Macy’s shares jumped over 6% in pre-market trading on Tuesday after the fashion retailer generated higher earnings than expected in the holiday quarter and forecast better sales for this year.
The U.S.-based fashion retailers reported quarterly adjusted earnings of $2.45 per share in the fiscal fourth quarter ended Jan. 29, beating the market expectations of $2.00 per share. The company said its revenue surged more than 27% to $8.67 billion from a year earlier. That too topped the market expectations of $8.47 billion.
The New York-based Macy’s said its digital sales rose 12% compared to the fourth quarter of 2020 and jumped 36% versus the fourth quarter of 2019.
The company gross margin for the year was 38.9%, up from 29.2% in 2020 and up 70 basis points from 2019. The fashion retailers forecast sales in the range of $24.46 billion and $24.70 billion for 2022. That was above analysts’ estimates of $24.2 billion.
“The resolution of the co’s evaluation of an e-com spin (prompted by an activist in Nov-21), is to remain integrated. This isn’t a big surprise as the activist heat had cooled and the complexity & risk ratio was high. Post-eval, Macy’s (M) is doubling down on its strategy — “accelerating Polar is initiatives that span digital, brand partners, private label, marketing and loyalty,” noted Stephanie Wissink, equity analyst at Jefferies.
“Macy’s (M) also recommitted to its off-mall, small-format store rollout, and we look for an update on the mall-based dept stores marked for closure (paused in 2H21).”
Following this, Macy’s stock surged over 6% to $27.28 in pre-market trading on Tuesday. The stock fell nearly 2% so far this year after surging over 132% in 2021.
“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,” noted 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.”
Macy’s Stock Price Forecast
Eight analysts who offered stock ratings for Macy’s in the last three months forecast the average price in 12 months of $36.63 with a high forecast of $50.00 and a low forecast of $25.00.
The average price target represents a 42.53% change from the last price of $25.70. Of those eight analysts, four rated “Buy”, three rated “Sell”, according to Tipranks.
Morgan Stanley gave the base target price of $23 with a high of $35 under a bull scenario and $15 under the worst-case scenario. The investment bank gave an “Underweight” rating on the department store chain company’s stock.
Several analysts have also updated their stock outlook. Deutsche Bank cut the target price to $32 from $35. Telsey Advisory lowered the price objective to $30 from $40. Citigroup slashed the price target to $25 from $29.
Technical analysis suggests it is good to hold as 100-day Moving Average and 100-200-day MACD Oscillator giving a mixed signal.
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