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Do Macy's (M) Holiday Sales Raise Hopes for Q4 Earnings?

Zacks Equity Research

Macy's, Inc. M is scheduled to report fourth-quarter fiscal 2019 results on Feb 25, before the opening bell. In the last reported quarter, the company witnessed a positive earnings surprise. This department store retailer has a trailing four-quarter positive earnings surprise of 151.8%, on average.

The Zacks Consensus Estimate for fourth-quarter earnings has increased by a couple of cents in the past 30 days and is currently pegged at $1.95. However, the estimate suggests a sharp decline from earnings of $2.73 reported in the year-ago period. The Zacks Consensus Estimate for revenues currently stands at $8,324 million, indicating a decline of 1.6% from the year-ago quarter.

Key Factors to Note

Macy’s came out with decent holiday sales number that reflected an improvement in trend from the third quarter. Notably, better-than-expected performance during the festive season, which coincides with the fourth quarter, is likely to have impacted the upcoming quarterly results. Strong digital business and impressive performance at Growth150 stores is likely to have contributed to the results. Moreover, customers responded well to the company’s gifting assortment and marketing strategy. (Read: Macy's Decent Holiday Sales Number Helps Lift Stock)

The company recently reported preliminary sales results for the fourth quarter. It stated that comparable sales on an owned plus licensed basis declined 0.5%, while on an owned basis fell 0.6%. Clearly, the rate of decline has decelerated sharply on a sequential basis.

From revamping stores to bringing in loyalty program, from embracing new technologies to investments in merchandising strategies, and from improving websites and mobile apps to supply chain modernization, Macy’s has been looking at every nook and cranny to be improve margins.

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

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

What the Zacks Model Unveils

Our proven model doesn’t conclusively predict an earnings beat for Macy’s this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Macy’s carries a Zacks Rank #2 and Earnings ESP of -0.36%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With Favorable Combination

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

Costco COST has an Earnings ESP of +0.56% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores BURL has an Earnings ESP of +0.36% and a Zacks Rank #2.

Dollar Tree DLTR has an Earnings ESP of +1.00% and a Zacks Rank #3.

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