Earnings Preview: Macy’s

Macy’s, Inc. (M), one of the leading department store retailers in the United States, is scheduled to report its first-quarter 2011 financial results before the bell on Wednesday, May 11, 2011. The current Zacks Consensus Estimate for the quarter is 18 cents a share. For the quarter under review, the Zacks Consensus estimates revenue at $5,844 million.

Fourth-Quarter 2010, a Synopsis

On February 22, 2011, Macy’s posted fourth-quarter 2010 results that topped the Zacks expectations. The quarterly earnings of $1.59 per share outperformed the Zacks Consensus Estimate of $1.51, and rose 17.8% from $1.35 delivered in the prior-year quarter. The quarterly earnings also surpassed management’s guidance range of $1.44 to $1.49 per share.

Cincinnati, Ohio-based Macy’s said that total sales grew 5.4% to $8,269 million in the third quarter from $7,849 million in the prior-year quarter. However, total revenue missed the Zacks Consensus Estimate of $8,306 million. Comparable-store sales for the quarter jumped 4.3%.

First-Quarter 2011 Consensus

Analysts surveyed by Zacks expect Macy’s to post first-quarter 2011 earnings of 18 cents a share. The current Zacks Consensus Estimate reflects a growth of more than threefold from the prior-year quarter earnings of 5 cents a share. The current Zacks Consensus Estimate for the quarter range from a low of 14 cents to a high of 20 cents.

Zacks Agreement & Magnitude

Of the 14 analysts following the stock, 7 analysts revised their estimates upwards in the last 30 days, and 6 analysts raised their projections in the last 7 days. The Zacks Consensus Estimate jumped by 3 cents in the last 30 days and inched up by 2 cents in the last 7 days, to reach 18 cents a share.

The better-than-expected sales results for the four-week period ended April 30, 2011 compelled the analysts to revisit their estimates. Macy’s comparable-store sales for April 2011 rose 10.8%, following a marginal increase of 0.9% registered in March 2011, and compared with a 1.1% jump witnessed in April 2010. Management had earlier forecasted an increase of 8% to 9% for the month under review.

Management hinted that the Easter holiday in late April this year compared to early April in the previous year, resulted in a shift in sales in the month under review. Macy’s, said that total sales for April jumped 10.9% to $1,924 million from $1,735 million in the same month last year.

Mixed Earnings Surprise History

With respect to earnings surprises, Macy’s has met as well as topped the Zacks Consensus Estimate over the last four quarters in the range of 0.0% to 166.7%. The average remained at 65.7%. This suggests that Macy’s has beaten the Zacks Consensus Estimate by an average of 65.7% in the trailing four quarters. Given the past performance we expect the company to outperform the Zacks Consensus Estimate.

Macy’s Holds Zacks #3 Rank

Macy’s is taking steps to increase sales, profitability and cash flows, which include integration of operations, consolidation of divisions, customer-centric localization initiatives, as well as developing the e-commerce business and online order fulfillment centers. To help drive traffic the company continues to focus on price optimization, inventory management and merchandise planning.

However, intense competition and higher debt-to-capitalization ratio remain concerns. Moreover, Macy’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.

Currently, we have a long-term Neutral rating on the stock. Moreover, Macy’s holds a Zacks #3 Rank, which translates into a short-term Hold rating.

Macy’s department stores sell a wide range of merchandise. Macy’s products include men’s, women’s, and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods.

Macy’s, which competes with J. C. Penney Company Inc. (JCP), currently operates approximately 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico.

PENNEY (JC) INC (JCP): Free Stock Analysis Report

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