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

Telsey Advisory Group analyst Dana Telsey reiterated a Market Perform rating on the shares of Macy's Inc M with a price target of $25.
The analyst said the Q3 earnings beat was driven by sales and gross margin upside relative to expectations.
Net sales for the quarter fell 3.9% to $5.23 billion, coming in better than the consensus estimate for a 4.4% decline to $5.20 billion and at the high end of management's guidance range of $5.16 billion to $5.23 billion.
Gross margin for the quarter fell 230 basis points to 38.7%, topping the consensus estimate for a 340- basis point decline to 37.6%.
The merchandise margin declined for the quarter, driven by increased promotions and markdowns at the Macy's brand, as the business worked through slower-moving categories, Telsey added.
At the end of Q3, inventory was up just 4.3% year over year (and down 11.8% vs. 3Q19), as the company manages carefully through supply chain disruptions and macro volatility.
The analyst cited that the management brought in seasonal merchandise earlier in preparation for holiday and has the capacity to chase in-season trends.
She also added that, not surprisingly, Bloomingdale's outperforms Macy's brand as the higher-end remains less exposed to macro factors.
Telsey believes management deserves credit for operational discipline in a volatile macro environment.
However, while the Q3 performance improves confidence in the annual outlook at a time of mixed-at-best sentiment on holiday, the lower-than-expected Q4 guide speaks to the overall caution and uncertainty around consumer demand and the promotional environment.
Price Action: M shares are trading higher by 14.7% at $22.62 on the last check Thursday.
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