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Earnings Watch: Make Or Break For Macy's?

Published 11/10/2015, 11:50 AM
Updated 07/09/2023, 06:31 AM

Macy's (N:M), one of America’s most popular department store chains, is set to report 3Q2015 earnings Wednesday before the market opens. The outlook is grim as analysts are predicting year over year declines in both EPS and revenue. The Estimize consensus, typically more bullish than Wall Street, is actually looking for numbers that are slightly below on Macy’s. Estimize is calling for EPS of $0.52 and revenue of $6.15 billion while Wall Street analysts are looking for EPS of $0.53 and revenue of $6.16 billion. Certain retail names have not done enough to attract customers this year, and it will be interesting to see if Macy’s reports its third consecutive quarter of negative earnings growth, and fourth consecutive EPS miss.Historic Earnings

So, What’s Going On?

In black and white, the department store sector has been declining. Overall sales have fallen over the past five years by roughly 1.5 % and Macy’s has been sorely impacted. The Ohio based department chain has faced weak store traffic, which has caused a higher retention rate of inventory as sales continue to plummet. Sales for the previous two quarters were lower than expected, with the retail giant attributing difficulties to low international tourism spending because of the strong US dollar. Macy’s reported a sales decline of 2% last quarter while competitors Nordstrom (N:JWN) and Dillard's (N:DDS) reported 4.9% and 1% same store sales growth figures, respectively. The individual stores scattered across the country have struggled as the company has announced the closing of around 35-40 locations, which would lead to a net loss of $300 million in revenue.

Furthermore, Citigroup (N:C) slashed Macy’s price target as the firm forecasts a very difficult future for the department store sector. Shares fell by a little over 5% yesterday as a direct result. Macy’s has been focusing on new innovations to attempt to turn earnings in their favor.

Macy's Inc.

M data by YCharts

Macy’s Backstage

To help grow interest and earn back store traffic, Macy’s has been focusing on their discount clothing efforts. With the launch of Macy’s Backstage stores, an off-price concept store offering discounts anywhere between 20%-80% the firm hopes to appeal to those who are interested in fashion at value prices. Four were opened in the New York Metropolitan area as tests, giving the corporation the opportunity to learn and tweak any elements if need be. Macy’s is entering a crowded off-price store market, as Nordstrom, Saks and a few others have established outlet and discount stores across the country.Historic Revenue

Along with the Backstage concept, Macy’s also acquired Bluemercury in March, a beauty product and spa retailer. The hopes with the Bluemercury brand are to aid the struggling fashion and women’s apparel lines within stores and bolster store traffic. Macy’s has also cut a deal with Best Buy to sell licensed consumer electronics in 10 of its stores.

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