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Macy's, Inc. (M) Earnings Analysis

Macy's management discussed the company's Q3 2013 results yesterday. Our analysis of Macy's earnings is based on these preliminary financial results for the quarter ended 2013-10-31; we analyze the company relative to its peers (see the end of this post for our peer set). You might want to check out our recent post Black Friday Stocks to Watch in which Macy's was one of the featured companies.

Macy's, Inc. operates more than 850 department stores and provides services through the Internet under two brand names: Macy's and Bloomingdale's that sells wide range of merchandise, including men's, women's and children's apparel and accessories, cosmetics, home furnishings and other consumer goods. The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million) 2013-10-31 2013-07-31 2013-04-30 2013-01-31 2012-10-31
Revenues 6,276.0 6,066.0 6,387.0 9,350.0 6,075.0
Revenue Growth % 3.5 (5.0) (31.7) 53.9 (0.7)
Net Income 177.0 281.0 217.0 730.0 145.0
Net Income Growth % (37.0) 29.5 (70.3) 403.4 (48.0)
Net Margin % 2.8 4.6 3.4 7.8 2.4
ROE % (Annualized) 12.5 19.0 14.4 50.3 10.1
ROA % (Annualized) 3.3 5.4 4.1 13.5 2.7

Valuation Drivers

Macy's Inc's current Price/Book of 3.5 is about average in its peer group. Macy's operating performance is higher than the average of its chosen peers (ROE of 25.5% compared to the peer average ROE of 17.4%) but the market does not seem to expect higher growth relative to peers (PE of 14.2 compared to peer average of 15.2) but simply to maintain its relatively high rates of return.

The company's asset efficiency (asset turns of 1.3x) and net profit margins of 5.0% are both average for its peer group. Macy's net margin is its highest relative to the last five years and compares to a low of -19.3% in 2009.

Questions on Long-Term Strategy?

While Macy's revenues have grown faster than the peer average (5.6% vs. 3.9% respectively for the past three years), the market gives the stock an about peer average PE ratio of 14.2. This suggests that the market has some questions about the company's long-term strategy.

Macy's annualized rate of change in capital of -1.1% over the past three years is less than its peer average of 0.5%. This investment has generated a peer average return on capital of 8.6% averaged over the same three years. The average return on capital investment on a relatively lower investment suggests that the company is under investing.

Earnings Quality

Macy's net income margin for the last twelve months is around the peer average (5.0% vs. peer average of 5.0%). This average margin combined with a level of accruals that is around peer average (2.8% vs. peer average of 2.6%) suggests there possibly isn't too much accrual movement flowing into the company's reported earnings.

Macy's accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer average and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts for Macy's Earnings Analysis


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Peers used for Macy's Earnings Analysis

We used the following peer-set: The TJX Companies, Inc. (TJX), Target Corporation (TGT), Kohl's Corporation (KSS), Nordstrom, Inc. (JWN), Sears Holdings Corporation (SHLD), Dillard's, Inc. Class A (DDS) and J. C. Penney Company, Inc. (JCP).

Disclaimer

Source: Macy's Earnings Analysis: Questions On Long-Term Strategy?