* Reports Q3 2019 earnings Thursday, Nov. 21 before the bell
* Consensus EPS: $0.01
* Revenue Expectation: $5.33B
When Macy’s Inc (NYSE:M) reports its third-quarter earnings tomorrow, it has to show that its turnaround is making headway. Especially after its previous two reports, which showed the company's efforts failing to gain traction, even at a time when other retailers are benefiting from strong consumer spending.
In August, Macy’s reported that comparable sales in the second quarter rose just 0.2% from a year earlier. This weak performance forced the company to cut its 2019 adjusted earnings guidance. It now expects to earn $3.05 a share at most this year, down from an earlier prediction for as much as $3.25.
Before that report, the retailer shocked investors early this year by cutting its full-year earnings expectations, citing weakening sales in categories such as women’s sportswear, fashion jewelry and cosmetics.
That disappointment came in the middle of one of the best growth periods for other retailers as they benefited from the strength of the U.S. economy and robust consumer spending. If Macy’s is unable to benefit in this generally enabling operating environment for retailers, there's little hope that it can make things work when the economy potentially loses steam down the road.
These concerns have kept investors on the sidelines, hurting Macy’s shares badly this year. The stock, which dropped almost 11% on Tuesday, has plunged about 50% in 2019 — losing more than half of its value from the peak it reached in the summer of 2018. The shares closed yesterday's session at $15.04.
For the quarter that ended in September, analysts are expecting just a penny profit versus $0.27 a year ago. Sales are likely to remain almost flat at $5.33 billion, according to analysts’ average estimate.
Fashion Misses
In the last earnings report, the company acknowledged its women’s sportswear business suffered from “fashion misses,” and a lack of exciting clothes that resonate with the young generation.
That admission came at a time when Macy’s CEO Jeffrey Gennette was, and is, trying a variety of tactics and new formats at its retail stores to try to win back customers and survive the e-commerce onslaught by Amazon (NASDAQ:AMZN).
“The customer has more choices than ever,” Mr. Gennette told the Wall Street Journal in August. “There are new formats emerging every single day. Brands have their own retail stores and digital channels. Off-price retailers continue to gain share.”
Macy’s has been spending heavily to lift its digital presence, adding more local merchandise and refreshing in-store fixtures. That strategy has helped boost online sales, but it’s not enough to put the retailer on a sustained growth path.
Along with its online push, Macy’s is also cutting costs by closing stores. Still, in the longer term, the retailer needs to show that its cost-cutting, new spending and store remodeling are breathing new life into actual sales. Traffic at stores and growth in sales are the crucial measures at this juncture, and will be the numbers that investors monitor most closely when it releases its earnings report.
Bottom Line
We don’t see Macy’s stock recovering its ground in 2019, even after the massive sell-off during the past six months. Due to the company’s uneven path to recovery, it doesn’t make sense to bet on this retail stock this year. In our view, investors would be better off staying on the sidelines and waiting to see how the current turnaround efforts pan out.