Departmental store giant Macy's (M, Financial) reported its third quarter results on November 12 that met analysts’ expectations in terms of bottom line while the sales plummeted further as competition intensifies in the retail sector. News sources have confirmed that the retailer has also cut the full-year earnings per share and sales guidance for the fiscal year, which might leave investors wondering whether they should still keep their position in the stock intact. Let’s dig deeper to find out the key highlights of the quarter.
The mixed quarter numbers
Macy’s reported $6.2 billion in the third quarter as revenue, a 1.3% slide from that reported in the similar period of last year and that missed the $6.3 billion analyst consensus. Net income for the quarter came in at $217 million, a figure that resulted in earnings of $0.61 a share. The earnings did grow by a whopping 30% than the per-share profit reported in the year-ago quarter, and also beat the Wall Street consensus by $0.12 per share.
The surprising factor was that while analysts had expected an increase of 1.9%, Macy's reported a 1.4% decline in comparable store sales. CEO, Terry Lundgren commented, “We knew we were up against very strong third-quarter sales growth for our company last year, and thus we had anticipated that our year-over-year comparison would be lower in the third quarter than in the fourth quarter…”
Investors were contented with improved cost cutting led bottom line beat, which led the stock on an upward trajectory soon after the earnings release. Currently the stock is up 1.4%, and on a year to date basis the stock is up 9.7%.
Outlook looks to be a sound one
The company’s CEO looked contended with the third-quarter results, though the sales performance fell below expectations. He further added that the fourth-quarter growth would be based on several factors including its merchandise and marketing strategies.
While revising the fiscal year guidance, CFO Karen Hoguet seemed optimistic about improvement of sales in the holiday season with the “Buy online, pick up” store feature gaining momentum in the last quarter. The management is expecting the same-store-sales in the fourth quarter to increase between 2% and 3%. Earnings for the full year are now expected to be in the range of $4.25 to $4.35 a share, compared with the previous guidance that was in the range of $4.40 to $4.50 a share. The sudden fall in comparable store sales has led the top brass to take a cautious stand for the near future.
Lundgren stated that despite the muted full-year guidance, factors including merchandise and “more normalized weather patterns after the unusually severe snowstorms in the fourth quarter last year” does serve as a ray of hope for strong sales in the fourth quarter.
Concrete strategies in place
This fall, the company is testing a same-day-delivery service for products purchased at Macys.com, bloomingdales.com or on its mobile-enabled websites. Macy’s is offering this service mainly in eight of its operating markets – Chicago, Houston, Los Angeles, New Jersey, San Francisco, San Jose, Seattle and Washington, D.C. Bloomingdale’s is also testing same-day delivery to customers in four major U.S. markets – Chicago, Los Angeles, San Francisco and San Jose.
The company is also expecting more footfalls in its stores during Thanksgiving and Christmas,as it has rolled out the opportunity for shoppers to shop online and then pick up the merchandise from its stores.
Through such strategies, the retailer is trying to create a more seamless experience for shoppers who are slowing shifting their focus from conventional stores to websites.
Final take
Among the reputed departmental store honchos, Macy's was the first to report the third quarter earnings. Its earnings did give some idea that the conventional store concept is slowly dying out though retailers are trying to persuade shoppers to visit stores by adopting various strategies to improve the footfalls to such stores. While the job market is improving, shoppers in the U.S. are still grappling with stagnant wages. Such headwinds have forced companies to caution that fall sales were weaker than what was actually expected. Investors might be worried about the future growth prospects though the earnings did not disappoint the market much. Its best to stay hooked to the company’s news corner till the end of the fiscal year to ascertain whether holding to the investment could be a fruitful exercise.
