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Should Macy's (M) Stock be in Your Portfolio Before Q2 Earnings?
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As Macy’s, Inc. (M - Free Report) prepares to unveil its second-quarter fiscal 2024 earnings on Aug 21 before the opening bell, all eyes are on how the department store operator will perform amid ongoing economic shifts and consumer behavior changes.
The Zacks Consensus Estimate for the to-be-reported quarter’s revenues is pegged at $5.1 billion, which suggests a marginal drop of 0.8% from the prior year’s level. Markedly, the rate of decline shows a deceleration from a 2.7% decrease witnessed in the preceding quarter.
On the earnings front, the consensus estimate has risen by a couple of cents over the past 30 days to 32 cents a share. This figure suggests a significant 23.1% increase from the year-ago quarter.
Image Source: Zacks Investment Research
Macy’s has a trailing four-quarter earnings surprise of 57.1%, on average. In the last reported quarter, the company’s bottom line surpassed the Zacks Consensus Estimate by a margin of 50%.
Our proven model does not conclusively predict an earnings beat for Macy’s this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, that’s not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Macy’s has a Zacks Rank #4 (Sell) but an Earnings ESP of +14.29%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors at Play
The consumer sentiment remains fragile, with underlying inflationary pressures leading to lower discretionary spending. As consumers become more cautious with their purchases, especially on non-essential items, Macy's, which relies on discretionary spending, could have experienced subdued sales. We expect comparable sales on an owned-plus-licensed-plus-marketplace to decline 1.5% in the second quarter.
Macy’s continues to face challenges with big-ticket items, which traditionally form a significant portion of its revenues. While there have been improvements in some subcategories, overall performance in this segment remains weak.
Another area to watch is net credit card revenues. In the last reported quarter, Macy’s experienced a revenue decline of 28% in the segment due to higher delinquency rates and net credit losses within the portfolio. On its last earnings call, management guided second-quarter credit card revenues of $120 million, in line with the previous year’s results.
Despite these challenges, Macy’s has leveraged its strong digital and omnichannel capabilities. The resilience of its Bloomingdale’s and Bluemercury segments, coupled with strategic inventory management and targeted promotions, is likely to have contributed to second-quarter revenues. Additionally, the back-to-school shopping season, which picks up momentum in the latter part of the second quarter, might have provided an extra boost.
Macy’s focus on aligning inventory levels with consumer demand has minimized the need for aggressive discounting while enhancing margins. Effective inventory management and a strong product assortment are expected to drive higher sell-through rates, particularly in popular categories. We anticipate a gross margin expansion of 170 basis points for the to-be-reported quarter.
The company’s continued efforts to enhance operational efficiencies, reduce costs and optimize its store fleet should contribute to margin expansion. With disciplined expense management and streamlined operations, Macy’s is poised for improved profitability. We forecast a 13.3% year-over-year increase in operating income, with the operating margin expected to rise by 40 basis points.
Price Performance
Shares of Macy’s have declined 20.6% over the past three months. In comparison, the Zacks Retail–Regional Department Stores industry has fallen 19.2%. The broader Zacks Retail-Wholesale sector has decreased 3.2%, while the S&P 500 Index has risen 1.8% during the same period.
Image Source: Zacks Investment Research
Unlocking Value
Although Macy’s stock is currently trading at a discount compared to its industry peers, this valuation disparity might not be as favorable as it seems. The lower price could be indicative of underlying issues rather than representing a clear investment opportunity.
Macy’s is currently trading at a discount to its historical and industry benchmarks. The stock has a forward 12-month P/E ratio of 5.66, which is below the median level of 6.77 scaled in the past year. This compares to the forward 12-month P/E ratio of 8.68 for the industry.
Investment Thesis
Macy’s continues to grapple with significant challenges in the retail sector, marked by evolving consumer behavior and economic headwinds that add to operational complexities. Inflationary pressures have driven consumers to prioritize essential items, reducing discretionary spending on products offered by Macy’s. In this economic environment, where consumers are likely to remain under financial strain, maintaining sales momentum and customer loyalty becomes increasingly difficult. Furthermore, ongoing issues with inventory management and declining foot traffic add to the uncertainty. Compounding these challenges is the stiff competition from rivals like Nordstrom (JWN - Free Report) , Kohl's (KSS - Free Report) and Dillard’s (DDS - Free Report) . Collectively, these factors create a cautious outlook for Macy’s.
Nonetheless, Macy's aims to strengthen its position in the market through its comprehensive revitalization strategy called "A Bold New Chapter." This strategy focuses on operational modernization, technological integration and enhanced customer engagement. A significant aspect of the strategy is the closure of 150 underperforming stores and the enhancement of 350 others, aiming to optimize the company's real estate portfolio for increased profitability.
Conclusion
Macy’s is set to report its second-quarter earnings amid a landscape marked by shifting consumer behaviors and economic pressures. Despite efforts to enhance its digital and omnichannel presence and improvements in operational efficiency, the company faces significant challenges, such as subdued consumer spending and flat credit card revenues. The stock’s current valuation may imply potential value but also highlights broader industry concerns. Given these factors, investors should exercise caution and revisit their portfolios.
Image: Bigstock
Should Macy's (M) Stock be in Your Portfolio Before Q2 Earnings?
