Macy’s Inc.‘s (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.
These help the company to post better-than-expected fourth-quarter 2010 results. The quarterly earnings beat the Zacks Consensus Estimate of $1.51 per share, and rose 17.8% from the prior-year quarter. Macy’s now expects fiscal 2011 earnings between $2.25 and $2.30 per share.
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, continued their growth momentum and soared 30.9% in February. Management now expects comparable-store sales growth of 3% in fiscal 2011.
However, intense competition, a sluggish economic environment and higher debt-to-capitalization ratio still remain causes for concern. The company ended fiscal 2010 with a long-term debt of $6,971 million, representing debt-to-capitalization ratio of 55.8%, which is substantially higher, and could adversely affect its credit worthiness and make it more susceptible to 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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