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Post Macy's (M) Q2 Earnings: Should You Buy, Hold or Sell the Stock?
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Shares of Macy's, Inc. (M - Free Report) have come under significant pressure following its second-quarter fiscal 2024 earnings results on Aug 21. On the day of the announcement, the stock of this New York-based retailer tumbled 12.9%, led by a disappointing sales performance that compelled management to lower its fiscal 2024 outlook, dampening investor sentiment.
As consumer spending on non-essential items weakens, Macy's, which is heavily reliant on discretionary spending, reported a 3.8% year-over-year revenue decline and a 3.3% drop in comparable sales on an owned-plus-licensed- plus-marketplace basis for the second quarter of fiscal 2024. This marks the ninth consecutive quarter of declining comparable sales for the company.
In response to these challenges, Macy's revised its fiscal 2024 guidance, citing a more cautious consumer base and an intensifying promotional environment. Per the updated forecast, net sales are pegged between $22.1 billion and $22.4 billion, down from the earlier mentioned $22.3-$22.9 billion. Similarly, comparable sales are expected to decline between 0.5% and 2% compared with the previously mentioned 1-1.5% increase.
These developments have weighed on Macy's stock, which has lost 6.6% over the past month. During the same period, the Zacks Retail – Regional Department Stores industry has declined 7.2%. Meanwhile, the Zacks Retail-Wholesale sector and the S&P 500 Index have risen 3.5% and 2.9%, respectively. As of Aug 23, Macy's shares closed at $15.96, trading 27.8% below its 52-week high of $22.10 reached on Mar 19, 2024.
Image Source: Zacks Investment Research
Moreover, Macy’s stock has fallen below critical technical thresholds, including its 50-day moving average of $17.35. This moving average is an important indicator for gauging market trends and momentum. The breach of this threshold heightens investor concerns about the stock’s short-term outlook and signals the potential for downside if these levels are not reclaimed.
Image Source: Zacks Investment Research
It is undeniable that the department store operator has faced significant retail challenges. The company contends with evolving consumer behavior and economic headwinds, compounded by operational complexities. Rising SG&A expenses and persistent weakness in key product categories, such as men's apparel and home goods, further strain margins.
How are Macy's Earnings Estimates Holding up?
Analysts have responded adversely to Macy's prospects, reflected in downward revisions to the Zacks Consensus Estimate for earnings per share. In the past seven days, analysts have decreased their estimates for the current fiscal year by 6 cents. The consensus estimate is pegged at $2.73 per share. The estimate for the next fiscal year has also been reduced by 11 cents to $2.69 per share.
Image Source: Zacks Investment Research
Macy's Strategic Moves to Drive Growth
Despite these hurdles, the company is making strides in modernizing its operations and leveraging technology, including artificial intelligence, to enhance supply-chain efficiency and inventory management. These initiatives aim to improve responsiveness to market demands and establish a foundation for sustainable growth.
M's "Bold New Chapter" strategy is pivotal to drive long-term profitable growth. This strategy focuses on revitalizing the Macy's brand, expanding into the luxury segment and modernizing operations. Initiatives like the First 50 Stores have outperformed the broader fleet, enhancing customer experiences, optimizing merchandise assortments and upgrading store environments. Macy’s decision to close and monetize around 55 underperforming stores in 2024, up from the initially planned 50, is expected to unlock significant value, allowing the company to concentrate on more successful locations.
In addition to physical store improvements, Macy’s is investing in digital and omnichannel capabilities to boost customer engagement and sales. Enhancements in digital platforms, including search engine optimization and mobile experiences, are designed to increase traffic and conversion rates. The success of the First 50 stores, which achieved positive comparable sales growth, indicates the potential to scale these improvements across more Macy’s locations, contributing to sustained growth.
The company's luxury segments, including Bloomingdale's and Bluemercury, have shown resilience despite broader economic pressures. Bluemercury posted its 14th consecutive quarter of comparable sales growth, while Bloomingdale’s, despite a slight dip in net sales, is poised for growth through other strategic initiatives.
Additionally, Macy’s has raised its expected asset sale gains for fiscal 2024 to $115 million, reflecting successful real estate monetization that will enhance liquidity and support strategic investments. The company maintains a strong financial position, highlighted by its debt-free status until 2027 and $646 million in cash and cash equivalents at the end of the fiscal second quarter. The company generated $137 million from operating activities and distributed $96 million in dividends, reflecting disciplined capital management.
Has Macy's Become a Value Play Post Decline?
From a valuation perspective, Macy’s shares are trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-sales ratio of 0.20, below the five-year median of 0.21 and the industry’s average of 0.34, the stock offers compelling value for investors seeking exposure to the sector. Additionally, Macy's current Value Score of A reinforces its attractiveness.
Image Source: Zacks Investment Research
Investor Guidance
While Macy’s faces immediate challenges from cautious consumer spending and competitive pressures from Nordstrom Inc. (JWN - Free Report) , Dillard's Inc. (DDS - Free Report) & Kohl’s Corp. (KSS - Free Report) , the company’s proactive measures in modernization and strategic realignment offer promising avenues for growth and profitability. Investors should consider Macy’s current valuation and strategic initiatives as potential catalysts for long-term investment decisions, weighing short-term volatility against the company’s resilient operational framework and financial stability. Current stakeholders should maintain their position in this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Post Macy's (M) Q2 Earnings: Should You Buy, Hold or Sell the Stock?