As Macy’s, Inc. (M - Free Report) prepares to unveil its second-quarter fiscal 2024 earnings on Aug 21 before the opening bell, all eyes are on how the department store operator will perform amid ongoing economic shifts and consumer behavior changes.
The Zacks Consensus Estimate for the to-be-reported quarter’s revenues is pegged at $5.1 billion, which suggests a marginal drop of 0.8% from the prior year’s level. Markedly, the rate of decline shows a deceleration from a 2.7% decrease witnessed in the preceding quarter.
On the earnings front, the consensus estimate has risen by a couple of cents over the past 30 days to 32 cents a share. This figure suggests a significant 23.1% increase from the year-ago quarter.
Image Source: Zacks Investment Research
Macy’s has a trailing four-quarter earnings surprise of 57.1%, on average. In the last reported quarter, the company’s bottom line surpassed the Zacks Consensus Estimate by a margin of 50%.
Macy's, Inc. Price, Consensus and EPS Surprise
Macy's, Inc. price-consensus-eps-surprise-chart | Macy's, Inc. Quote
What the Zacks Model Unveils
Our proven model does not conclusively predict an earnings beat for Macy’s this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, that’s not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Macy’s has a Zacks Rank #4 (Sell) but an Earnings ESP of +14.29%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors at Play
The consumer sentiment remains fragile, with underlying inflationary pressures leading to lower discretionary spending. As consumers become more cautious with their purchases, especially on non-essential items, Macy's, which relies on discretionary spending, could have experienced subdued sales. We expect comparable sales on an owned-plus-licensed-plus-marketplace to decline 1.5% in the second quarter.
Macy’s continues to face challenges with big-ticket items, which traditionally form a significant portion of its revenues. While there have been improvements in some subcategories, overall performance in this segment remains weak.
Another area to watch is net credit card revenues. In the last reported quarter, Macy’s experienced a revenue decline of 28% in the segment due to higher delinquency rates and net credit losses within the portfolio. On its last earnings call, management guided second-quarter credit card revenues of $120 million, in line with the previous year’s results.
Despite these challenges, Macy’s has leveraged its strong digital and omnichannel capabilities. The resilience of its Bloomingdale’s and Bluemercury segments, coupled with strategic inventory management and targeted promotions, is likely to have contributed to second-quarter revenues. Additionally, the back-to-school shopping season, which picks up momentum in the latter part of the second quarter, might have provided an extra boost.
Macy’s focus on aligning inventory levels with consumer demand has minimized the need for aggressive discounting while enhancing margins. Effective inventory management and a strong product assortment are expected to drive higher sell-through rates, particularly in popular categories. We anticipate a gross margin expansion of 170 basis points for the to-be-reported quarter.
The company’s continued efforts to enhance operational efficiencies, reduce costs and optimize its store fleet should contribute to margin expansion. With disciplined expense management and streamlined operations, Macy’s is poised for improved profitability. We forecast a 13.3% year-over-year increase in operating income, with the operating margin expected to rise by 40 basis points.
Price Performance
Shares of Macy’s have declined 20.6% over the past three months. In comparison, the Zacks Retail–Regional Department Stores industry has fallen 19.2%. The broader Zacks Retail-Wholesale sector has decreased 3.2%, while the S&P 500 Index has risen 1.8% during the same period.
Image Source: Zacks Investment Research
Unlocking Value
Although Macy’s stock is currently trading at a discount compared to its industry peers, this valuation disparity might not be as favorable as it seems. The lower price could be indicative of underlying issues rather than representing a clear investment opportunity.
Macy’s is currently trading at a discount to its historical and industry benchmarks. The stock has a forward 12-month P/E ratio of 5.66, which is below the median level of 6.77 scaled in the past year. This compares to the forward 12-month P/E ratio of 8.68 for the industry.
Investment Thesis
Macy’s continues to grapple with significant challenges in the retail sector, marked by evolving consumer behavior and economic headwinds that add to operational complexities. Inflationary pressures have driven consumers to prioritize essential items, reducing discretionary spending on products offered by Macy’s. In this economic environment, where consumers are likely to remain under financial strain, maintaining sales momentum and customer loyalty becomes increasingly difficult. Furthermore, ongoing issues with inventory management and declining foot traffic add to the uncertainty. Compounding these challenges is the stiff competition from rivals like Nordstrom (JWN - Free Report) , Kohl's (KSS - Free Report) and Dillard’s (DDS - Free Report) . Collectively, these factors create a cautious outlook for Macy’s.
Nonetheless, Macy's aims to strengthen its position in the market through its comprehensive revitalization strategy called "A Bold New Chapter." This strategy focuses on operational modernization, technological integration and enhanced customer engagement. A significant aspect of the strategy is the closure of 150 underperforming stores and the enhancement of 350 others, aiming to optimize the company's real estate portfolio for increased profitability.
Conclusion
Macy’s is set to report its second-quarter earnings amid a landscape marked by shifting consumer behaviors and economic pressures. Despite efforts to enhance its digital and omnichannel presence and improvements in operational efficiency, the company faces significant challenges, such as subdued consumer spending and flat credit card revenues. The stock’s current valuation may imply potential value but also highlights broader industry concerns. Given these factors, investors should exercise caution and revisit their portfolios.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.