Even Though Macy's Posts Decent Earnings, We Still Rate Stock A Sell

Macy's (M) is one of the nation's premier retailers, operating about 885 stores in 45 states, the District of Columbia, Guam and Puerto Rico, under the names of Macy's, Bloomingdale's, Bloomingdale's Outlet and Bluemercury, as well as the macys.com, bloomingdales.com and bluemercury.com websites. Prior to June 1, 2007, Macy's was known as Federated Department Stores.

Earnings season continues and we again focus on retail with a look at the latest earnings from one of the sole survivors in the department-store realm, Macy's.

The company posted Q3 2018 results today, and their numbers were decent. Adjusted earnings for Q3 came in at $0.27/share--a 17% increase from the same period last year. That beat analyst estimates-- which were set at $0.14/share. Revenues declined to $5.4 billion, but that was no surprise and met forecast estimates.

Macy's CEO Jeff Gennette had the following to say about the results

We are pleased with Macy’s, Inc. performance in the third quarter, marking our fourth consecutive quarter of comparable sales growth. Macy’s, Bloomingdale’s and Bluemercury all performed well. Our strategic initiatives are gaining momentum and delivering results. Another double-digit quarter from our digital business and a strong stores performance combined to help us exceed expectations. We continue to see an improved trend in brick and mortar across the fleet with particularly strong results from our Growth50 stores. The holiday season is when Macy’s truly shines. We have the right merchandise, the right marketing and the right customer experiences in place to deliver a strong fourth quarter.

How did Macy's do it? They have been closing non-performing locations, improving good locations--which they call "magnet stores," and they have improved their e-commerce options. They seem to be doing a better job where so many other retailers cannot, using both brick and mortar locations AND online sales to bolster their bottom line and retain customers.

Macy's updated its guidance for the year, and said it now forecasts full-year sales to rise between 0.3% and 0.7%. In addition, they increased EPS estimates for the year by 15 cents and now predict a year-end figure of $4.15-$4.30/ share.

However, as you can see from our recommendation below, our models remain unimpressed with Macy's. We have a SELL on the company due to its poor one-year forecast target price. We will see if that changes moving forward due to the latest results.

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