Macy’s Shares Gain as Earnings Top Estimates

Macy’s Inc, an American department store chain founded by Xavier Warren in 1929, reported better-than-expected earnings in the fourth quarter, largely driven by strong online sales as shoppers purchased everything from the comfort of their homes amid the COVID-19 pandemic, sending its shares up about 3% on Tuesday.

The fashion retailer said its diluted earnings per share of $0.50 and adjusted diluted earnings per share of $0.80 both exceeded the expectations for the quarter the company set in the fall. That was also higher than the market expectations for a profit of $0.05 per share.

Macy’s net sales declined about 19% to $6.78 billion in the fourth quarter; however, it came in well above the Wall Street estimates of $6.50 billion. Digital remained a growing and increasingly profitable platform.

Sales grew 21% over fourth quarter 2019, with digital penetration at 44% of net sales. Nearly 25% of Macy’s digital sales were fulfilled from stores, including curbside pickup and same-day delivery.

The U.S. premier omni-channel fashion retailers forecast sales in the range of $19.75 billion and $20.75 billion for 2021.

Macy’s shares, which slumped over 30% in 2020, rose over 37% so far this year. The stock traded about 3% higher at $15.69 on Tuesday.

Executive Comments

“We anticipate annual digital sales to reach $10 billion within the next three years, and that digital will become an even more profitable contributor to our business. Additionally, we exited the quarter with a lower cost base and a strong liquidity position, supported by a $3 billion asset-based lending facility that we have not drawn upon,” said Jeff Gennette, chairman and chief executive officer.

Macy’s Stock Price Forecast

Six analysts who offered stock ratings for Macy’s in the last three months forecast the average price in 12 months of $12.00 with a high forecast of $15.00 and a low forecast of $8.00.

The average price target represents a -22.78% decrease from the last price of $15.54. From those six analysts, two rated “Buy”, one rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $11 with a high of $22 under a bull scenario and $1 under the worst-case scenario. The firm gave an “Underweight” rating on the department store chain company’s stock.

Several other analysts have also updated their stock outlook. Macy’s had its target price increased by analysts at Telsey Advisory Group to $14 from $10. The brokerage currently has a “market perform” rating on the stock. Jefferies Financial Group upgraded shares of Macy’s from a “hold” rating to a “buy” rating and set a $14 target price. Credit Suisse Group upped their target price on shares of Macy’s from $6.00 to $7.00 and gave the company an “underperform” rating.

Analyst Comments

Macy’s continues to undergo core operating challenges, similar to peers in the department store space (eg. market share cessation to peers, falling store traffic, contracting margins, eCommerce disintermediation). Despite closing stores proactively, store-only comps remain negative and we forecast them to remain so in the future, eroding ROIC,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

“Expense cuts (eg. headcount reduction), real estate monetization, and secondary growth initiatives are encouraging but are unlikely to stimulate enough cash flow to reinstate its dividend while also covering upcoming debt maturities. We anticipate COVID related disruption accelerates market share loss to peers, especially to brands with owned eComm.”

Check out FX Empire’s earnings calendar

U.S. Market Wrap and Forecast for Friday

Major benchmarks sold off at the start of Thursday’s session while a congressional committee debated the implications of last month’s Gamestop Inc. (GME) frenzy. Risk-adverse instruments surged to monthly highs in the first half of the day, shaking out a few weak hands. An afternoon bounce pushed a few points above opening prints but SP-500 Volatility Index (VIX) held firmly in the green into the closing bell.

Mean Reversion

Traders sold many stocks that had rallied to unsustainable price levels, including Tesla Inc. (TSLA), squaring positions ahead of Friday’s options expiration finale. GME and its companions sold off as well, hitting 4-week lows. High yield plays perked up, attracting buying interest for the first time in 2021.  FAANG stocks ticked lower in unison, displaying none of the leadership that generated impressive 2020 returns.

Marriott International (MAR) closed higher despite a 59% year-over-year revenue decline, with executives hoping vaccines translate into a booking resurgence and travel season that keeps hotels from going bankrupt. Fauci said vaccines were reducing COVID-19 infections this morning, which we assumed long before he reached that conclusion. That now needs to translate into baby boomers leaving their caves and spending billions in their favorite destinations this summer.

Friday Expiration

Friday options expiration is often sloppy and uncomfortable, with position squaring more important to the ticker tape than short-term price patterns. Limited exposure makes sense during this period but stocks that have sold off into popular strikes could offer good trade entries into Monday’s options hangover. Twitter Inc. (TWTR) comes to mind in this regard, dropping three or four points this week before bouncing just above the 70 strike.

Home Depot Inc. (HD) highlights next week’s earnings calendar, with the Dow component grinding through the sixth month of a narrow range price pattern. Macy’s Inc. (M) is also on the schedule, shining a light on one of the fallen angels of last month’s Gamestop squeeze. Sadly, M and the mall anchor group have no future, beyond the lipstick put on the pig in recent months, because e-commerce is an unstoppable monster.

