Macy's (M) Q3 Earnings Beat Estimates, Comp Sales Decline

Macy’s, Inc. M reported third-quarter fiscal 2022 results, wherein both the top and the bottom line beat the Zacks Consensus Estimate but declined from the respective year-ago fiscal quarter’s reported figures. Comparable sales fell on an owned basis and an owned-plus-licensed basis.

Management believes that the Polaris Strategy positions M well to navigate the dynamic retail landscape. Also, both Bloomingdale’s and Bluemercury brands performed impressively in the said quarter.

Shares of Macy’s increased 15% in the trading hours on Nov 17, following the better-than-expected results. Over the past three months, the stock has fallen 5.4% compared with the industry’s decline of 19.2%.

Sales & Earnings Picture

This currently Zacks Rank #2 (Buy) Macy’s reported adjusted earnings of 52 cents per share, surpassing the Zacks Consensus Estimate of 19 cents and our estimate of 20 cents. However, the bottom line declined sharply from the adjusted earnings of $1.23 reported in the year-ago fiscal period.

Macy's, Inc. Price, Consensus and EPS Surprise

Macy's, Inc. Price, Consensus and EPS Surprise

Macy's, Inc. price-consensus-eps-surprise-chart | Macy's, Inc. Quote

Net sales of $5,230 million came ahead of the Zacks Consensus Estimate of $5,172 million and our estimate of $5,192.4 million. However, the top line decreased 3.9% from the year-ago fiscal quarter’s reported figure. Comparable sales fell 3.1% on an owned basis and 2.7% on an owned-plus-licensed basis from the prior-year fiscal quarter’s tally. The metric fared better than our estimate of a 4.2% fall on an owned basis and a 4% decline on an owned-plus-licensed basis.

Macy’s’ digital sales dropped 9% from the prior-year fiscal quarter’s level. Approximately 65% of digital demand sales came from mobile devices. Stores fulfilled 29% of digital sales in the quarter.

Digital penetration was 31%, 35% and 19% at Macy’s, Bloomingdale’s and Bluemercury brands, respectively, during the quarter under discussion.

Net credit card revenues amounted to $206 million, down 3.3% from the year-ago fiscal period’s level. The metric represented 3.9% of sales, flat with the year-ago fiscal quarter’s level.

Brand-Wise Details

Comparable sales across Macy’s declined 4.4% on an owned basis and 4% on an owned-plus-licensed basis. On a trailing 12-month basis, 43.6 million active customers shopped the Macy’s brand, up 2% from the year-ago fiscal quarter’s level. M continued witnessing a stellar performance in occasion-based categories, including career and tailored sportswear, fragrances, shoes, dresses and luggage.

At the Bloomingdale brand, comparable sales increased 5.3% on an owned basis and 4.1% on an owned-plus-licensed basis. Management informed that 4.1 million active customers shopped the Bloomingdale’s brand on a trailing 12-month basis, reflecting an increase of 9% from the year-ago fiscal period’s level. Under the Bloomingdale banner, growth was driven by the robust performance in women’s, men’s and kid’s contemporary and dressy apparel, women’s shoes and luggage.

Comparable sales at the Bluemercury brand were up 14% on an owned and owned-plus-licensed basis. About 650,000 active customers shopped the Bluemercury brand on a trailing 12-month basis, representing a 15% increase from the year-ago fiscal quarter’s level.

Margins

The gross margin came in at 38.7%, down from 41% in the prior-year fiscal quarter’s level. The decline from the prior-year fiscal quarter’s level was due to a 230-basis point contraction in the merchandise margin as a result of increased permanent markdowns within the Macy’s brand to sell through slow-moving categories like casual apparel, soft home and warmer weather seasonal goods. Delivery expenses, as a percentage of net sales, were consistent with the year-ago fiscal period’s 4.3% as a rise in fuel costs more than offset the decrease in digital penetration and a fall in cost per package.

SG&A expenses increased 4.3% from the prior-year fiscal quarter’s reported figure to $1,981 million. As a percentage of net sales, SG&A expenses increased 300 basis points year over year to 39.3%.

Macy’s reported an adjusted EBITDA of $439 million, down significantly from an adjusted EBITDA of $765 million in the year-ago fiscal quarter. We note that the adjusted EBITDA margin shriveled 570 basis points to 8.4% from the prior-year fiscal period’s level.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $326 million, a long-term debt of $2,996 million and shareholders' equity of $3,475 million. M’s inventories were 4% higher than the year-ago fiscal quarter’s reported level.

Year to date, M repurchased shares worth $600 million and paid out $130 million as dividends. Macy’s has $1.4 billion remaining under its share repurchase authorization.

During the 39-week period ended Oct 29, 2022, Macy’s generated cash flow from operating activities of $488 million and incurred capital expenditures of $983 million. It generated a negative free cash flow of $373 million. Management expects capital expenditures of $1.2 billion for fiscal 2022.

A Sneak Peek of Guidance

Macy’s continues to envision fiscal 2022 net sales in the bracket of $24,340-$24,580 million. It projected comparable owned-plus-licensed sales to be flat to up 1%. Management forecast credit card revenues, net, to be 3.4% of net sales, up from the previous expectation of 3.3% of net sales. Digital sales are likely to be roughly 33% of net sales.

Macy’s foresees the fiscal 2022 gross margin rate to contract approximately 150 basis points from the last fiscal year’s level. It expects the SG&A expense rate to deteriorate 120 basis points from the prior fiscal year’s level. It now estimates the fiscal 2022 adjusted EBITDA margin to be 10.5% compared with 13.6% recorded in fiscal 2021.

Macy’s now envisions fiscal 2022 adjusted earnings between $4.07 and $4.27 per share, up from the prior projection of $4.00-$4.20. The current view indicates a decline from the adjusted earnings of $5.31 per share reported in fiscal 2021.

For the fourth quarter of fiscal 2022, management anticipates net sales between $8,161 million and $8,401 million compared with the net sales of $8,340 million reported in the year-ago fiscal period. It projected adjusted earnings of $1.47-$1.67 a share for the fourth quarter of fiscal 2022, suggesting a decrease from $1.87 reported in the fourth quarter of fiscal 2021. Macy’s expects the gross margin rate to shrivel not more than 270 basis points from the prior-year fiscal period’s level, implying the impacts of markdowns and a promotional environment.

3 More Stocks Hogging the Limelight

We highlighted three other top-ranked stocks, namely Tecnoglass TGLS, GMS GMS and Wingstop WING.

Tecnoglass manufactures and sells architectural glass and windows, and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 40.5% and 76.4%, respectively, from the respective year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 26.9%, on average.

GMS, a distributor of wallboard and suspended ceiling systems, currently flaunts a Zacks Rank of 1. GMS has a trailing four-quarter earnings surprise of 10.8%, on average.

The Zacks Consensus Estimate for GMS’ current financial-year sales and EPS suggests growth of 10.8% and 10.2%, respectively, from the comparable year-ago reported figures. GMS has an expected EPS growth rate of 10.7% for three-five years.

Wingstop, which franchises and operates restaurants, currently sports a Zacks Rank of 1. TWING has a trailing four-quarter earnings surprise of 5.8%, on average.

The Zacks Consensus Estimate for Wingstop’s current financial-year sales and earnings per share suggests growth of 25.3% and 22.2%, respectively, from the corresponding year-ago reported numbers. WING has an expected EPS growth rate of 11% for three-five years.

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