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Macy’s Beats 4Q Sales Estimates, Sees Recovery In 2021; Shares Drop 2.6%

Macy’s fourth-quarter earnings came in ahead of the Street consensus as the retail chain operator benefitted from a better-than-expected holiday sales quarter. Meanwhile, shares dropped 2.6% in Tuesday’s morning trading.

Macy’s (M) sales for the quarter declined 18.7% to $6.78 billion year-on-year but topped the consensus estimates of $6.5 billion. The company reported 4Q adjusted diluted earnings per share (EPS) of $0.80, blowing past analysts’ estimates of $0.12.

The company’s digital platform saw sales in 4Q grow 21% year-on-year with digital penetration at 44% of net sales.

Macy’s CEO, Jeff Gennette said, “…fourth quarter results exceeded our expectations across all three of our brands, as we showed continued quarter-to-quarter sales performance improvements and returned to profitability. Performance was driven by the home, beauty, jewelry and watch categories, growth in digital sales and by acquiring new customers.”

“We anticipate annual digital sales to reach $10 billion within the next three years, and that digital will become an even more profitable contributor to our business. Additionally, we exited the quarter with a lower cost base and a strong liquidity position, supported by a $3 billion asset-based lending facility that we have not drawn upon,” Gennette added.

The company’s comparable-store sales were down by 17% year-on-year in 4Q due to the pandemic-led restrictions on its company-owned stores. (See Macy’s stock analysis on TipRanks)

Macy’s expects FY21 to be a recovery year with net sales to range between $19.75 billion to $20.75 billion and adjusted diluted EPS to land between $0.4 to $0.9.

Deutsche Bank analyst Paul Trussell recently raised the stock’s price target from $9 to $15 but reiterated a Hold rating. Trussell said in a research note that COVID-19 had proven to be a  “meaningful positive catalyst for margin trajectory as it forced retailers to make decisions about organizational structure, real estate, and pace of digital investments while also experiencing reduced competition and an opportunity to reset promotional activity and inventory level.”

The rest of the Street is sidelined on the stock with a Hold consensus rating. That’s based on 2 Buys, 1 Hold and 3 Sells. The average analyst price target of $12 implies 20% downside potential to current levels.

According to the TipRanks Smart Score system, Macy’s scores a low 1 out of 10 indicating that the stock is likely to underperform the market.

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