Macy’s Inc. (M, Financial) recently announced its fourth-quarter and full-year results for fiscal 2014. The Macy’s stock generated $9,364 million worth of sales in the fourth quarter, up 1.8% year-over-year, but fell shy of consensus estimate that had pegged the figure at $9,392 million. The company also logged earnings of $2.44 a share that represents a mere 5.6% growth from $2.31 a share of the year-ago quarter. Macy's attributed the weak results to consumers spending majority of their disposable income on other areas such as health care, electronics and cars. Further, following a relatively soft holiday season, the company revealed a cautious outlook for FY2015.
Marginal growth in 2014 sales, earnings
Macy’s Inc. reported a 2.2% dip in net income for Q4 2014 at $792 million compared to the prior-year figure of $811 million, with a GAAP EPS of $2.26 per share. The company’s revenue grew less than 1% for the full-year 2014 and stood at $28.1 billion, while net income grew 2.7% over the previous fiscal to $1.5 billion. Further, the company logged in GAAP earnings of $4.22 per share.
Although Macy’s gross profit inched up 1% year-over-year to touch $3,775 million in the fourth quarter, the company saw its gross profit margin contract by 30 basis points to 40.3%. Concurrently, while adjusted operating income grew 1% to $1,451 million, the company’s operating margin dipped by 10 basis points to 15.5%.
During fiscal 2014, Macy’s also bought back around 31.9 million shares for approximately $1.9 billion, with the company holding around $1 billion at its disposal as of Jan. 31, 2015, the under the share repurchase authorization. Further, Macy’s generated $2,709 million in net cash flow from operating activities in FY2014 compared with the figure of $2,549 million in the previous fiscal.
Restructuring plans afoot
During FY2014, Macy’s launched five new outlets and shut down 22 locations. In terms of store sales, Macy’s witnessed a 2.5% gain in same stores in the fourth quarter, while the gain for the full-year was 1.4%. Concurrently, sales in comparable-stores on an owned basis logged in a 2% growth for the fourth quarter ended Jan. 31, while comparable stores on an owned plus licensed basis saw a 2.5% growth in sales. For the full-year 2014, the company reported a 1.4% growth in comparable sales on an owned plus licensed basis. On an owned basis, comparable sales grew 0.7%.
Announcing restructuring plans to improve its top and bottom lines growth, the company said it plans to respond to shifting consumer shopping trends by changing the way it stocks and sells its clothing line and other items. Apart from strengthening its ecommerce and opening more outlet stores, Macy’s is also considering off-price retailing, on the lines of Ross Stores Inc. (ROST, Financial) and T.J. Maxx (TJX, Financial). Further, aiming to expand its core signature Beauty business, Macy’s recently signed an all-cash deal towards the $210 million acquisition of Bluemercury, a reputed American retailer of spa services and luxury beauty products that operates almost 60 specialty outlets across 18 states in the U.S. Macy’s restructuring plans that will affect over 2,000 nationwide workers, is expected to save the company around $140 million annually, starting in FY2015. The retailer also plans to open Bloomingdale's and Macy’s stores in Abu Dhabi, UAE, in 2018 under license contracts with the Al Tayer Group.
Outlook for 2015
Macy’s Inc. offered a tame outlook for 2015, with the company projecting a 1% growth in revenue and an EPS in the range of $4.70-$4.80 a share. While same-store sales are projected to grow to around 2%, the company foresees overall sales to grow 1% to touch $28.39bn. Concurrently, capital expenditure is expected to touch around $1.2bn during fiscal 2015.
Following the flat outlook, Macy's stock dipped 4.8% to a low of $61.10 before closing at $62.10, down 3.2 percent.
Final thoughts
Macy’s, which also operates the upscale Bloomingdale's chain, has stood out among its peers through the economic recovery in the U.S. and has benefited from its strategy to offer tailor-made merchandise to local markets. However, the company is witnessing slower sales growth on the back of intense competition from online retailers as well as a shift in consumer’s focus away from clothing towards gadgets and other segments. Investors will have to wait and watch how the restructuring efforts of the company pan out in the forthcoming months. Consequently, experts offer "hold" guidance for the Macy’s stock for the short to mid term.
Better-ranked stocks in the retail sector such as Kohl's Corp. (KSS, Financial) and JC Penney Inc. (JCP, Financial) currently hold "buy" guidance from experts.