For a look at all of today’s economic events, check out our economic calendar.

Thanksgiving Week: Retailers’ Roaring Return?

Typically, Black Friday sales are accompanied by scenes of bargain-hunters camping outside popular retail outlets, braving the cold, only to bum-rush the store once it’s open. Sometimes, overly eager shoppers literally bust down doors and even get into fist fights over the best deals.

This year, things are set to be very different, due to the Covid-19 resurgence across America.

Instead of the usual frenzy at the physical stores, the stampede for bargains has been very apparent in the stock markets. Investors have made a beeline towards companies that had been beaten down by the pandemic, as they price in a return to in-person shopping, enabled by a Covid-19 vaccine.

Such a narrative has sent stocks in mall-based retailers surging on Monday:

  • Macy’s soared 15 percent (month-to-date gains: 67.63 percent). Macy had also reported a better-than-expected Q3 performance last week.

  • American Eagle Outfitters jumped 7.32 percent (month-to-date gains: 32.6 percent). The company is set to release its Q3 earnings after US markets close on Tuesday.

  • Gap advanced 6.93 percent (month-to-date gains: 33.98 percent). Gap is also set to unveil its quarterly results after US markets close on November 24th.

  • Urban Outfitters climbed 4.44 percent (month-to-date gains: 41.72 percent), before announcing after markets closed on Monday that its Q3 earnings-per-share exceeded estimates.

Overall, the S&P 1500 Apparel Retail Index has surged by nearly 86 percent since its March low, and is now a mere 2.14 percent away from its highest ever closing price, posted on February 20th this year. Still with the stocks of many of these so-called “nonessential retailers” now reaching overbought territory, perhaps a pullback can be expected in the near-term.

Pandemic-fueled bonanza

This wave of optimism has been fanned by a report from the National Retail Federation, which expects US holiday sales to post a 3.6 to 5.2 percent growth compared to 2019’s US$729.1 billion that was spent during the year-end shopping season. The industry’s leading trade group expects a “strong finish” to what has been a tumultuous 2020, given that Americans who were not able to spend on other items such as vacations and in-person entertainment (sporting events, movies, etc.) will instead pour between US$755.3 billion to US$766.7 billion into their year-end shopping spree. Such an outlook augurs well for the overall US retail sales figure, which could only muster a mere 0.3 percent growth in October compared to the month prior.

Retailers have to deliver results

However, execution risks remain. It remains to be seen how well these retailers can handle the incoming swarm of orders, be it for curbside pickup or direct shipping. Amazon has already braced itself by hiring over 25,000 more workers for its warehouses this year, while adding an extra 100,000 seasonal workers to handle the expected tsunami of online orders.

And the expected rebound in footfall isn’t assured. The pandemic may have left longer-lasting scars, potentially enforcing a lasting shift in shopping habits. Consumers may feel a lot more reluctant to return to in-person shopping and may have grown accustomed to buying items online. And with a spate of job losses in the US economy, with weekly jobless claims still over three times more than pre-pandemic levels while the unemployment rate remains close to seven percent, American consumers’ purchasing power may need more time to recover.

“Dark Winter” ahead?

Still, a fresh round of US fiscal stimulus by the incoming Biden administration could help dampen some of these downside risks on US retail activity. Otherwise, once the year-end shopping spree fades, these retailers might have been to brave a long, cold winter before they can welcome warm bodies back into their stores once more, to justify the eye-popping gains in their shares of late.

Written on 24/11/20 08:00 GMT by Han Tan, Market Analyst at FXTM

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Macy’s Shares Rise on Strong Digital Sales in Q2; Target Price $16 in Best-Case

Macy’s Inc, an American department store chain founded by Xavier Warren in 1929, reported a lower-than-anticipated decline in net sales but digital sales remained strong, growing 53% in the second quarter as shoppers purchased everything from the comfort of their homes amid COVID-19 pandemic, sending its shares up about 6% in pre-market trading on Wednesday.

The fashion retailer said its net sales slumped 35.8% to $3.56 billion but beat market expectations of $3.48 billion. However, digital sales remained strong, growing 53% over second-quarter of 2019. Digital sales penetrated at 54% of the total owned comparable sales.

Macy’s delivered a gross margin of 23.6%, an improvement of approximately 650 basis points from first quarter 2020 due to improved retail margins from the sale of clearance merchandise.

Macy’s reported a net loss of $431 million, or $1.39 per share, in Q2, worse than a profit of $86 million, or 28 cents per share, seen a year earlier.

The company said it withdrew its 2020 sales and earnings guidance and is not currently providing an updated outlook due to ongoing uncertainty as a result of the COVID-19 pandemic.

Macy’s shares rose about 6% to $7.41 in pre-market trading on Wednesday. However, the stock is down about 60% so far this year.

