Earnings Preview: Is Macy's A Bargain Heading Into Earnings?

Aug.10.14 | About: Macy's Inc. (M)


Macy's has had a fantastic run in recent years, with revenue and profits soaring even while competitors like J.C. Penney and Sears have come up short.

Perhaps hoping that the trend will continue, analysts have released high expectations for the retailer, helping to push shares up to an all-time high.

In light of these factors, Macy's looks like an interesting prospect, but the company is anything but cheap.

Heading into earnings on August 13, investors are probably trying to figure out what to do with shares of Macy's (NYSE:M). In the face of a poor retail market, shares of the upscale department store chain have skyrocketed. As of the close of the market on August 9, the company's stock is trading a hefty 43% gain compared to its 52-week low and is less than 2% from reaching a new high. In light of these developments, is now the time to get out of Macy's and look elsewhere for returns, or can the company continue delivering?

Analysts have high expectations

For the quarter, analysts expect Macy's to report revenue of $6.30 billion. If this forecast comes to fruition, it will represent a 4% jump in sales compared to the $6.07 billion management reported the same quarter a year earlier. Although it's possible that higher store count could help the business's top line, the more likely explanation would be an improvement in aggregate comparable store sales.

Earnings Preview
Forecasted Last Year's
Revenue (billions) $6.30 $6.07
Earnings per Share $0.86 $0.72
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Over the past four years, Macy's saw its store count actually decline 1% from 850 locations in 2010 to 840 by the end of its 2013 fiscal year. In spite of this, an 18% jump in aggregate comparable store sales (16% of it in the company's stores and the rest coming from its store-within-a-store setups), has sent revenue climbing 12% from $25 billion to $27.9 billion.

Comparable and Store Count Performance
2013 2012 2011 2010
Comparable Store Sales 1.9% 3.7% 5.3% 4.6%
Store-Within-a-Store Impact 0.9% 0.3% 0.4% -0.2%
Total Comparable Store Sales 2.8% 4.0% 5.7% 4.4%
Store Count 840 841 842 850
Click to enlarge

Looking at profits, analysts expect even better results. For the quarter, Macy's is expected to report earnings per share of $0.86, 19% above the $0.72 management reported the same quarter a year earlier. While some of this increase will be due to the retailer's rising revenue, other important contributors will likely be the company's selling, general and administrative expenses, which have dropped from 33% of sales in 2010 to 30.2% in 2013 and a lower share count, as management succeeded in reducing shares outstanding by 14% over the same four-year timeframe. This, in turn, has sent the company's earnings per share soaring 95% from $1.98 to $3.86.


In recent years, times have been very good for Macy's. In addition to posting strong sales growth, the company did it at a time when store count was declining and other retailers like J.C. Penney Company (NYSE:JCP) and Sears Holdings (NASDAQ:SHLD) have been suffering. Moving forward, it will be interesting to see if management can continue to please investors, but with shares trading so high and with the company's P/E Ratio standing at 16, it's hard to see it as a bargain.

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