Macy's (M) Q4 Earnings & Revenues Top Estimates, Down Y/Y

Macy’s, Inc. (NYSE:M) reported better-than-expected fourth-quarter fiscal 2019 results. Management highlighted that a “meaningful sales uptick in the 10 shopping days before Christmas” contributed to the results. This Cincinnati, OH-based company had earlier reported decent holiday sales number that reflected an improvement in trend from the third quarter. Following the results, the company retained fiscal 2020 sales and earnings guidance.

We note that this Zacks Rank #2 (Buy) stock has increased 5% against the industry's decline of 1.2% in the past six months.

Let’s Delve Deep

Macy’s posted fourth-quarter adjusted earnings of $2.12 per share that surpassed the Zacks Consensus Estimate of $1.95, marking the second straight quarter of beat. The company stated that cost containment endeavors and healthy sales results aided the bottom-line performance. However, the quarterly earnings fell from $2.73 per share reported in the year-ago period.

The department store chain generated net sales of $8,337 million that came ahead of the Zacks Consensus Estimate of $8,324.1 million but decreased 1.4% year over year.

The company stated that comparable sales on an owned plus licensed basis declined 0.5%, while on an owned basis fell 0.6%. Clearly, the rate of decline has decelerated sharply on a sequential basis. We note that comparable sales on an owned plus licensed basis had fallen 3.5%, while on an owned basis, the metric had decreased 3.9% in the third quarter of fiscal 2019.

Adjusted EBITDA declined 17.1% to $1,160 million, while adjusted EBITDA margin contracted 260 basis points to 13.9%.

Macy's has been in a spot of bother for quite some time, thanks to soft mall traffic due to increasing online shopping and stiff competition from discount retailers. But these may be things of past, as the company has outlined plans under its three-year Polaris Strategy to adapt better to the new retail ecosystem.

From revamping stores to bringing in loyalty program, from embracing new technologies to investments in merchandising strategies, and from improving websites and mobile apps to supply chain modernization, Macy’s is looking at every nook and cranny to be more agile.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $685 million, long-term debt of $3,621 million, and shareholders’ equity of $6,377 million.

FY20 View

For fiscal 2020, Macy’s continues to project net sales between $23.6 billion and $23.9 billion compared with $24.6 billion reported in fiscal 2019.

Comparable sales on an owned plus licensed basis are expected to decline in the band of 1.5-2.5% during fiscal 2020. Comparable on an owned basis are projected to be roughly 40 basis points better than comparable sales on an owned plus licensed basis. We note that comparable sales on an owned plus licensed basis had slid 0.7%, while on an owned basis, the metric had decreased 0.8% in fiscal 2019.

The company reaffirmed fiscal 2020 adjusted earnings per share (excluding asset sale gains) projection of $2.20-$2.40. This indicates a decline from earnings of $2.91 per share reported in fiscal 2019. The current Zacks Consensus Estimate for fiscal 2020 is pegged at $2.45.

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