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Macy's Earnings Beats Estimate

Zacks Equity Research

Macy’s Inc. (M) posted better-than-expected third-quarter fiscal 2013 results, wherein earnings of 47 cents a share surpassed the Zacks Consensus Estimate of 38 cents, and rose 31% from 36 cents earned in the prior-year quarter. As a result, the shares of this Zacks Rank #3 (Hold) stock jumped 7.5% or $3.47 to $49.80 during pre-market trading hours.

Management cited that My Macy's localization initiatives, omnichannel integration, Magic Selling and promotional strategies were the driving factors behind the sturdy performance amid a tepid economic environment. This is 15th successive quarter that this Cincinnati, Ohio-based company has registered year-over-year growth in earnings per share.

Total sales increased 3.3% to $6,276 million in the quarter from $6,075 million in the year-ago period, and also came ahead of the Zacks Consensus Estimate of $6,183 million. Comparable-store sales for the quarter rose 3.5%, while including sales generated from third party licensed departments, comparable sales jumped 4.6%.

Gross profit in the quarter grew 2.3% to $2,459 million; however, gross profit margin shriveled 40 basis points to 39.2%. Operating income surged 10.8% to $360 million, whereas operating margin expanded 30 basis points to 5.7%.

Store Update

During the quarter, the company opened a new Macy’s replacement outlet in Bay Shore, NY, and combined the Macy’s men’s and furniture outlet in downtown Sacramento, CA, into a full-line outlet. The company in the fourth quarter opened a new Bloomingdale’s outlet in Glendale, CA.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $1,171 million, long-term debt of $6,732 million, reflecting a debt-to-capitalization ratio of 55.3% and shareholders’ equity of $5,442 million.

Macy’s has been actively managing its cash flow, returning much of its free cash to shareholders via dividends or share repurchase activity, while maintaining a healthy balance sheet and credit ratios that are necessary for an investment-grade rating.

During the quarter, the company bought back approximately 10.1 million shares for about $447 million. So far in the fiscal year, the company has repurchased about 27.6 million shares of worth approximately $1.25 billion. Macy’s still has $1.75 billion remaining at its disposal as of Nov 2, under its share repurchase authorization.

Macy’s generated net cash flow of $819 million from operating activities in the first-nine month of fiscal 2013 compared with $889 million in the year-ago period.

Strolling Through Guidance

Despite strong results Macy’s reiterated its outlook, provided earlier. Management continues to anticipate comparable-store sales growth of 2.5% to 4% in the second half of 2013. For fiscal 2013, comps growth is forecasted between 2% and 2.9%. Macy’s maintained full year earnings projection of $3.80 to $3.90 per share.

The current Zacks Consensus Estimate for the fiscal year is $3.77 per share.

Other Stocks to Consider

Until any further upgrade in Macy’s Zacks Rank, other well performing stock in the retail sector include Hanesbrands Inc. (HBI) and Best Buy Co., Inc. (BBY) both carrying a Zacks Rank #1 (Strong Buy), and Five Below, Inc. (FIVE) sporting a Zacks Rank #2 (Buy).

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Read the Full Research Report on FIVE
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Read the Full Research Report on HBI

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