Shares of American retailer Macy’s Inc. (NYSE: M) gained more than 19% to close at $22.92 after the company reported outstanding first quarter results that beat Wall Street expectations.
Macy’s offerings include apparel, accessories, cosmetics, home furnishings, and other consumer goods, all of which have witnessed a slowdown in demand due to inflationary pressures.
Nonetheless, “We saw a notable shift back to occasion-based apparel and in-store shopping, as well as continued strength in sales of luxury goods,” noted Jeff Gennette, chairman and CEO of Macy’s.
“We believe that the efficiencies we built into our business enable us to navigate through the current uncertain macro environment,” Gennette concluded.
Furthermore, comparable sales showed robust increases across all of the company’s nameplates, including Macy’s, Bloomingdale’s, and Bluemercury.
Results in Detail
Macy’s reported adjusted earnings of $1.08 per share, 25 cents higher than analysts’ estimates and significantly higher than the prior quarter’s figure of $0.39 per share.
Similarly, Macy’s net sales of $5.35 billion leaped 13.6% year-over-year and surpassed consensus estimates by $20 million.
Also, company-wide comparable sales rose 12.8% on an owned basis and grew 12.4% on an owned-plus-licensed basis.
2022 Outlook
Based on the continued demand momentum as well as accounting for the Q1 share repurchases and improved expectations from credit card revenue, Macy’s reaffirmed its full-year sales expectations and increased its FY22 adjusted earnings guidance.
For FY22, Macy’s expects net sales to fall between $24.46 and $24.70 billion, while the consensus estimate is pegged mid-way at $24.52 billion.
Notably, Macy’s now expects FY22 adjusted earnings to fall in the range of $4.53 per share to $4.95 per share (the prior guide was between $4.13 per share and $4.52 per share). Meanwhile, the consensus estimate is much lower at $4.34 per share.
Analysts’ View
Following Macy’s upbeat quarterly performance, Guggenheim analyst Robert Drbul maintained a Hold rating on the stock but increased the FY22 and FY23 earnings estimates to $4.75 and $4.90 per share, respectively.
Drbul noted, “While fundamentals and the overall health of the business are improving without a major recovery in tourism, we remain NEUTRAL on Macy’s at these levels. Despite the potential to expand market share by opening off-mall smaller format stores and increasing digital penetration, we note that Macy’s is still largely mall-based, which is one of the most significant structural risks we see at this point in time.”
The analyst is particularly encouraged by Macy’s cost reduction and rightsizing strategies and believes the company is well on track to achieve its goal of $10 billion in e-commerce sales by 2023.
other analysts on the Street also resonate with Drbul’s view and have awarded Macy’s a Hold consensus rating based on two Buys, two Holds, and two Sells. The average Macy’s price forecast of $28 implies 22.2% upside potential to current levels. Meanwhile, the stock has lost 15.7% year to date.
Hedge Funds
TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Macy’s is currently Positive, as 12 hedge funds increased their cumulative holdings of M stock by 214,400 shares in the last quarter.
Ending Thoughts
Macy’s has displayed its capability to overcome the near-term challenges. However, the uncertainty of inflation still looms over the retail sector, and it could continue to remain under duress until the macroeconomic factors turn in its favor.
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