By Tomi Kilgore 
 

Macy's Inc. is scheduled to release fiscal third-quarter results on Wednesday before the market opens. Investors will be watching to see if Macy's can continue to fight off the challenges the retail sector has faced this year, including a decline in traffic and stingy consumers.

EARNINGS FORECAST: Macy's is expected to report a profit of 50 cents a share for the quarter ended in October, according to the average estimate of analysts surveyed by FactSet, up from 47 cents a share, in the same period a year ago. The estimate has declined from 53 cents a share at the end of July.

Macy's missed earnings expectations when it reported fiscal second-quarter results on Aug. 13, but it had exceeded forecasts during the previous three quarters, and during 11 of the past 12.

REVENUE FORECAST: Total sales are expected to rise to $6.34 billion from last year's $6.28 billion. Same-store sales, or sales of stores open for at least a year, are projected to rise 1.3%.

Macy's missed both total and same-store sales expectations for the past three quarters, and for five of the past six.

STOCK PERFORMANCE: After a strong start to the year, Macy's stock has been stuck in a seesaw-like holding pattern for most of the past seven months. Outside of a brief spike higher in late August, when the shares closed at an all-time high of $62.59 on Aug. 26, the stock is roughly where it was at the beginning of April.

But given the rally it enjoyed during the first three months of the year, the stock has climbed 10% in 2014 through midday trade on Tuesday, compared with a 1.9% rise in the SPDR S&P Retail exchange traded fund and a 10% gain in the S&P 500.

WHAT TO WATCH:

--BACK-TO-SCHOOL: Some recent monthly sales reports from retailers suggest that while the back-to-school selling season started off strong, the selling environment became much tougher as the quarter progressed.

"Specifically, October sales [for department store chains] were softer than the balance of the quarter," Stifel Nicolaus analyst Richard Jaffe wrote in a research note to clients. He's worried that same-store sales could miss expectations, again, as the consumer reacts to the lack of a strong fashion trend and uncertainties regarding economic growth.

--OUTLOOK: With that in mind, investors may be skeptical about the company's ability to maintain its fiscal 2014 targets for same-store sales growth of 1.5% to 2%, and for earnings per share in the range of $4 to $4.50. That said, the stock could get a boost if Macy's keeps its outlook intact.

--MARGIN DENT: Among some other key metrics to watch, Nomura analyst Robert Drbul expects gross margin to slip by 0.2 percentage points to 39%, while costs as a percent of revenue are seen dropping 0.4 percentage points to 33.0%.

Stifel's Mr. Jaffe said he'll also be waiting for comments regarding the company's plan for holiday pricing and promotions, and on inventory levels for the third quarter and the outlook for the current quarter.

-Tomi Kilgore; 415-439-6400; AskNewswires@dowjones.com

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