Macy’s Inc. (M - Analyst Report) posted fourth-quarter fiscal 2014 results, wherein earnings of $2.44 per share beat the Zacks Consensus Estimate by a couple of cents, and rose 5.6% from $2.31 earned in the prior-year quarter. My Macy's localization initiatives, omnichannel integration and magic selling remained the driving factors. Moreover, share repurchase activity also supported the bottom line.

Macy's Inc. - Earnings Surprise | FindTheBest

This Cincinnati, OH-based company and a Zacks Rank #3 (Hold) stock generated sales of $9,364 million that increased 1.8% year over year but fell short the Zacks Consensus Estimate of $9,392 million. Analysts believe that the holiday season was a soft one for Macy’s, which went on to provide a cautious outlook for fiscal 2015.

Comparable-store sales on an owned plus licensed basis grew 2.5% during the quarter, while on an owned basis, comparable-store sales jumped 2%.

Macy’s has undertaken restructuring endeavors and other strategic initiatives to enhance its top and bottom lines growth. Recently, with a view to expand its core signature Beauty business, Macy’s penned an all-cash deal to acquire Bluemercury for $210 million that is anticipated to close by the end of the first quarter of fiscal 2015. This renowned American spa services and luxury beauty products retailer, operates nearly 60 specialty stores across 18 states offering premier beauty brands.

Gross profit in the quarter inched up 1% year over year to $3,775 million. However, gross profit margin contracted 30 basis points to 40.3%. Adjusted operating income also grew 1% to $1,451 million, whereas operating margin shriveled 10 basis points to 15.5%.

Store Update

During fiscal 2014, the company opened five outlets and closed 22 locations. The company now plans to open a new Macy’s outlet in Ponce, PR and a Bloomingdale’s in Honolulu, HI in fiscal 2015. In the next fiscal year, a new Macy’s outlet will be opened in Kapolei, HI, along with a replacement Macy’s outlet in Los Angeles, CA.

For fiscal 2017, the company had already announced plan for new stores, including new Macy’s and Bloomingdale’s in Miami, FL, and a new Bloomingdale’s in San Jose, CA. In addition to these, the company plans to open new Macy’s and Bloomingdale’s outlets in Abu Dhabi in 2018, under license agreements with Al Tayer Group.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $2,246 million, long-term debt of $7,265 million, and shareholders’ equity of $5,378 million.

Macy’s has been actively managing its cash flow, returning much of its free cash to shareholders via dividends or share repurchase activity, and maintaining a healthy balance sheet and credit ratios necessary for an investment-grade rating.

During fiscal year, the company bought back approximately 31.9 million shares for about $1.9 billion. As of Jan 31, 2015, the company had approximately $1 billion at its disposal under the share repurchase authorization.

The company generated net cash flow of $2,709 million from operating activities in fiscal 2014 compared with $2,549 million in the prior year. Management projects capital expenditures of approximately $1.2 billion during fiscal 2015.

Guidance

Management now envisions fiscal 2015 earnings in the band of $4.70–$4.80 per share. Analysts polled by Zacks had forecasted earnings of $4.85 for the fiscal. Consequently, we could witness a downtrend in the Zacks Consensus Estimate in the coming days to better align with management’s guidance.

Macy’s anticipates comparable-store sales growth of approximately 2% for both on an owned plus licensed basis, and on an owned basis in fiscal 2015. Total sales are expected to increase 1% during the fiscal.

Other Stocks to Consider

Better-ranked stocks in the retail sector include Kohl's Corp. (KSS - Analyst Report), Gildan Activewear Inc. (GIL - Snapshot Report) and J. C. Penney Company, Inc. (JCP - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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