main learning points
- Macy’s declining earnings weren’t as bad as investors had feared, leading to a jump in the stock price.
- It comes just before the holidays, the busiest time of the year for retailers.
- Investors are wondering if the company can beat future estimates for stable earnings.
Macy’s is one of the world’s largest department stores with 722 locations in the United States. Last week, the company released its third-quarter results. Despite declining earnings, it beat expectations for earnings per share and saw its share price rise.
With the holiday season approaching, investors are wondering whether this price increase will continue into the new year.
Macy’s history dates back to Federated Department Stores, a conglomerate that began as F&R Lazarus & Company, founded in 1851.
Shortly before the Wall Street Crash in 1929, Fred Lazarus Jr. several prominent department store owners, including Walter Rothschild and Edward Filene, to merge their stores into Federated Department Stores.
Lazarus was instrumental in making the department store what it is today. He is also credited with convincing the US President to move Thanksgiving to extend the holiday shopping season. With this they made Black Friday the biggest sales day of the year.
Federated Department Stores expanded and acquired other department stores over the next five decades. The acquisitions include Macy’s, which bought it in 1994.
Macy’s eventually became the company’s consumer-facing identity.
What’s the matter with Macy’s today?
Today, Macy’s is one of the world’s largest department stores and fashion retailers.
Unfortunately, the past few years have not been ideal for the company. With the outbreak of the COVID-19 pandemic, many retailers have been forced to make major changes to the way they operate. They faced several issues including lockdown, supply chain delays and staffing issues.
Complicating the recovery was the slow return of consumers to stores after they reopened.
As of 2020, Macy’s has been trying to recover and expand its pre-pandemic revenues.
Macy’s earnings and stock price
On November 17, Macy’s announced its third quarter 2022 earnings.
Overall, the company saw a drop in most of its vital metrics compared to 2021. Some key details include:
- Net sales: down from $5.4 billion to $5.2 billion in Q3 2021
- Net income: down from $239 million to $108 million in Q3 2021
- Diluted earnings per share: down to $0.39 compared to $0.76 in Q3 2021
However, these numbers exceed company and investor expectations. That helped the stock rise nearly 15%.
“Our Polaris strategy is working. In the third quarter, we delivered solid revenue results and greatly improved our earnings outlook,” said Macy’s President and CEO Jeff Gennett in the company’s earnings release. Macy’s brand positioning as a style and fashion source resonated with our customers, while luxury at Bloomingdale’s and Bloomercury continued to outperform…”
He further added: “We know that consumers are under pressure and have options to spend. As a leading gift destination with fresh stock across a range of price points, we’re ready to meet our customers’ needs this holiday season.
The impact of the pandemic on the company’s business is clear. Macy’s noted that digital sales were down 9% from last year, but up 35% from 2019.
It has also optimized its supply chain methods, improving inventory turnover by 15% compared to pre-pandemic.
Macy’s has weathered the pandemic relatively well by adapting its digital sales and inventory strategies to the post-pandemic world and changes in consumer habits.
The announcement comes just before Black Friday and the holiday shopping season, traditionally the busiest times for retailers in the United States. It also comes at a time of economic uncertainty with high inflation and a possible looming recession.
This means that some investors are concerned about whether the company will post strong sales during the holiday season. Analysts also expect sales to remain flat for the next three years, which is a concern for investors.
Despite these concerns, Macy’s CFO is confident: “We operate from a strong financial position – with reasonable inventory levels, a strong balance sheet with ample liquidity, investment grade credit numbers and rising debt interest rates.” surroundings. We have the tools, data-driven processes and talented teams to navigate these uncertain times, and we remain committed to long-term profitable growth.”
What does this mean for investors
Investors seeking exposure to the retail sector may be interested in Macy’s. The company is one of the largest department stores in the country with a market capitalization of over $6 billion.
Macy’s can still be a good potential investment despite the recent appreciation in value. This is especially true for investors interested in dividends. The company’s estimated dividend yield of 2.8% is relatively solid.
While many analysts expect Macy’s sales to remain flat for the next three years, if it beats expectations, the company could see another major increase in its stock price.
The risk of investing, however, is that fears of a recession materialize. If inflation remains high and the economy slows, many of Macy’s target consumers will feel the pressure and begin to cut spending in discretionary areas, including many of the products sold at Macy’s.
Before buying stocks, investors should think about their predictions about the direction of the economy as a whole. They also need to assess Macy’s ability to adapt to the post-pandemic realities of staff shortages, supply chain delays and changing consumer habits.
Macy’s is one of the largest department stores in the world and has a strong brand through events such as the annual Thanksgiving Day Parade. Investors looking to add a well-known retailer to their portfolios may be interested in the company due to its recent ability to exceed expectations.
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