Macy’s Inc. (M) continues with its positive rhythm as it approaches the end of another successful fiscal year. This is quite evident from its upbeat guidance for fiscal 2011 and the relentless endeavors undertaken to keep itself on the growth trajectory even when the economy is looking for ways to shield itself from the ongoing crisis.
What Drives Macy’s
Macy’s sustained focus on price optimization, inventory management, merchandise planning and private label offering, positions it to drive traffic, meet customer-oriented demand and improve the shopping experience.
In an attempt to increase sales, profitability and cash flows, the company has been taking steps such as integration of operations, consolidation of divisions as well as developing e-commerce business and online order fulfillment centers.
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.
Efforts Reap Results
Macy’s sustained efforts to uplift itself were reflected in the recently reported quarter. The company posted third-quarter 2011 results that outpaced the Zacks’ expectations on the back of healthy sales, an improved operating margin and effective cost management.
The quarterly earnings of 32 cents a share doubled the Zacks Consensus Estimate, and portrayed a fourfold increase from 8 cents earned in the prior-year quarter buoyed by My Macy’s localization initiatives, omnichannel integration and robust online sales.
Macy’s said that total sales grew 4.1% to $5,853 million in the quarter from $5,623 million delivered in the prior-year period. Online sales, which include macys.com and bloomingdales.com, continued to grow and were up 39.8%, favorably impacting comparable-store sales by 1.5%. Management seeks to expand both Macy’s and Bloomingdale’s.
Outlook
Constant attempts reaped results and in turn led to a favorable outlook. Macy’s better-than-expected results prompted management to lift its full-year earnings projection.
Management guided fiscal 2011 earnings in the range of $2.70 to $2.75 per share, up from $2.60 to $2.65 projected earlier. For the fourth quarter, earnings are forecast between $1.52 and $1.57 per share. The current Zacks Consensus Estimates are $1.61 for the fourth quarter and $2.77 for fiscal 2011.
Let’s Wrap Up
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.
Given the turbulent economy, it is obvious that consumers will have to keep a close watch on their wallets this holiday season. Consequently, a price war may trigger among retailing companies, which will leave no stone unturned to win the hearts of bargain hunters. However, given its track record, Macy’s appears to be one of the forerunners.
Macy’s, which competes with J. C. Penney Company Inc. (JCP) and Dillard’s Inc. (DDS), currently operates approximately 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico.
The above analysis supports our affirmative view on the stock, and therefore we retain our Outperform recommendation on Macy’s. Moreover, Macy’s holds a Zacks #1 Rank, which translates into a short-term Strong Buy rating, and correlates with our long-term view.
