Photo Credit: Aimee Wenske

Macy’s (M) Consumer Discretionary - Multiline Retail | Reports February 21, Before Market Opens

Key Takeaways

• The Estimize consensus is calling for earnings per share of $1.97 on $8.57 billion, right in line with Wall Street on the bottom line and about $20 million lower on the top
• Macy’s efforts to lift financial performance include focusing on price optimization, inventory management, merchandise planning and private label offerings
• Amazon’s assault on traditional retailers resulted in ongoing weakness for mall based stores like Macy’s
• What are you expecting for M?

After a robust bounce back in the middle of 2016, the bear case for Macy’s and the rest of the retailers returned. Weak third quarter earnings as well as a strong rhetoric from President Trump instilled fear in the public about the prospect of a sustainable recovery in the retail sector. In light of the negative news, Macy’s shares slipped by 23% in the past 3 months. The stock will continue to trend in this direction if tomorrow’s reports misses already tepid expectations.

Analyst’s at Estimize expect Macy’s to turn a profit of $1.98 per share, reflecting a 1% decline from a year earlier. That estimate slid 3% in the past 3 months amid fresh concerns raised by Trump’s potential policies. Revenue for the periods is forecasted to decline by 2% to $8.57 billion, slightly below Wall Street’s estimates of $8.63 billion. When the Estimize consensus is more bearish than the Street that often signals a significant negative surprise for the quarter. Luckily for investors the stock typically trades sideways throughout earnings season. 

Macy’s efforts to lift financial performance include a newfound focus on price optimization, inventory management, merchandise planning and private label offerings. But the primary drivers lately have been its e-commerce and off-price business, Macy’s backstage, that continue to keep the Macy’s brand afloat. Furthermore, the company plans on shutting the door on over 100 unprofitable stores to maintain modest margins. Meanwhile, there is ongoing pressure for Macy’s to spin off its real estate into a REIT, a move believed to be worth billions and provide an injection of capital.

With that in mind, the competitive retail landscape following Amazon’s onslaught on the industry continues to pressure traffic and top line performance. Macy’s already indicated that the holiday season fell short of initial expectations. Comparable sales on an owned plus licensed basis fell 2.1% while owned basis decreased 2.7% during the final two months of 2016.