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Why Is Macy's (M) Down 9.4% Since Last Earnings Report?

A month has gone by since the last earnings report for Macy's (M). Shares have lost about 9.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Macy's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Macy's Q1 Earnings Beat Estimates, Comps Decline Y/Y

Macy’s reported first-quarter fiscal 2024 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. However, total revenues and earnings declined from the year-ago quarter’s reported figures. Comparable sales fell on an owned basis and an owned-plus-licensed basis.

Sales & Earnings Picture

Macy’s reported adjusted earnings of 27 cents per share, surpassing the Zacks Consensus Estimate of 18 cents. However, the bottom line decreased from adjusted earnings of 56 cents per share in the year-ago period.

Net sales of $4,846 million beat the consensus estimate of $4,836 million. However, the top line dipped 2.7% from the year-ago quarter. Comparable sales fell 1.2% on an owned basis and 0.3% on an owned-plus-licensed basis from the prior-year quarter.

Macy's comparable sales for its ongoing business, which includes physical locations and online sales, decreased 0.9% year over year on an owned basis but increased 0.1% when including owned, licensed and marketplace sales.

Net credit card revenues were $117 million, down 27.8% from the year-ago period. The metric represented 2.4% of sales, down 90 basis points from the year-ago quarter. This was due to the impacts of expected higher delinquency rates and net credit losses within the portfolio.

Details by Brand

Comparable sales across Macy’s declined 1.6% year over year on an owned basis and 0.4% on an owned-plus-licensed basis. At the Bloomingdale’s brand, comparable sales increased 0.8% on an owned basis and 0.3% on an owned-plus-licensed basis. Comparable sales at the Bluemercury brand rose 4.3% on an owned basis.

Margins

The gross margin was 39.2%. The metric decreased from 40% in the prior-year quarter. The merchandise margin fell 100 basis points mainly due to increased discounts on slow-selling warm-weather products. Delivery costs, as a percentage of net sales, increased 20 basis points from the previous year, reflecting continued efforts to enhance supply-chain efficiency.

The company reported selling, general and administrative (SG&A) expenses of $1.91 billion, down from $1.95 billion in the year-ago period. As a percentage of net sales, SG&A expenses increased 50 basis points year over year to 38.2% on lower net sales and credit card revenues.

Macy’s reported an adjusted EBITDA of $364 million, down from an adjusted EBITDA of $468 million in the year-ago quarter. We note that the adjusted EBITDA margin was 7.5%, down 190 basis points year over year.

Other Financial Aspects

Macy’s ended the quarter with cash and cash equivalents of $876 million, long-term debt of $2.99 billion and shareholders' equity of $4.19 billion. Merchandise inventories rose 1.7% on a year-over-year basis. In the first quarter of fiscal 2024, Macy’s provided cash from operating activities of $129 million.

A Peek Into Guidance

Macy's continues to regard fiscal 2024 as a transition and investment year, reflecting its commitment to key customer-focused strategic initiatives, which are supported by its strong balance sheet. Per the outlook, customers will remain selective in their discretionary spending. The view also provides Macy's with the flexibility to adapt to changes in the competitive landscape and promotional environment.

Net sales are projected to be $22.3-$22.9 billion, suggesting a decline from the $23.1 billion reported in fiscal 2023. Comparable owned-plus-licensed sales on a 52-week basis are expected between a 1% decrease and an increase of up to 1.5% from that reported in 2023.

The gross margin is anticipated to be 39-39.3% for the fiscal year. The adjusted EBITDA margin is estimated to be 8.7-9% of the total revenues. The SG&A expense rate is expected to be 36.3-36.4%. Adjusted earnings per share are envisioned to be $2.55-$2.90 for fiscal 2024, implying a decline from the $3.50 earned in the prior year. Capital expenditure is anticipated to be $875 million.

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How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 29.03% due to these changes.

VGM Scores

At this time, Macy's has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Macy's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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