3 Analysts Offer Mixed Views On Macy's Q1 Earnings

Macy’s Inc M reported a vibrant financial performance in its Q1 earnings report released Tuesday. Three analysts tracking the retailer offered responses ranging from encouraging to unimpressed.

The Numbers: Macy’s closed the quarter with a $103 million per share, or 32 cents per share, a vast difference from one year before when it recorded a 3.6 billion loss, or $11.53 per share. Net sales reached $4.71 billion, up from $3.02 billion one year earlier, with 4.6 million customers added in the quarter — and nearly half of those new customers were making online purchases, resulting in 37% of sales originating via e-commerce.

Macy’s also upped its 2021 guidance from $19.7 billion–$20.7 billion to $21.73 billion–$22.2 billion.

Chairman and CEO Jeff Gennette stated the company’s three brands — Macy’s, Bloomingdale’s and Bluemercury — outperformed their respective sales expectations during the quarter.

“As we look to the rest of the year, we are hyper-focused on meeting consumers’ demand for speed, convenience and a seamless omnichannel shopping experience,” Gennette said. “We also continue to evolve our merchandising strategy, and we remain a partner of choice for top brands with more collaborative and profitable vendor relationships.”

The View From Telsey: Telsey Advisory Group’s CEO and Chief Research Officer Dana Telsey cited Macy’s “strong start to FY21 with top- and bottom-line results coming in well ahead of guidance and expectations, inventory remaining clean, and digital sales continuing to grow.”

She noted the company’s three-year Polaris strategy, which was introduced in February 2020 to recalibrate the company for growth and profitability in the midst of shifting consumer shopping trends.

Telsey observed that while Macy’s has weathered the worst of the pandemic, it still “continues to face what we see as structural traffic headwinds in the channel.” Nonetheless, she predicted a continuation of “positive momentum” into the second quarter via a strengthening digital channel, strong sales connected to Mother’s Day and increased sales of clothing and luggage in connection with an expected post-COVID-19-pandemic surge in travel.

As a result of the quarterly report and revised guidance, Tesley increased estimates, forecasting “net sales of $22.15B, up 28% (from +19% prior), with comps up 29% from 19% previously.” She rated Macy’s as Perform and increased its price target from $16 to $20.

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The View From Morgan Stanley: Kimberly C Greenberger, managing director of retail research at Morgan Stanley, acknowledged Macy’s EPS beat the expectations set by her firm and the Street, pointing out how the “earnings beat appears consistent with other specialty retailer and department store revenue and EPS results,” citing a combination of stimulus check funds, improving public health safety and Macy’s ability to clean its inventories and coordinate successful promotions and discounts.

But she also expressed concern that Macy’s Q1 results paled with the Q1 2019 figures in the pre-pandemic environment, commenting how the company “is lagging its mall-based peers, particularly on the top-line.” While praising the ideals of the Polaris strategy, she questioned its results to date.

“We still struggle to identify ways that the business can durably grow shareholder value over the long-term, particularly in light of ongoing secular headwinds, channel shift to digital, and market share losses to competitors & brands' own DTC efforts,” she wrote. “Looking ahead, M's updated 2Q21 and 2021 guidance implies upside to consensus numbers, but today's fractional share price decline suggests the good news was largely priced in.”

Greenberger rated Macy’s as Underperform while raising its price target from $14 to $17.

The View From Credit Suisse: Michael Binetti, managing director at Credit Suisse, highlighted that while Macy’s “beat significantly on sale/margin upside,” the fact the company’s same-store sales were down 10% from Q1 2019 “despite unprecedented stimulus remains a concern.” He speculated that Macy’s “expects negative SSS through the year.”

While offering praise that Macy’s selling, general and administrative expenses were 17% below the Q1 2019 level, it was not enough to alleviate “longer-term structural concerns” on the retailer’s ability to address the shift from mall-based shopping to digital sales.

Based on his mixed feelings about where Macy’s stands today, Binetti rated the stock as Underperform while raising the price target from $13 to $16.

(Photo by Mike Mozart / Flickr Creative Commons.)