy’s’ digital sales dropped 8% from the prior-year fiscal quarter’s level. Brick-and-mortar sales decreased 6% versus the first quarter of 2022.

Net credit card revenues were $162 million, down 15.2% from the year-ago fiscal period’s level. The metric represented 3.3% of sales, down 30 basis points from the year-ago fiscal quarter’s figure.

Details by Brand

Comparable sales across Macy’s declined 8.7% on an owned basis and 7.9% on an owned-plus-licensed basis. On a trailing 12-month basis, 42.2 million active customers shopped the Macy’s brand, down 4% from the year-ago fiscal quarter’s level. Star Rewards program members accounted for roughly 70% of the overall Macy's brand-owned-plus-licensed sales, up about 1 percentage point year over year. Strength in beauty, mainly fragrances, men’s tailored, women’s career sportswear and off-price with Backstage aided results.

At the Bloomingdale brand, comparable sales dropped 3.9% on an owned basis and 4.3% on an owned-plus-licensed basis. Management informed that 4.1 million active customers shopped the Bloomingdale’s brand on a trailing 12-month basis. Under the Bloomingdale banner, strength in beauty, especially fragrances, women’s and men’s contemporary apparel, housewares and the outlet locations drove results.

Comparable sales at the Bluemercury brand were up 4.3% on an owned basis. About 676,000 active customers shopped the Bluemercury brand on a trailing 12-month basis. Strength in the clinical, medical skincare and color categories drove results.

Margins

The gross margin came in at 40%, up from 39.6% in the prior-year fiscal quarter’s level. Merchandise margins were flat, gaining from lean beginning-of-year inventory levels and reduced clearance markdowns, compensated by promotions and category mix shifts. Delivery expenses, as a rate of net sales, were 40 basis points higher than the year-ago fiscal period, owing to improvements in the company’s contracted carrier rates, lower packages per order and a 1-percentage point fall in digital penetration year over year.

As a percentage of net sales, selling, general & administrative (SG&A) expenses increased 350 basis points year over year to 37.7%. SG&A expenses consisted of investments in colleagues like competitive pay, incentives and benefits.

Macy’s reported an adjusted EBITDA of $468 million, down from an adjusted EBITDA of $684 million in the year-ago fiscal quarter.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $603 million, long-term debt of $2,996 million and shareholders' equity of $4,170 million. M’s inventories were 7% lower than fiscal 2022.

During first-quarter fiscal 2023, Macy’s provided cash by operating activities of $105 million.

A Sneak Peek of Guidance

Management is taking a cautious approach for the rest of the fiscal year and is thus lowering its annual sales and earnings view to reflect the expected macroeconomic impacts. On the low end, the revised guidance assumes macro pressures on the consumers. The high end assumes the persistence of increasing macro pressures.

The new earnings guidance also consists of gains from an incremental $200 million cost savings, which is likely to impact the gross margin and SG&A expenses. Net sales are now projected to be $22.8-$23.2 billion, down from the prior view of $23.7-$24.2 billion. Comparable owned plus licensed sales on a 52-week basis are expected to decline 6-7.5% versus the prior view of a 2-4% decrease year over year.

Adjusted earnings per share are envisioned in the bracket of $2.70-$3.20 for the fiscal year, down from $3.67-$4.11 expected earlier and $4.48 earned in the last fiscal year.

Solid Picks in Retail

We have highlighted three top-ranked stocks, namely Abercrombie & Fitch (ANF Quick QuoteANF - Free Report) , American Eagle Outfitters (AEO Quick QuoteAEO - Free Report) and Hibbett Sports .

Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings per share suggests growth of 2.1% and 472%, respectively, from the year-ago reported figures. ANF delivered a negative trailing four-quarter earnings surprise of 141.2%.

American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO has delivered an earnings surprise of 23.3% in the last reported quarter.

The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and earnings per share suggests growth of 1.4% and 15.5%, respectively, from the year-ago reported figures.

Hibbett, a sporting goods retailer, currently carries a Zacks Rank of 2. The company has a negative trailing four-quarter earnings surprise of 13.9%, on average.

The consensus estimate for Hibbett’s current financial-year sales suggests growth of 5.7% from the year-ago reported figure.