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Bear of the Day: Macy's (M)

Benjamin Rains

Macy's (M) stock suffered its single worst trading day in history last week after it lowered its earnings guidance after lower-than-expected holiday sales. Worse yet, the company’s 2019 top and bottom-line projections don’t look as though they will help Macy’s stock climb back amid the quickly changing retail age. 

Holiday Quarter Update

Macy's revised last Thursday its sales and earnings forecast for fiscal 2018 after it experienced slower than anticipated sales during the vital holiday shopping season. The company noted that the season started off strong during the Black Friday weekend, but then fell off until the week of Christmas.

The department store now expects to report flat sales for fiscal 2018, down from November’s guidance that called for growth between 0.3% to 0.7%. The company also lowed its comparable store sales outlook for the year to approximately 2%, down from between 2.3% to 2.5%. Meanwhile, Macy’s is now calling for diluted earnings per share in the range of $3.95 to $4, compared with its prior range of $4.10 to $4.30.

Macy’s also expects its fiscal 2018 gross margin to be down slightly compared to the prior year, instead of up slightly. The retailer’s newly lowered guidance sent M stock down nearly 18%, which marked its worst single trading day in company history. Macy’s performance also helped send fellow retailers Kohl's (KSS), JC Penney (JCP), and Victoria's Secret owner L Brands (LB) down as well. Even Target (TGT), which reported strong holiday period sales results last week, saw its stock price fall last Thursday.

Price Movement 

With that said, Macy’s stock had been trending in the wrong direction for months prior to last week’s historic tumble. Overall, shares of M have sunk over 32% in the last six months, which is far worse than the S&P 500’s roughly 8% decline.

If we jump back over the last 25 years, we can see that owning Macy’s stock has been a somewhat wild ride, especially over the past five years, which has seen the company’s shares tumble 55%. Macy’s is of course not alone, with the department store industry down an average of 37% during this stretch as shoppers and investors move on to new offerings in the Amazon (AMZN) age.

Outlook & Earnings Trends

Looking ahead, our current Zacks Consensus Estimate calls for Macy’s Q4 revenues to sink 2.4% to reach $8.46 billion. The department store’s full-year revenues are projected to pop roughly 0.5% to $24.97 billion. Peeking even further ahead, investors should note that the company’s fiscal 2019 revenues are projected to slip 0.4% below our current-year projection.

Moving on, Macy’s adjusted fourth-quarter earnings are expected to sink 6% to hit $2.65 per share. The company’s adjusted full-year earnings are still projected to climb 7.43%. However, the firm’s fiscal 2019 earnings are projected to come in nearly 18% below our 2018 estimate.

Maybe worse still, Macy’s earnings estimate revision picture has turned completely negative throughout the quarter. And we can see that this negativity has continued over the last seven days.

Bottom Line

Macy’s is currently a Zacks Rank #5 (Strong Sell) based mostly on the firm’s negative earnings revision trends we just discussed. On top of the company’s current projections and earnings trends, the entire department store industry has remained influx despite attempts to revamp their e-commerce platforms and further adapt with the times.

Investors still interested in the department store industry might instead look to other retailers, as none of Macy’s peers—Dillard's (DDS), Kohl's, JC Penney—sport ratings any better than a #3 (Hold). With that said, Lululemon (LULU), Crocs (CROX), and Under Armour (UAA) are all either Zacks Rank #1 (Strong Buy) or #2 (Buy) stocks at the moment.

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