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Earning Preview: Macy's

Zacks Equity Research

Macy’s Inc. (M), an S&P 500 company and one of the leading department store retailers in the U.S., is scheduled to report its second-quarter 2012 financial results on Wednesday, August 8, before the market opens.

The current Zacks Consensus Estimate for the quarter is 64 cents a share. The estimates in the current Zacks Consensus range between a low of 62 cents and a high of 66 cents a share. The Zacks Consensus estimates revenue at $6,104 million for the second quarter.

Recap of First-Quarter 2012

On May 9, 2012, Macy’s delivered first-quarter 2012 results. The quarterly earnings of 43 cents a share beat the Zacks Consensus Estimate of 40 cents, and soared 43.3% from 30 cents earned in the prior-year quarter on the back of My Macy's localization initiatives, omnichannel integration and robust online sales.

Macy’s said that total sales grew 4.3% to $6,143 million in the quarter from $5,889 million in the prior-year period, and comfortably surpassed the Zacks Consensus Estimate of $6,123 million. Comparable-store sales for the quarter climbed 4.4%.

Zacks Agreement & Magnitude

The Zacks Consensus Estimate for the second quarter of 2012 remained static in both the last 7 and 30 days, despite revisions in estimates made by 2 out of 14 analysts covering the stock in the respective periods. These revisions did not however, materially impact the Estimate.

The upward revision in the estimates was due to better-than-expected July comparable-store sales, which rose 4.1% despite the macroeconomic headwinds and a temporary suspension in sales due to refurbishment of flagship stores in New York City.

Positive Earnings Surprise History

With respect to earnings surprises, Macy’s topped the Zacks Consensus Estimate over the last four quarters in the range of 3% to 100%. The average remained at 31.9%, indicating that the company surpassed the Zacks Consensus Estimate by the same magnitude in the trailing four quarters.   

Closing Comment

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

In an attempt to increase sales, profitability and cash flows, the company has been taking various initiatives such as integration of operations, consolidation of divisions, customer-centric localization initiatives, as well as developing e-commerce business and online order fulfillment centers. Moreover, Macy’s continues to focus on price optimization, inventory management and merchandise planning to drive traffic.

However, the company’s expansion in regions where it already serves could cannibalize its sales performance and bring down traffic counts at its existing stores in these areas. Consequently, this may have a negative impact on the company’s overall performance. Moreover, sluggish economic recovery and erratic consumer behavior also remain the causes for concern.

Currently, we maintain our long-term 'Neutral' recommendation on the stock. However, Macy’s, which competes with J. C. Penney Company Inc. (JCP), Dillard’s Inc. (DDS) and Saks Incorporated (SKS), carries a Zacks #4 Rank that translates into a short-term ‘Sell’ rating.

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