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Macy’s Is a Good Buy

June 19, 2014 | About:
Suravi Thacker

Suravi Thacker

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Macy’s (M), the retailer of apparel, accessories and food, was hit hard by problems such as lower mall traffic and a calendar shift in the company’s popular event. These problems are not unique to Macy’s only. In fact, it has been a hindrance to most of the retailers, resulting in poor performance by each of them. Nonetheless, the retailer managed to post a decent quarter wherein its earnings beat the Street’s expectations. Let us analyse the quarter in detail.

Mixed numbers

Revenue dropped 1.7% over last year, missing on the expectation of $6.5 billion by 0.2 billion. Also, same store sales declined 1.6%, mainly due to lower store traffic. Severe weather conditions forced people to stay away from stores during the winter season, except for the Valentine’s Day. Nonetheless, the company announced that the month of April was good with growing sales witnessed by the retailer. This was mainly because of the change in weather as spring set in, resulting in higher sales of products such as shorts and dresses.

Also, Macy’s margins inched up slightly to 38.9%, over the prior year’s quarter. Earnings too jumped to $0.60 per share from $0.55 per share, a year earlier. This improvement highlights the retailer’s efficient cost management capabilities which resulted in a higher than expected bottom line.

Strategies well made

Macy’s has some well formulated strategies which have given a competitive edge over other industry players. Firstly, its omni-channel initiatives have been quite effective.

Also, it has been promoting its products well without affecting its margins as well as the bottom line. The company has also undertaken a cost cutting program which cuts jobs of 2,500 employees and closed a number of stores in order to save a total of $100 million annually.

One of the commendable moves of Macy’s is that of its mall redevelopment project, which merges a number of stores in the same mall into one, lowering higher costs of operating more than one store at one place. Moreover, the retailer is not using its profits to open new stores, instead it is giving it back to the shareholders in the form of dividends. In fact, it increased its dividend to $0.31 per share from $0.25 per share earlier. Also, it revised its share buyback program to $2.5 billion from $1.5 billion earlier. Additionally, the Cincinnati-based retailer plans to invest in its e-commerce operations since online shopping is gaining popularity.

Takeaway

Although Macy’s top line was not up to analysts’ expectations, the company is doing a great job of controlling its costs. Also, it has been formulating a number of strategies to grow in stature and post better results. These initiatives should pay off in future. Growing dividends and share buybacks have also made its shareholders increasingly happy, resulting in share price gain after the announcement. Lastly, the company stuck to its earnings outlook for the year of $4.40 to $4.50 per share along with comparable store sales of 2.5% to 3%. Hence, Macy’s should be a good buy.


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