Macy's Beats, Raises Outlook

| About: Macy's Inc. (M)

Macy’s Inc. (NYSE:M), one of the leading department store retailers in the United States, recently posted third-quarter 2011 results that outpaced the Zacks’ expectations on the heels of healthy sales, improved operating margin and effective cost management. Consequently, the company raised its full year earnings outlook.

Let’s Unveil the Picture

The quarterly earnings of 32 cents a share outperformed the Zacks Consensus Estimate of 16 cents, and portrayed a fourfold increase from 8 cents earned in the prior-year quarter buoyed by My Macy's localization initiatives, omnichannel integration and robust online sales.

The Cincinnati, Ohio-based company – Macy’s – said that total sales grew 4.1% to $5,853 million in the quarter from $5,623 million delivered in the prior-year period. However, total revenue fell short of the Zacks Consensus Estimate of $5,882 million.

Comparable-store sales for the quarter climbed 4% that met the lower end of the guidance range of 4% to 4.5%.

Online sales, which include macys.com and bloomingdales.com, sustained their growth momentum, and were up 39.8% in the quarter, favorably impacting comparable-store sales by 1.5%. Macy’s seeks to expand both the Macy's and Bloomingdale's brands.

Despite a 4.9% increase in cost of sales, gross profit in the quarter climbed 2.8% to $2,309 million, aided by top-line growth. However, Macy’s notified that gross profit margin contracted 60 basis points to 39.4%. Operating income increased 64.4% to $291 million, whereas operating margin expanded 190 basis points to 5%.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $1,097 million, long-term debt of $6,151 million, reflecting a debt-to-capitalization ratio of 51.2% and shareholders’ equity of $5,852 million. During first-nine months of fiscal 2011, the company repaid debt of $451 million and paid dividend of $106 million.

Strolling Through Guidance

Macy’s now guided fiscal 2011 earnings in the range of $2.70 to $2.75 per share, up from $2.60 to $2.65 forecasted earlier. Management expects fourth quarter earnings between $1.52 and $1.57 per share.

Macy’s now expects comparable-store sales growth between 4.8% and 5% for fiscal 2011.For the fourth quarter, management reiterated comps to increase between 4% and 4.5%.

Let’s Conclude

Macy’s department stores sell a wide range of merchandise. Its products include men’s, women’s, and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods.

In an attempt to increase sales, profitability and cash flows, the company has been taking steps such as integration of operations, consolidation of divisions, customer-centric localization initiatives, as well as developing e-commerce business and online order fulfillment centers. Moreover, Macy’s continues to focus on price optimization, inventory management and merchandise planning to drive traffic.

Given the turbulent economy, it is obvious that consumers will have to keep a close watch on their wallets this holiday season. Consequently, a price war may trigger among retailing companies, who will leave no stone unturned to win the hearts of bargain hunters. However, given the track records, Macy’s appears to be one of the forerunners.

Macy’s, which competes with J. C. Penney Company Inc. (NYSE:JCP) and Dillard’s Inc. (NYSE:DDS), currently operates approximately 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico.

Currently, we have a long-term ‘Outperform’ rating on the stock. However, Macy’s holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

DILLARDS INC-A: Free Stock Analysis Report

JC PENNEY INC: Free Stock Analysis Report

MACYS INC: Free Stock Analysis Report

Zacks Investment Research