Still Bullish on Macy's

Zacks

We have maintained our long-term Outperform recommendation on Macy’s, Inc. (M) with a target price of $54.00, following the company’s first-quarter fiscal 2013 results. Shares of this department store retailer of apparel, accessories, cosmetics and home furnishings have amassed an impressive year-to-date return of roughly 28%.

Why the Reiteration?

Macy’s has been taking prudent steps to augment sales, profitability and cash flow. These include integration of operations, consolidation of divisions and customer-centric localization initiatives. To help drive traffic, Macy’s continues to focus on price optimization, inventory management and merchandise planning to generate long-term profitability, which is well evident from its record of beating the quarterly earnings expectations.

If we look at the company’s earnings surprise history, Macy’s has outperformed the Zacks Consensus Estimate for 12 straight quarters by an average of 35.6%. In the recent concluded quarter, the company beat the Zacks’ Estimate by 3.8%. The company’s relentless endeavors to keep itself on the growth trajectory have paid off despite the lackluster economy.

Macy’s quarterly earnings of 55 cents a share surpassed the Zacks Consensus Estimate by a couple of cents and surged 28% from 43 cents earned in the prior-year quarter. Total sales grew 4% to $6,387 million, and came ahead of the Zacks Consensus Estimate of $6,380 million. The company’s sound fundamentals across its Macy’s and Bloomingdale’s business are mirrored through strong first-quarter results.

Going forward, Macy’s is expected to continue with its upbeat performance through the My Macy's localization initiatives, omnichannel integration, robust online sales, and effective cost management. Management stood by its earlier earnings guidance of $3.90 to $3.95 per share for fiscal 2013 and anticipates sales to pick up as the weather normalizes. However, this Zacks Rank #3 (Hold) stock hinted that the rate of sales growth in the second quarter would be slower than the first quarter.

Other Stocks Worth Considering

Apart from Macy’s, there are other stocks with a favorable Zacks Rank that are capable of continuing with their upbeat performances. These include Dillard’s Inc. (DDS), Flowers Foods, Inc. (FLO) and Michael Kors Holdings Limited (KORS), all carrying a Zacks Rank #1 (Strong Buy).

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Read the Full Research Report on KORS

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