Macy’s, Inc. (M - Free Report) posted the third straight quarter of positive earnings surprise, when it reported fourth-quarter fiscal 2017 results. However, total sales fell short of the consensus mark for the second quarter in a row. Nevertheless, management hinted that strategic investments across stores, technology and merchandising are likely to help the company to see comparable sales growth in fiscal 2018.

Impressive bottom-line performance and an upbeat view sent the shares up more than 8% during pre-market trading hours. In the past three months, the stock has rallied 23.8% compared with the industry's gain of 33.1%.

Let’s Delve Deep

Macy’s posted adjusted earnings of $2.82 per share that beat the Zacks Consensus Estimate of $2.69 and surged 39.6% from $2.02 reported in the year-ago period. Higher sales and lower SG&A expenses aided the bottom line.

This Cincinnati, OH-based company generated net sales of $8,666 million that came below the Zacks Consensus Estimate of $8,724 million but increased 1.8% year over year. Comparable sales (comps) on an owned plus licensed basis jumped 1.4%, while on an owned basis comps rose 1.3%.

Macy's Inc Price, Consensus and EPS Surprise

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

In an attempt to augment sales, profitability and cash flows, this Zacks Rank #2 (Buy) company has been taking steps such as cost cutting, integration of operations as well as developing its e-commerce business. The company registered double-digit growth in digital business for the 34th successive quarter.

Moreover, as part of the store rationalization program, the company plans to shut down underperforming stores. These are seen as part of the company’s endeavors to better withstand competitive pressure from both brick-and-mortar discount stores and online retailers, such as Amazon (AMZN - Free Report)

In the recent past, Macy's also announced a few more measures to support growth plan. Under this plan, the company will shut down 11 stores in the early part of 2018 and will not only hire employees but also retrench at some stores. Further, the company will streamline some of the non-functional stores. These efforts will result in annual cost savings of $300 million beginning 2018.

Coming back to the results, gross profit in the quarter grew 1.3% year over year to $3,308 million, however, gross margin contracted 10 basis points to 38.2%. On the contrary, adjusted operating income surged 31.5% to $1,397 million, while adjusted operating margin increased 360 basis points to 16.1%.

Store Update

During the quarter, the company opened two new freestanding Bluemercury beauty specialty outlets. In fiscal 2017, the company opened 36 Bluemercury stores, two Macy's stores, 30 Backstage off-price stores within current Macy’s stores and one Bloomingdale’s licensed location in Kuwait. The company shuttered 16 Macy's stores. This February, the company announced that it will pull shutters on Redmond Town Center main store in Redmond, WA, by early 2019.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $1,455 million, long-term debt of $5,861 million, and shareholders’ equity of $5,673 million, excluding non-controlling interest of $12 million. The company lowered its debt load by $950 million during the fiscal year.

Guidance

Macy’s now projects comps on both an owned and an owned plus licensed basis to be flat to up 1% for fiscal 2018. However, it envisions total sales to decline in the band of 0.5-2%.

Management now expects adjusted earnings in the range of $3.55-$3.75 per share for fiscal 2018. The current Zacks Consensus Estimate for the fiscal year is pegged at $2.89.

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