Macy's Analyst Remains Bearish Following Disappointing Q4 Preannouncement: 'Longer Term Structural Challenges'

Macy's Inc M shares traded lower by 7.5% on Monday morning after the company preannounced disappointing holiday quarter sales numbers over the weekend. Unfortunately, one analyst said Monday that the difficult environment for Macy's is unlikely to improve in the first half of 2023.

The Analyst: Bank of America analyst Lorraine Hutchinson reiterated her Underperform rating and $21 price target for Macy's.

Related Link: Why Macy's Stock Is Moving Lower Monday

The Thesis: On Friday, Macy's said it expects net sales in the fourth quarter to come in on the low end of its previous guidance range of between $8.161 billion to $8.401 billion. Macy's also said it expects Q4 adjusted EPS to fall within its previous guidance range of between $1.47 and $1.67.

Hutchinson said Macy's has done an admirable job managing inventories compared to many of its peers, and fourth-quarter inventory levels are expected to be down in the mid-teen percentage range compared to 2019 levels. However, weaker holiday sales suggest Macy's is facing an uphill battle in 2023.

"Macro pressures will continue to weigh on this customer base and we think the dept store sector faces longer term structural challenges," Hutchinson said.

Related Link: Macy's Q4 Guide Reflects Caution & Uncertainty Around Consumer Demand, Says Analyst

Following the disappointing preannouncement news, Hutchison reduced her 2023 and 2024 EPS estimates for Macy's from $4.23 and $3.45 to $4.20 and $3.35, respectively. In addition, she cut her 2023 and 2024 revenue estimates from $24.437 billion and $24.270 billion to $24.3 billion and $23.935 billion.

Benzinga's Take: Macy's seems to be doing everything right when it comes to managing inventory levels, but it's extremely difficult for department stores to impress Wall Street during an economic downturn. In the longer-term, Macy's will still have to contend with fierce online competition from Amazon.com, Inc. AMZN and others, and the retail sector will likely remain a minefield for investors.