Macy’s Inc. (M) constant focus on price optimization, inventory management, merchandise planning and private label offering positions it to drive traffic, meet customer-oriented demand and improve in-store shopping experience.
We remain optimistic about the company’s customer-centric localization initiative called “My Macy’s”. The program aims at improving comparable-store sales and reducing operating expenses, with stores and merchandise assortments focusing on local customer needs and preferences.
Macy’s department stores sell a wide range of merchandise. Its products include men’s, women’s, and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods.
Macy’s is also seeking to expand both the Macy’s and Bloomingdale’s brands. Online sales, which include macys.com and bloomingdales.com, retained their growth momentum and soared 31.8% in November. Year-to-date, online sales shot up 28.9%.
Macy’s comparable-store sales for November 2010 rose 6.1%, following an increase of 2.5% registered in October 2010 and reflecting a sharp improvement from a decline of 6.1% witnessed in November 2009 driven by robust online and Black Friday sales.
Buoyed by November results, Macy’s lifted its sales and earnings guidance. The company now expects comparable-store sales for fourth-quarter 2010 between 3.5% and 4.5%, up from 3% to 4% anticipated previously. Management hinted at fourth-quarter earnings in the range of $1.44 to $1.49 per share compared with $1.42 to $1.47 projected earlier, which would translate into fiscal 2010 earnings between $1.96 and $2.01.
However, intense competition, a sluggish economic environment and higher debt-to-capitalization ratio still remain the causes for concern. The company ended third-quarter 2010 with long-term debt of $6,982 million, representing debt-to-capitalization ratio of 58.8%, which is substantially higher, and could adversely affect its credit worthiness and make it more susceptible to the competitive pressures.
Moreover, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.
Macy’s, which competes with J. C. Penney Company Inc. (JCP), currently operates approximately 850 department stores in 45 states, covering the District of Columbia, Guam and Puerto Rico.
Currently, we have a ‘Neutral’ rating on the stock. Moreover, Macy’s holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating, and correlates with our long-term recommendation.
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