Executive comments

“We are encouraged by our second-quarter performance; however, we continue to approach the back half of the year conservatively. Our immediate priority is successfully executing Holiday 2020. We are also focused on laying the groundwork for 2021 and beyond,” said Jeff Gennette, chairman and chief executive officer of Macy’s, Inc.

We plan to invest in fashion, digital and omnichannel, work with agility, and galvanize the resources of the company to serve our customers and move the Macy’s, Inc. business forward,” Gennette added.

Macy’s stock forecast

Seven analysts forecast the average price in 12 months at $5.57 with a high forecast of $9.00 and a low forecast of $3.00. The average price target represents a -20.54% decrease from the last price of $7.01. From those seven analysts, none rated “Buy”, three rated “Hold” and four rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $5 with a high of $16 under a bull-case scenario and $1 under the worst-case scenario. UBS downgraded to sell from neutral; lowered their target price to $3 from $6.

Other equity analysts also recently updated their stock outlook. Deutsche Bank raised their target price to $6 from $5, Jefferies upped their stock price forecast to $6 from $5, Cowen and Company increased their price objective to $9 from $7 and Credit Suisse raised it to $6 from $4.50.

Analyst view

“Macy’s continues to undergo core operating challenges, similar to peers in the department store space (eg. market share cessation to peers, falling store traffic, contracting margins, eCommerce disintermediation). Despite closing stores proactively, store-only comps remain negative and we forecast them to remain so in the future, eroding ROIC,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

“Expense cuts (eg. headcount reduction), real estate monetization, and secondary growth initiatives are encouraging, but are unlikely to stimulate enough cash flow to reinstate its dividend while also covering upcoming debt maturities. In the event of a 2020 recession, Macy’s likely struggles to survive as it is currently operating,” she added.

Upside and Downside risks

Upside: 1) A return to positive store-only comps while maintaining flow through. 2) Strategic initiatives help drive store traffic. 3) Improved merchandising and supply chain management leads to gross margin expansion. 4) Share buybacks recommence. 5) CECL has no impact to credit profit share – highlighted Morgan Stanley.

Downside: 1) Store-only comps deceleration. 2) CECL has a larger impact than anticipated. 3) 2020 coronavirus/recession impact more severe than anticipated.

Macy’s Sales Slump Over 40% in Q1; Doesn’t Anticipate Another Full Shutdown

Macy’s Inc, an American department store chain founded by Xavier Warren in 1929, posted a $3.58 billion loss as the coronavirus-induced lockdown hit its first-quarter sales, leading to a record $3 billion impairment charge.

The fashion retailer, who also owns Bloomingdale’s reported that first-quarter sales through May 2 almost halved to $3.02 billion. Additionally, it reported a net loss of $11.53 per share, compared with a profit of 44 cents a year ago.

However, the company expects Q2 comparable sales to improve by nearly 6-7 percentage points, as against a 35% fall in the prior quarter, Macy’s said. The company reported $1.52 billion in net cash and cash equivalents, combined with $18.58 billion in total liabilities and shareholders’ equity.

“The first quarter of 2020 was challenging for the country, the industry and Macy’s, Inc. While our stores are re-opened, we expect that the COVID-19 pandemic will continue to impact the country for the remainder of the year. We do not anticipate another full shutdown, but we are staying flexible and are prepared to address increases in cases on a regional level,” Jeff Gennette, chairman and chief executive officer of Macy’s, Inc said in a press release.

“We are meeting our customers how and where they are shopping and have enhanced our fulfilment options and health precautions to ensure a safe and welcoming shopping experience. While we continue to see challenges ahead, we’ve taken the necessary actions to stabilize our business and give us financial flexibility. We are confident we have the right strategy and plans in place to navigate the shifting retail landscape,” he added.

Following this announcement, Macy’s shares fell over 3% in premarket trading.

Macy’s Inc outlook and price target

Eight analysts forecast the average price in 12 months at $5.64 with a high forecast of $9.00 and a low forecast of $3.00. The average price target represents a -19.54% decrease from the last price of $7.01, according to Tipranks. From those eight, nice rated ‘Buy’, three analysts rated ‘Hold’ and five rated ‘Sell’.

Cowen and Company raised target price to $9 from $7 and Credit Suisse raised price target to $6 from $4.5. Morgan Stanley target price is $6 with a high of $19 under a bull scenario and $1 under the worst-case scenario.

Analyst comment

“Macy’s continues to undergo core operating challenges, similar to peers in the department store space. Despite closing stores proactively, store-only comps remain negative and we forecast them to remain so in the future, eroding ROIC,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“Expense cuts, real estate monetization, and secondary growth initiatives are encouraging, but are unlikely to stimulate enough cash flow to reinstate its dividend while also covering upcoming debt maturities. In the event of a 2020 recession, Macy’s likely struggles to survive as it is currently operating,” he added.