Macy's to report Q4 after announcing plans to slash costs

Macy's (M) is scheduled to report fourth quarter earnings before the market open on Tuesday, February 23 with a conference call scheduled for 9:00 am ET. Macy's is a retailer that sells a range of merchandise, including apparel and accessories, cosmetics, home furnishings and other consumer goods.

EXPECTATIONS: Analysts are looking for earnings per share of $1.89 on revenue of $8.83B, according to First Call. The consensus range for EPS is $1.85-$1.93 on revenue of $8.75B-$8.91B. On January 29, Macy's cut its Q4 EPS view to $1.85-$1.90 excluding charges from $2.18-$2.23 and lowered its FY15 EPS view to $3.54-$3.59 excluding items from $2.18-$2.23 against analysts' estimates at that time for $2.21.

LAST QUARTER: Macy's reported third quarter EPS of 56c, beating analysts' estimates of 54c, on revenue of $5.87B, which fell below estimates for $6.09B. Comparable sales on an owned plus licensed basis were down by 3.6% in Q3. On an owned basis, third quarter comparable sales declined by 3.9%. Looking ahead, Macy's cut its FY15 EPS view to $4.20-$4.30 excluding charges from $4.70-$4.80, against estimates at that time for $4.65. Macy's said FY15 comparable sales on an owned plus licensed basis to decrease by 1.8%-2.2%, compared with previous guidance of approximately flat. The company expects 2015 total sales to be down by 2.7%-3.1%, compared to previous guidance for total sales to be down approximately 1%.

NEWS: In conjunction with its last earnings release, Macy's said it decided not to pursue the formation of a REIT and commented that "not enough value" would be created from establishing a REIT. Macy's said it engaged Tishman Speyer in an expanded relationship to advise and support the company's senior management team in identifying and advancing potential store redevelopment projects nationwide. Additionally, Macy's said it began a process to explore joint ventures or other deal structures with third parties to redevelop Macy's flagship real estate assets in Manhattan, San Francisco, Chicago and Minneapolis. On its earnings conference call, Macy's said its views on M&A "have not changed," and that it will be "selective." On January 6, Macy's announced plans to slash costs across the business following disappointing results in the final months of 2015. The retailer said it would close 40 out of 770 stores, and that about 3,000 store associates would be impacted by the closures. After announcing that its November/December SSS fell 4.7%, the retailer said the holiday selling season was "challenging." During the quarter, David Einhorn's Greenlight Capital disclosed a stake in Macy's and Starboard Value increased its stake in the retailer. Starboard, on January 11, urged the retailer to unlock the value of its real-estate holdings, pressing the company to follow through with real-estate deals that could "create meaningful and lasting value for shareholders." Starboard's letter stated that it believes the company's real-estate properties are worth $21B, and that the sale of even a small stake in the company's real estate could move the stock higher. In a January 19 interview with CNBC, Macy's CEO Terry Lundgren said the company is pursuing real estate opportunities as it faces pressure to unlock further value. The CEO said he has talked to Starboard CEO Jeff Smith and that some good ideas have emerged from those conversations.

STREET RESEARCH: BMO Capital analyst Wayne Hood said on January 8 that department stores have the most upside among the stocks he covers. Hood expects the company's EPS growth to accelerate this year, and he keeps a $53 price target and Outperform rating on the shares. In December, Goldman analyst Stephen Grambling downgraded Macy's to Neutral from Buy and said he believes cyclical issues and ongoing secular headwinds in Q3 drove most disappointing topline department store results leaving inventory levels high ahead of difficult Q4 comparisons. He said Macy's growth initiatives are not enough to offset fundamental pressures that are likely to continue near-term and secular headwinds from e-commerce, fast fashion, and off-price are not abating, and will result in continued margin pressure.

PRICE ACTION: Macy's reports quarterly earnings following disappointing earnings reports from several retailers, including Nordstrom (JWN), VF Corp (VFC) and Kohl's (KSS). Over the last three months, Macy's is up over 5%. Ahead of Tuesday's earnings report, the stock is up about 0.65% to $40.48.