In a report published Friday, Atlantic Equities analyst Daniela Nedialkova downgraded the rating on Macy's, Inc. (NYSE: M) from Neutral to Underweight, with a price target of $64, due to expectations of softening top-line trends.
"Macy's is in a transition year in terms of investments, and does not have as much self-help available as in prior years to overcome soft industry trends," analyst Nedialkova stated, while mentioning that while the stock has so far received support from speculations of real estate monetization, weaker operating results would have an adverse impact.
According to the Atlantic Equities report, "The weekly industry traffic and sales data are not overly encouraging, given a small sequential improvement in traffic is accompanied by a small sequential decline in sales."
Data aggregators also suggest that there has been in deceleration in department stores since Q1, while pointing to a weak Q2.
The analyst expects Macy's to face headwinds from weakening tourist spending, globally, along with the recent weakness in the accessories business. Gross margins are also expected to face increasing pressure, as the company works to clear late delivered merchandise at a faster than usual pace.
Given that the company is in a transition year, analyst Nedialkova believes that Macy's is "more sensitive to the overall industry than in prior years," and given the expectations of promotions continuing at the current levels, gross margin pressure is likely to continue through 2H.
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