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Why Is Macy's (M) Down 6.8% Since the Last Earnings Report?
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It has been about a month since the last earnings report for Macy's Inc (M - Free Report) . Shares have lost about 6.8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Macy's Misses on Q1 Earnings & Sales; Keeps View Intact
After witnessing earnings beat in the final quarter of fiscal 2016, Macy’s, Inc. succumbed to a negative earnings surprise of 31.4% in the first quarter of fiscal 2017. Total sales also fell short of the estimate for the second quarter in row. Further, we observed that the company’s top and bottom lines continued to decline year over year. Analysts pointed that the overall industry is grappling with waning mall traffic and increased online competition.
Let’s Delve Deep
Macy’s posted first-quarter adjusted earnings of $0.24 per share that missed the Zacks Consensus Estimate of $0.35 and declined substantially from $0.40 reported in the year-ago period. Including one-time items, earnings came in at $0.23 per share down from $0.37 delivered in the year-ago quarter.
This Cincinnati, OH-based company generated net sales of $5,338 million that fell short of the Zacks Consensus Estimate of $5,469 million, and declined 7.5% year over year. Comparable sales (comps) on an owned plus licensed basis dipped 4.6%, while on an owned basis comps fell 5.2%. Digital sales witnessed double digit growth.
In an attempt to augment sales, profitability and cash flows, the company has been taking steps such as cost cutting, integration of operations as well as developing its eCommerce business and Macy’s Backstage off-price business, along with the expansion of Bluemercury and online order fulfillment centers. Moreover, as a part of store rationalization program, the company plans to shut down underperforming stores. These are seen as a part of the company’s endeavors to better withstand competitive pressure from both brick-and-mortar discount stores and online retailers, such as Amazon.com, Inc.
Coming back to results, gross profit in the quarter declined 10% year over year to $2,032 million, whereas gross margin contracted 100 basis points to 38.1%. Operating income decreased 20.3% to $220 million, while adjusted operating margin shriveled 70 basis points to 4.1%.
Store Update
During the quarter under review, the company opened new Macy’s outlets in Murray, UT and Los Angeles. The company also opened 10 new freestanding Bluemercury beauty specialty outlets and 11 new Macy’s Backstage stores within existing Macy’s stores in the quarter. Under a license agreement with Al Tayer Group, one Bloomingdale’s store was opened in Kuwait. After the end of the quarter, the company announced the sale and intended closure of the Macy’s store at Temple Mall in Temple, TX. The company now operates 26 Backstage stores within Macy's stores and plans to add 19 more this year.
Other Financial Aspects
Macy’s ended the quarter with cash and cash equivalents of $1,201 million, long-term debt of $6,412 million, and shareholders’ equity of $4,302 million, excluding non-controlling interest of $2 million. Management expects to incur capital expenditures of approximately $900 million in fiscal 2017.
Guidance
Management reiterated its fiscal 2017 guidance. Macy’s continues to project comps on an owned plus licensed basis to decrease in the band of 2–3%. On an owned basis, comps are expected to decline between 2.2% and 3.3%. Management envisions total sales to decline in the band of 3.2–4.3% in the fiscal year. The company maintained its adjusted earnings guidance of $2.90 to $3.15 per share for fiscal 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There have been six moves down in the last two months. In the past month, the consensus estimate has shifted downward by 8.3% due to these changes.
At this time, Macy's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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Why Is Macy's (M) Down 6.8% Since the Last Earnings Report?
It has been about a month since the last earnings report for Macy's Inc (M - Free Report) . Shares have lost about 6.8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Macy's Misses on Q1 Earnings & Sales; Keeps View Intact
After witnessing earnings beat in the final quarter of fiscal 2016, Macy’s, Inc. succumbed to a negative earnings surprise of 31.4% in the first quarter of fiscal 2017. Total sales also fell short of the estimate for the second quarter in row. Further, we observed that the company’s top and bottom lines continued to decline year over year. Analysts pointed that the overall industry is grappling with waning mall traffic and increased online competition.
Let’s Delve Deep
Macy’s posted first-quarter adjusted earnings of $0.24 per share that missed the Zacks Consensus Estimate of $0.35 and declined substantially from $0.40 reported in the year-ago period. Including one-time items, earnings came in at $0.23 per share down from $0.37 delivered in the year-ago quarter.
This Cincinnati, OH-based company generated net sales of $5,338 million that fell short of the Zacks Consensus Estimate of $5,469 million, and declined 7.5% year over year. Comparable sales (comps) on an owned plus licensed basis dipped 4.6%, while on an owned basis comps fell 5.2%. Digital sales witnessed double digit growth.
In an attempt to augment sales, profitability and cash flows, the company has been taking steps such as cost cutting, integration of operations as well as developing its eCommerce business and Macy’s Backstage off-price business, along with the expansion of Bluemercury and online order fulfillment centers. Moreover, as a part of store rationalization program, the company plans to shut down underperforming stores. These are seen as a part of the company’s endeavors to better withstand competitive pressure from both brick-and-mortar discount stores and online retailers, such as Amazon.com, Inc.
Coming back to results, gross profit in the quarter declined 10% year over year to $2,032 million, whereas gross margin contracted 100 basis points to 38.1%. Operating income decreased 20.3% to $220 million, while adjusted operating margin shriveled 70 basis points to 4.1%.
Store Update
During the quarter under review, the company opened new Macy’s outlets in Murray, UT and Los Angeles. The company also opened 10 new freestanding Bluemercury beauty specialty outlets and 11 new Macy’s Backstage stores within existing Macy’s stores in the quarter. Under a license agreement with Al Tayer Group, one Bloomingdale’s store was opened in Kuwait. After the end of the quarter, the company announced the sale and intended closure of the Macy’s store at Temple Mall in Temple, TX. The company now operates 26 Backstage stores within Macy's stores and plans to add 19 more this year.
Other Financial Aspects
Macy’s ended the quarter with cash and cash equivalents of $1,201 million, long-term debt of $6,412 million, and shareholders’ equity of $4,302 million, excluding non-controlling interest of $2 million. Management expects to incur capital expenditures of approximately $900 million in fiscal 2017.
Guidance
Management reiterated its fiscal 2017 guidance. Macy’s continues to project comps on an owned plus licensed basis to decrease in the band of 2–3%. On an owned basis, comps are expected to decline between 2.2% and 3.3%. Management envisions total sales to decline in the band of 3.2–4.3% in the fiscal year. The company maintained its adjusted earnings guidance of $2.90 to $3.15 per share for fiscal 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There have been six moves down in the last two months. In the past month, the consensus estimate has shifted downward by 8.3% due to these changes.
Macy's Inc Price and Consensus
Macy's Inc Price and Consensus | Macy's Inc Quote
VGM Scores
At this time, Macy's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.