Shares of Macy's, Inc. (M - Free Report) have come under significant pressure following its second-quarter fiscal 2024 earnings results on Aug 21. On the day of the announcement, the stock of this New York-based retailer tumbled 12.9%, led by a disappointing sales performance that compelled management to lower its fiscal 2024 outlook, dampening investor sentiment.
As consumer spending on non-essential items weakens, Macy's, which is heavily reliant on discretionary spending, reported a 3.8% year-over-year revenue decline and a 3.3% drop in comparable sales on an owned-plus-licensed- plus-marketplace basis for the second quarter of fiscal 2024. This marks the ninth consecutive quarter of declining comparable sales for the company.
In response to these challenges, Macy's revised its fiscal 2024 guidance, citing a more cautious consumer base and an intensifying promotional environment. Per the updated forecast, net sales are pegged between $22.1 billion and $22.4 billion, down from the earlier mentioned $22.3-$22.9 billion. Similarly, comparable sales are expected to decline between 0.5% and 2% compared with the previously mentioned 1-1.5% increase.
These developments have weighed on Macy's stock, which has lost 6.6% over the past month. During the same period, the Zacks Retail – Regional Department Stores industry has declined 7.2%. Meanwhile, the Zacks Retail-Wholesale sector and the S&P 500 Index have risen 3.5% and 2.9%, respectively. As of Aug 23, Macy's shares closed at $15.96, trading 27.8% below its 52-week high of $22.10 reached on Mar 19, 2024.
Image Source: Zacks Investment Research
Moreover, Macy’s stock has fallen below critical technical thresholds, including its 50-day moving average of $17.35. This moving average is an important indicator for gauging market trends and momentum. The breach of this threshold heightens investor concerns about the stock’s short-term outlook and signals the potential for downside if these levels are not reclaimed.
Image Source: Zacks Investment Research
It is undeniable that the department store operator has faced significant retail challenges. The company contends with evolving consumer behavior and economic headwinds, compounded by operational complexities. Rising SG&A expenses and persistent weakness in key product categories, such as men's apparel and home goods, further strain margins.
How are Macy's Earnings Estimates Holding up?
Analysts have responded adversely to Macy's prospects, reflected in downward revisions to the Zacks Consensus Estimate for earnings per share. In the past seven days, analysts have decreased their estimates for the current fiscal year by 6 cents. The consensus estimate is pegged at $2.73 per share. The estimate for the next fiscal year has also been reduced by 11 cents to $2.69 per share.
Image Source: Zacks Investment Research
Macy's Strategic Moves to Drive Growth
Despite these hurdles, the company is making strides in modernizing its operations and leveraging technology, including artificial intelligence, to enhance supply-chain efficiency and inventory management. These initiatives aim to improve responsiveness to market demands and establish a foundation for sustainable growth.
M's "Bold New Chapter" strategy is pivotal to drive long-term profitable growth. This strategy focuses on revitalizing the Macy's brand, expanding into the luxury segment and modernizing operations. Initiatives like the First 50 Stores have outperformed the broader fleet, enhancing customer experiences, optimizing merchandise assortments and upgrading store environments. Macy’s decision to close and monetize around 55 underperforming stores in 2024, up from the initially planned 50, is expected to unlock significant value, allowing the company to concentrate on more successful locations.
In addition to physical store improvements, Macy’s is investing in digital and omnichannel capabilities to boost customer engagement and sales. Enhancements in digital platforms, including search engine optimization and mobile experiences, are designed to increase traffic and conversion rates. The success of the First 50 stores, which achieved positive comparable sales growth, indicates the potential to scale these improvements across more Macy’s locations, contributing to sustained growth.
The company's luxury segments, including Bloomingdale's and Bluemercury, have shown resilience despite broader economic pressures. Bluemercury posted its 14th consecutive quarter of comparable sales growth, while Bloomingdale’s, despite a slight dip in net sales, is poised for growth through other strategic initiatives.
Additionally, Macy’s has raised its expected asset sale gains for fiscal 2024 to $115 million, reflecting successful real estate monetization that will enhance liquidity and support strategic investments. The company maintains a strong financial position, highlighted by its debt-free status until 2027 and $646 million in cash and cash equivalents at the end of the fiscal second quarter. The company generated $137 million from operating activities and distributed $96 million in dividends, reflecting disciplined capital management.
Has Macy's Become a Value Play Post Decline?
From a valuation perspective, Macy’s shares are trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-sales ratio of 0.20, below the five-year median of 0.21 and the industry’s average of 0.34, the stock offers compelling value for investors seeking exposure to the sector. Additionally, Macy's current Value Score of A reinforces its attractiveness.
Image Source: Zacks Investment Research
Investor Guidance
While Macy’s faces immediate challenges from cautious consumer spending and competitive pressures from Nordstrom Inc. (JWN - Free Report) , Dillard's Inc. (DDS - Free Report) & Kohl’s Corp. (KSS - Free Report) , the company’s proactive measures in modernization and strategic realignment offer promising avenues for growth and profitability. Investors should consider Macy’s current valuation and strategic initiatives as potential catalysts for long-term investment decisions, weighing short-term volatility against the company’s resilient operational framework and financial stability. Current stakeholders should maintain their position in this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.