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Factors Setting the Tone for Macy's (M) Earnings in Q2

Zacks Equity Research

Macy's, Inc. M is scheduled to report second-quarter fiscal 2019 results on Aug 14, before the opening bell. In the last reported quarter, this department store retailer delivered a positive earnings surprise of 41.9%. The company’s bottom line has also outperformed the Zacks Consensus Estimate by average of 39.6% in the trailing four quarters.

How Are Estimates Faring?

The Zacks Consensus Estimate for the to-be-reported quarter is pegged at 46 cents, which indicates a decline of 22% from the year-ago quarter. We note that the Zacks Consensus Estimate has remained stable in the past 30 days. The Zacks Consensus Estimate for revenues currently stands at $5,629 million, suggesting a marginal improvement of 1% from the year-ago quarter. In the last reported quarter, the company’s net sales and earnings per share have declined 0.7% and 8.3%, respectively.

Factors at Play

In spite of taking a slew of measures, Macy’s continues to struggle with soft top-line performance. The company is making every effort to adjust to rapidly changing retail landscape that has turned highly competitive with the increasing dominance of e-commerce players. This has compelled the company to strengthen digital ecosystem, and bolster shipping and delivery capabilities.

While these endeavors support sales, they entail high costs. Additionally, any deleverage in SG&A rate, and increased marketing and other store-related expenses are concerns. Certainly, margins will remain one of the key areas to watch out.

Management had earlier guided gross margin to be down moderately in the first half. We note that gross margin shrunk 80 basis points to 38.2% during the first quarter of fiscal 2019 owing to higher delivery expense.

Moreover, Macy’s at its last earnings conference call highlighted that any escalation in trade war between the United States and China is likely to impact business. It had also informed that earlier rounds of tariff imposition did not have a material impact on the company. Nonetheless, the company is trying all means to mitigate the impact of same.

Further, it is focusing on price optimization, inventory management, merchandise planning and private label offering, and developing omni-channel capabilities and online order fulfillment centers.

The company had highlighted that it will embark on Backstage, Vendor Direct, Store Pickup, Loyalty Program, Growth150 stores, ‘mobile first’ strategy and Destination Businesses to drive growth. The company has also undertaken restructuring actions.

Macy's, Inc. Price, Consensus and EPS Surprise


Macy's, Inc. Price, Consensus and EPS Surprise

Macy's, Inc. price-consensus-eps-surprise-chart | Macy's, Inc. Quote

What the Zacks Model Unveils

Our proven model shows that Macy’s is likely to beat earnings estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Macy’s has a Zacks Rank #3 and an Earnings ESP of +0.73%, which makes surprise prediction difficult.

Other Stocks With Favorable Combination

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Target TGT has an Earnings ESP of +1.04% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores ROST has an Earnings ESP of +1.79% and a Zacks Rank #3.

Costco COST has an Earnings ESP of +0.79% and a Zacks Rank #3.

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