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Macy’s Optimistic As April Sales Signal Strong Year Ahead

Macy’s Optimistic As April Sales Signal Strong Year Ahead

Macy's, Inc. (M) opened in the green today after the company reaffirmed its full-year guidance as April sales picked up after a harsh winter. The department store that caters to mid and upscale customers also announced its first-quarter results for fiscal year 2014 (1QFY14; ended May 3, 2014). The company managed to beat earnings estimates but fell short on account of revenues for the thirteen-week period.

Macy’s Posts Mixed Results

The Cincinnati, Ohio-based retailer announced a 1.7% drop in revenues as inclement weather hurt its business during February and March. The company reported revenues of $6.279 billion, which fell short of analysts' estimates of $6.465 billion. Same Store Sales (SSS) for the period fell 1.6%. However, coupled with sales recorded in licensed stores, SSS dipped 0.8% only.

The company, operating under its namesake and Bloomingdale’s labels, recorded a growth of 9% in its earnings as net income increased to $224 million or 60 cents per share, compared to last year's income of $217 million or 55 cents. Analysts, on the other hand, were expecting earnings per share (EPS) to come in at 59 cents.

Gross margin for the department store chain improved 10 basis points (bps) to 38.9%, while operating margin registered an expansion of 30 bps to 7.1%.

Shareholder Returns

Macy’s management decided to raise dividend payout and stock repurchase allowance, prioritizing an increase in shareholder returns. The company raised its quarterly dividends by 25% to 31.25 cents, marking a fourth increment in the past three years. On the basis of new dividends, shareholders are eligible to yield a return of 2.2% on an annual dividend of $1.25 per share.

The company, which had resumed its share repurchase program in August 2011, purchased another 7.4 million shares for $432 million during the first quarter. The Board authorized a further $1.5 billion under its share repurchase program, increasing the total to $2.5 billion.

Macy’s Reaffirms Guidance

Despite soft sales in the first quarter, the management reiterated its earlier guidance as sales for April warmed up after harsh winters. “The trend improved in April when the weather began to turn in northern climate zones. We see this as a good sign moving forward into the second quarter,” said Macy’s CEO Terry Lundgren.

The company expects earnings to fall in the range of $4.4-4.5 per share at comparable sales growth of 2.5-3%. Analysts estimate full-year earnings at $4.5 per share and revenues at $28.66 billion. The given estimates translate into earnings and revenue growth of 11% and 2.6%, respectively.

For the ongoing quarter, analysts expect earnings of 85 cents per share on sales of $6.28 billion.

The company, which follows a comprehensive strategic plan by the name of M.O.M, says it is well on track to deliver goals set for the current fiscal year. In January, the company announced a restructuring program involving consolidation of districts and closure of five underperforming stores, along with a reduction of 2,500 in its workforce. As a result of the initiative, the company expects to save $100 million annually. Macy’s is also recognized in the industry for its data-driven, customer-centric approach which helps the management take informed purchase decisions to cater to differing customer needs in various localities.

Macy’s opened at $58.6 today, representing a jump of over 1% from yesterday’s closing price. The stock is up 7.7% year-to-date. Generally, sell side is bullish on the stock, with 18 of the 24 analysts covering the stock giving it a Buy rating. Macy’s is currently trading at 12.8 times its expected earnings for the next twelve months.

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