Is Macy's Still A Buy?

Following Macy’s Inc M’s Q2 earnings report, Macquarie analyst Laurent Vasilescu released a report breaking down the takeaways from Macy’s quarter and what shareholders should be watching for next. Overall, Macquarie maintains its bullish outlook for the retailer.

Asian opportunity
On the heels of its expansion efforts in the Middle East, Macy’s announced it will now be cracking in to the Asian market via a JV with Chinese retailer Fung Retailing Limited. Macy's had previously shipped orders to China from the U.S., but the newly-created Macy’s China Limited will ship to China directly from Hong Kong.

The company is not expecting material impacts to its bottom line from the new venture until 2016, when it is projecting an additional $50 million in e-commerce sales.

Real Estate
Macys also announced a purchase & sale agreement for its Brooklyn location. According to the terms of the agreement, Macy’s will receive $170 million in cash and another $100 million over the next three years to remodel the location. The transaction is expected to be completed in Q4, and the remodeling will be completed by 2018.

Products
Management admitted that they are working on a new strategy to boost slumping watch and jewelry sales. However, other retail segments have been performing extremely well. “While the company does not call out performance by particular brands, it was note that the athletic business has done very well during 1H15 with strength in every category,” Vasilescu explains.

Macquarie remains bullish on Nike Inc NKE, V.F. Corp VFC and Under Armour Inc UA.

Outlook
Following the Q2 report, Macquarie lowered its 2015 earnings estimates from $4.73 per share to $4.60. However, the firm maintains its Buy rating and $70 target for Macy’s stock.