Macy's (M) Misses On Q1 Earnings & Sales, Keeps View Intact

After witnessing earnings beat in the final quarter of fiscal 2016, Macy’s, Inc. (NYSE:M) 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.

Investors did not wait to punish the stock, which was down roughly 10% during pre-market trading hours. In fact in the past six months, Macy’s shares have declined roughly 29.4% compared with the Zacks categorized Retail-Regional Department Stores industry that plunged 29.8%. 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 24 cents a share that missed the Zacks Consensus Estimate of 35 cents and declined substantially from 40 cents reported in the year-ago period. Including one-time items, earnings came in at 23 cents a share down from 37 cents 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%.

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. (NASDAQ:AMZN) .

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.

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.

Macy's Inc Price, Consensus and EPS Surprise

Macy's Inc Price, Consensus and EPS Surprise | Macy's Inc Quote

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.

Zacks Rank

Macy’s carries a Zacks Rank #4 (Sell). Better-ranked stocks in the retail sector include The Children's Place, Inc. (NASDAQ:PLCE) flaunting a Zacks Rank #1 (Strong Buy) and Burlington Stores, Inc. (NYSE:BURL) carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place delivered an average positive earnings surprise of 39% over the trailing four quarters and has a long-term earnings growth rate of 8%.

Burlington Stores delivered an average positive earnings surprise of 26.3% over the trailing four quarters and has a long-term earnings growth rate of 15.9%.

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