Macy's (M) earnings report unfortunately confirms what we heard from the government yesterday: the consumer has yet to completely thaw out after a long, cold winter. This morning the country's biggest and best department store reported earnings of $0.60 a share, a penny ahead of estimates despite a disappointing drop in sales.
For the year Macy's reiterated its earnings and sales guidance but that's not the story as far as investors are concerned. What's driving the stock higher and putting the fear of God in shorts is that Macy's increased the size of its buyback program by $1.5 billion. That gives the board a $2.5 billion war chest with which it can repurchase shares as it so chooses.
For some companies a buyback program doesn't mean much but Macy's takes these things pretty seriously. Gross margins were strong in Q1 but the only reason Macy's hit its earnings estimate was because they spent $432 million buying back 7.4 million shares. At an average cost per share of $58.38 Macy's overpaid but the buyback added more than 1.5 cents to EPS. That turned a slight miss into a slight beat and reminded shareholders that Macy's management is willing to do whatever it takes to make shareholders happy.
With 800 stores in 45 states Macy's is America's department store. The management here is too good to need excuses and that makes them a perfect economic tell. What we learned from them this morning is that the economy still stinks. It's not tragic but there is nothing here to suggest an acceleration of growth anytime soon. As we brace ourselves for the rest of the merchants reporting later this week keep that in mind. Unfortunately Macy's is probably going to be about as good as it gets.