Macy’s Inc. (M - Analyst Report) again disappointed investors by posting lower-than-expected results for the second straight quarter in fiscal 2015 that compelled management to lower sales projection. The second quarter earnings of 64 cents a share fell short of the Zacks Consensus Estimate of 75 cents, and declined 20% from 80 cents delivered in the year-ago quarter.
Subdued consumer demand, port disruption and lower spending by international tourists due to stronger dollar dampened the performance of this Zacks Rank #4 (Sell) company. However, management remained optimistic of improving the company’s performance in the second half of the year.
This Cincinnati, OH-based company generated net sales of $6,104 million that decreased 2.6% year over year, and also came below the Zacks Consensus Estimate of $6,237.8 million. Comparable sales on an owned plus licensed basis dropped 1.5% during the quarter, while on an owned basis, comparable-store sales decreased 2.1%.
Management had earlier highlighted that the company has undertaken initiatives – Macy’s Backstage off-price business, the launch of new Plenti loyalty rewards program, the introduction of the new Thalia Sodi private brand, and expansion of Bluemercury – to bring itself back on the growth trajectory. The company has been taking steps such as omnichannel integration, development of online order fulfillment centers, Buy Online Pickup in Store” initiative and bringing in additional markets under the ambit of same-day delivery service.
Moreover, concurrent with the release Macy’s also announced that it has entered into a joint venture with Fung Retailing Limited – one of the leading retailers in Greater China – in an attempt to tap retailing opportunities in the fast-growing Chinese markets. Holding a 65% stake in the joint venture to be called Macy’s China Limited, Macy’s will launch online flagship store on Alibaba Group’s Tmall Global to commence sales in late 2015.
Macy’s China Limited plans to invest about $25 million in the next 18 months. Of the total investment, Macy’s will contribute 65%, while the remaining will be funded by Fung Retailing Limited. Management expects to generate sales of approximately $50 million in China in 2016.
Coming back to results, gross profit in the quarter declined 3.9% year over year to $2,494 million, whereas, gross profit margin contracted 50 basis points to 40.9%. Operating income also fell 23.6% to $436 million, whereas operating margin shriveled 200 basis points to 7.1%.
Store Update
During the quarter, management closed Macy’s stores in Pittsburgh, PA, and West Orange, NJ, and opened 3 new Bluemercury locations. In the fall season, stores slated to be opened include a Macy’s in Ponce, PR, a full-line Bloomingdale’s in Honolulu, 6 Macy’s Backstage, 1 Bloomingdale’s Outlet, and 10 additional Bluemercury freestanding specialty stores. The company in the final quarter of fiscal 2015 will close a Macy’s store in Los Angeles, CA, and will open a new outlet in the same mall.
Other Financial Aspects
Macy’s ended the quarter with cash and cash equivalents of $843 million, long-term debt of $7,181 million, and shareholders’ equity of $4,844 million.
Macy’s has been actively managing its cash flow, returning much of its free cash to shareholders via dividends or share repurchase activity.
During the quarter under review, the company bought back approximately 8 million shares for about $552 million. So far in the fiscal year, the company had repurchased approximately 13.9 million shares for about $937 million. As of Aug 1, the company still had $1.6 billion remaining under its share buyback program.
Guidance
Management continues to project fiscal 2015 earnings in the band of $4.70–$4.80 per share. Analysts polled by Zacks forecast earnings of $4.61 for the fiscal.
However, Macy’s lowers its sales forecast on account of dismal performance witnessed during the first half of the year. The company now projects total sales to decline 1% in fiscal 2015, and anticipates comparable sales to be flat on an owned plus licensed basis, and 50 basis points lower on an owned basis in fiscal year.
Earlier, Macy’s had envisioned total sales increase of 1% during the fiscal and comparable sales growth of approximately 2% on an owned plus licensed basis.
Other Stocks to Consider
Better-ranked stocks in the retail sector include Columbia Sportswear Company (COLM - Snapshot Report) sporting a Zacks Rank #1 (Strong Buy), J. C. Penney Company, Inc. (JCP - Analyst Report) and G-III Apparel Group, Ltd. (GIII - Snapshot Report) both carrying a Zacks Rank #2 (Buy).
Comments
Log in or sign up to join the conversation.