Even After Earnings Beat, Analysts Aren't Buying Macy's

Shares of Macy’s Inc M traded higher this week after the company reported better-than-expected holiday-quarter sales and earnings. Macy’s also announced a plan to cut costs by $100 million, including eliminating 100 management jobs.

Unfortunately for investors, despite closing stores and cutting costs and staff, the company continues to struggle with its same-store sales growth. Macy’s grew same-store sales by just 0.7 percent in the fourth quarter, short of consensus expectations for 0.9 percent growth.

Several analysts have weighed in on Macy’s following the report. Here’s a sampling of what they’ve had to say.

Difficult 2019 Ahead

Bank of America analyst Lorraine Hutchinson said Macy’s investors can expect 2019 to be yet another investment year for Macy’s, but without the same macroeconomic tailwinds the company enjoyed in 2018.

“Margins and core retail profitability will continue to deteriorate as the comp moderates and M ramps investments,” Hutchinson wrote in a note.

Morgan Stanley analyst Kimberly Greenberger said Macy’s 2019 guidance sets a very high bar for the second half of the year.

“Ongoing EBIT and EBITDA declines leave us wondering how Macy’s can create shareholder value in 2019 and beyond,” Greenberger wrote.

Margins Under Pressure

Credit Suisse analyst Michael Binetti said Macy’s growth initiatives are slowing, and its margins are under pressure.

“When excluding credit, retail-only margins are guided to just 2.2-2.5% in ‘19 vs. 2.9% in ’18 (while comping and with $300m of SG&A saves)—well below what we consider a viable LT economic model (especially considering Macy’s below-market rents),” Binetti wrote.

CFRA analyst Camilla Yanushevshy said Macy’s plan to add 45 Backstages in fiscal 2020 could help it gain market share from TJX Companies Inc TJX and Ross Stores, Inc. ROST.

“That said, our Hold rating reflects long-term headwinds we see from apparel makers' consumer-direct offense,” Yanushevshy wrote.

Ratings And Price Targets

• Bank of America has an Underperform rating and $18 target.
• Morgan Stanley has an Underweight rating and $22 target.
• Credit Suisse has a Neutral rating and $26 target.
• CFRA has a Hold rating and $28 target.

Macy's stock traded around $25.34 per share at time of publication, up 2.5 percent.

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