Posted on Tuesday, March 6th, 2012 | In Current Market News, Stocks to Watch
Macy’s Inc. (M) exited fiscal 2011 with a bang, and we believe it will sustain the same tempo in 2012. The company’s relentless endeavors to keep itself on the growth trajectory have paid off in an economy, which is still finding its way out of the woods. Early hour store openings, huge discounts, promotional activities, and free shipping on online purchases, were enough to lure customers.
In the paragraphs that follow, we cover the recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock.
Last Quarter Synopsis
Macy’s, one of the leading department store retailers in the United States, reported its fourth quarter and fiscal 2011 financial results on February 21, 2012. The company posted better-than-expected results on the back of strong holiday season sales, improved operating margin, and effective cost management.
The quarterly earnings of $1.70 per share outperformed the Zacks Consensus Estimate of $1.65, and rose 6.9% from $1.59 earned in the prior-year quarter buoyed by My Macy's localization initiatives, omnichannel integration and robust online sales. The company said that fiscal 2011 earnings registered a growth of 36.5% to $2.88 per share, and came ahead of Zacks Consensus Estimate of $2.82.
Cincinnati, Ohio-based Macy’s said that total sales grew 5.5% to $8,724 million in the quarter from $8,269 million in the prior-year period, and comfortably surpassed the Zacks Consensus Estimate of $8,696 million. In fiscal 2011, sales climbed 5.6% year over year to $26,405 million from $25,003 million, and outdid the Zacks Consensus Estimate of $26,390 million.
Comparable-store sales for the fourth quarter and fiscal 2011 climbed 5.2% and 5.3%, respectively.
(Read our full coverage on this earnings report: Macy’s Outpaces, Remains Optimistic)
Management now guided fiscal 2012 earnings in the range of $3.25 to $3.30 per share. Macy’s expects comparable-store sales growth of about 3.5% for fiscal 2012, and anticipates capital expenditures of approximately $850 million for the year.
Agreement of Estimate Revisions
The agreement of estimate revisions indicates that the majority of analysts were unidirectional following Macy’s results.
In the last 30 days, 4 out of 12 analysts covering the stock raised their estimates, whereas 1 analyst lowered the same for the first quarter of 2012. For the second quarter, 3 analysts revised their estimates upward and none made a downward revision.
For fiscal 2012, 10 analysts increased their estimates, while only 1 analyst moved in the opposite direction in the last 30 days. As for fiscal 2013, 1 analyst made an upward revision to the estimate, while 2 analysts lowered the same.
What Drives Estimate Revisions
Clearly, a positive sentiment is palpable among most of the analysts, who remain optimistic on Macy’s performance. Following the earnings release, the Zacks Consensus Estimate has been portraying an upward trend with the majority of analysts remaining bullish on the stock.
The better-than-expected results and upbeat earnings guidance impressed the analysts, who went on to revise their estimates to better align with management’s guidance range. However, some of the analysts remained on the back foot given the sluggish recovery in the economy and a lower comparable-store sales growth forecast of about 3.5% for fiscal 2012 compared with 5.3% registered in fiscal 2011.
Further, the earnings growth projection of 13% to 15% compared with 36.5% experienced in fiscal 2011 seems conservative to some analysts.
Magnitude of Estimate Revisions
The magnitude of estimate revisions by the analysts is clearly reflected through changes in the Zacks Consensus Estimates.
The Zacks Consensus Estimates for the first and second quarters of 2012 rose 4 cents and 3 cents to 37 cents and 65 cents, respectively, in the last 30 days.
For fiscal 2012 the Zacks Consensus Estimate jumped 9 cents and for fiscal 2013, the Estimate dipped by a penny to $3.73, in the last 30 days.
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.
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.
The company’s sound fundamentals across its Macy’s and Bloomingdale’s businesses are mirrored through strong fourth quarter results and management believes that it will sustain the rhythm in 2012, as the year presents ample opportunities to enhance market share.
Currently, we have a long-term Outperform rating on the stock. Moreover, Macy’s holds a Zacks #2 Rank that translates into a short-term Buy rating.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education
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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