Macy's
One of America's largest retailers
Macy's, Inc. sells a wide range of merchandise, including apparel and accessories (men's, women's, and children's), cosmetics, home furnishings, and other consumer goods. The specific assortments vary by size of the store, merchandising assortments, and character of customers in the trade areas. What makes them different from other brands is their competitive pricing while also operating one of retail’s largest e-commerce businesses in America. They own around 725 stores along with 90000 employees. Another advantage they have is that they were founded in 1858 and have a history that's over 150 years long, making them a very established business along with strong strategies. Something else we have to take in mind is the fact that Macy's core demographic are American middle-class consumers who prefer quality products at reasonable prices which is what most Americans are looking for right now after the price increases. Taking a look at their website, there are very big discounts on almost every category. This can both be a good thing and a bad thing. Looking back at most other retail stores that came out with a report, they had a common problem they were dealing with. Many of them had a huge inventory they couldn’t get rid of which in turn caused a big downfall in their stock price. The same could be true here as customers simply don’t have the buying power they used to have and therefore causing a decrease in the number of sales. However, this is an issue stores were having problems with during summer and by now, most of them have already found a solution to it. Furthermore, Macy’s never faced this problem before so although I could be wrong, I don’t believe this to be the case this time around. When looking at their discounts, you come across crazy offers such as shoes that were originally around $70 but now selling for $15. Logically speaking, they are either out of their minds, or financially, they are in a great place right now to be able to afford such deals. Based on their good history of beating the EPS estimates by a large margin, I would say the second one is true. However, taking their expected EPS into account for this quarter, it has largely decreased compared to the last quarter. Last quarter, the expected EPS was 0.85 however for this month, it has decreased to 0.18. I haven’t looked into the reason for this yet but it is usually never a good sign. Additionally, they have another thing in this report which will decide the outcome of their stock price. As the Christmas season is coming, everyone wants to know their expected number of sales. As we saw with Amazon, if they fail to have a good forecast for the holiday season, chances are they will face a very large drop in their stock price. Looking back at their crazy offers, they are trying their best to have as many customers as they can shopping there for their gifts but will the discounts be enough to attract this much attention? Although Amazon is much more widely known than Macy's, I believe Macy’s will be able to have a good forecast. The expectations for Amazon are much bigger because they are an international company with customers all over the world. Due to the world events happening right now, they will have a much harder time attracting customers as compared to Macy’s. Most of Macy’s customers are American and looking back at the inflation, a lot of Americans are looking for a cheap place with great products to shop in and Macy’s is definitely a great option.
Analyst’s notes:
Regarding Q3 results, I don't think that analysts and investors will be caught off guard by softening margins. Last quarter, the retailer warned of substantial inventory and other operational cost pressures through the end of 2022 at least, putting a lid on earnings firepower. Hopefully, by slashing full-year EPS guidance by a whopping 64 cents to $4.10 at the midpoint of the range, the management team has already lowered the bar enough ahead of the important holiday shopping quarter.
Inventory management will likely be one of the key topics of debate on Thursday. Macy's is expected to clear aged inventory and turn the page on the Spring season. The quicker the company can do so with as little pricing impact as possible, the better for Q4 sales projections (by far the biggest quarter for the New York-based retailer) and for the stock.
Macy’s has struggled in 2022 amid rising shipping expenses, sluggish sales growth compared to other retailers, and investment cuts required to help finance store and omnichannel upgrades. A slower consumer in 2023 could lead to significant operating leverage to the downside. While downside risks are obvious – a dismal consumer, credit income falling, lower sales growth, and margin threats, the upside potential stems from sales initiatives going well, effective cost-cutting and management execution, and favorable real estate income.
On valuation, analysts at BofA see earnings indeed falling big next year and continuing lower through 2025. The Bloomberg consensus forecast is more optimistic than BofA, but earnings uncertainty is high. Dividends, meanwhile, are seen as holding steady at $0.63 per share.
Looking at what other people had to say, it’s safe to say that they don’t have a very good forecast for the upcoming quarters. With the stock also being down 8% the day before their report comes out, investors also aren’t anticipating great results. However, this could just be people being scared about losing their profits and selling their shares by not taking the risk of them coming out with a bad report especially looking at how they have gained 12.5% over the past four weeks. I personally believe that as long as they have a good forecast for the holiday shopping spree, their stock will go up, and with the estimate revisions, the expectations are very low on them, making it much easier for an estimate beat.
P/E Ratio: 3.8
Market cap: 5,335,816,255
Time: Tomorrow before the market open
Estimate: +13%