Macy’s Inc. (M) posted better-than-expected
second-quarter 2012 results, thereby prompting management to raise
fiscal 2012 earnings guidance. The company’s relentless endeavors
to keep itself on the growth trajectory have paid off in an
economy, which is still not completely out of the woods.
The shares of Macy’s jumped $1.37 or 3.7% to $38.37 during the
pre-market trading session.
Let’s Unveil the Picture
The quarterly earnings of 67 cents a share beat the Zacks
Consensus Estimate of 64 cents, and soared 22% from 55 cents earned
in the prior-year quarter on the back of My Macy's localization
initiatives, omnichannel integration, robust online sales and
effective cost management.
The Cincinnati, Ohio-based Macy’s said that total sales grew 3%
to $6,118 million in the quarter from $5,939 million in the
year-ago period, and comfortably surpassed the Zacks Consensus
Estimate of $6,100 million. Comparable-store sales for the quarter
climbed 3%.
In spite of the macroeconomic headwinds and a temporary
suspension in sales due to restoration of flagship stores in New
York City, the company continued to perform well in the first half
of 2012, and ended it on a winning note with July comparable-store
sales rising 4.1%. Moreover, Macy’s met management’s expectations
for the spring season.
Online sales, which include sales from macys.com and
bloomingdales.com, continued to show growth momentum. For the
quarter, online sales were up 36.1%. Online sales favorably
impacted comparable-store sales by 1.7%. The company seeks to
expand both Macy's and Bloomingdale's brands online.
Despite a 2.8% increase in cost of sales, gross profit in the
quarter climbed 3.3% to $2,563 million, aided by top-line growth,
whereas gross profit margin expanded 10 basis points to 41.9%.
Operating income jumped 9.5% to $554 million, whereas operating
margin increased 60 basis points to 9.1%.
Stores Update
Macy’s during the quarter opened two new Bloomingdale’s Outlet
stores. Two new Macy’s outlets were opened in the first half of
2012 in the Milwaukee and Salt Lake City areas. The company now
plans to open three new Bloomingdale’s Outlet stores and shutter a
Macy’s outlet in Santa Ana in the second half of the year.
Other Financial Aspects
Macy’s ended the quarter with cash and cash equivalents of
$1,604 million, long-term debt of $6,637 million, reflecting a
debt-to-capitalization ratio of 52.9% and shareholders’ equity of
$5,903 million. During the first half of 2012, the company repaid
debt of $797 million.
Macy’s has been actively managing its cash flows, returning much
of its free cash to shareholders via dividends or share repurchase
activity, while maintaining a healthy balance sheet and credit
ratios that are necessary for an investment-grade rating. The share
repurchases and dividend increasing strategies not only enhance
shareholders’ return but also raise the market value of the
stock.
During the first-half of 2012, the company paid dividend of $165
million. During the quarter, the company repurchased approximately
10.6 million shares, aggregating about $374 million.
So far in the fiscal year, Macy’s has bought back approximately
16 million shares totaling about $588 million. The company at its
disposal had approximately $764 million of share repurchase
authorization remaining as of July 28, 2012.
Macy’s generated net cash flow of $638 million from operating
activities in the first-half of 2012 compared with $587 million in
the year-ago period.
Strolling Through Guidance
Buoyed by Macy’s healthy results management now expects fiscal
2012 earnings between $3.30 and $3.35, up from a range of $3.25 to
$3.30 per share forecasted earlier. The current Zacks Consensus
Estimate of $3.35 for fiscal year is in line with high-end of the
guidance range. However, comparable-store sales growth forecast of
about 3.7% for fiscal 2012 was kept unchanged.
Let’s Conclude
The U.S. economy is still not fully recovered. Amid such a
scenario, Macy’s has been moving on and keeping its upbeat note.
The company’s sound fundamentals across its Macy’s and
Bloomingdale’s business is mirrored through strong second quarter
results, and management believes that it will sustain the rhythm in
2012, as the year presents enormous opportunities to enhance market
share.
In an attempt to increase sales, profitability and cash flows,
the company has been taking steps such as integration of
operations, consolidation of divisions, customer-centric
localization initiatives, as well as developing e-commerce business
and online order fulfillment centers. Moreover, Macy’s continues to
focus on price optimization, inventory management and merchandise
planning to drive traffic.
However, the company’s expansion in regions where it already
serves could cannibalize its sales performance and bring down
traffic counts at its existing stores in these areas. Consequently,
this may have a negative impact on the company’s overall
performance. Moreover, a sluggish economic recovery and erratic
consumer behavior remain causes for concern.
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, which competes with J. C. Penney Company
Inc. (JCP), Dillard’s
Inc. (DDS) and Saks Incorporated (SKS),
currently operates approximately 840 department stores in 45
states, the District of Columbia, Guam and Puerto Rico.
Currently, we have a long-term Neutral recommendation on the
stock. Moreover, Macy’s holds a Zacks #3 Rank that translates into
a short-term Hold rating.
DILLARDS INC-A (DDS): Free Stock Analysis Report
PENNEY (JC) INC (JCP): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
SAKS INC (SKS): Free Stock Analysis Report
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