‘Macy’s should do very well over the holiday season’: Analyst

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on Nov 17, 2022
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  • Macy's reports a strong Q3 and lifts earnings guidance for the full year.
  • Third Bridge analyst Landon Luxembourg reacts to the earnings print.
  • The quarterly update sent Macy's stock up more than 10% this morning.

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Shares of Macy’s Inc (NYSE: M) are up nearly 15% this morning after the retailer reported market-beating results for its fiscal third quarter and raised its earnings guidance for the full year.

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Consumer is not trading down at Macy’s

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The quarterly update is particularly interesting since it contrasts the monthly retail sales report a day earlier that said consumers shopped 2.0% less at department stores in October.

Speaking with CNBC, Chief Executive Jeff Gennette also confirmed that consumers were not trading down to cheaper brands despite fears of a recession. Finals weeks of October and the start of November were relatively weak but the performance metrics are now back in the green, he added.

Is that a slowdown in consumer confidence that we’ll take through Q4? Or is it going back to 2019 buying patterns when those weeks were consistent with trend we had before ramping into Christmas this year? We’re watching it very carefully.

CEO Gennette also revealed “luxury” to have particularly outperformed this quarter. Macy’s stock broke through the $21 resistance on Thursday.

Macy’s third-quarter earnings snapshot

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  • Earned $108 million versus the year-ago $239 million
  • Per-share earnings also tanked from 76 cents to 39 cents
  • Adjusted EPS came in at 52 cents as per the press release
  • Sales fell nearly 4.0% year-on-year to $5.23 billion
  • Consensus was 18 cents a share on $5.20 billion in sales
  • Inventories were up only 4.0% versus the Q3 of 2021

Macy’s to keep resilient through the holiday quarter

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Comparable sales, on an owned-plus-licensed basis were down 2.7% – better than a 4.3% hit expected. Reacting to the retail news, Landon Luxembourg – Senior Analyst at Third Bridge said:

Macy’s is better placed to navigate recessionary headwinds than some of its peers because of its strong value proposition. Macy’s should do very well over the holiday season because they’re characteristically strong in gift-giving categories.

Macy’s gross margin, however, took a 230-bps hit this quarter due to increased promotional activity. For the full financial year, Macy’s now forecasts its adjusted per-share earnings to fall between $4.07 and $4.027 on up to $24.58 billion in sales.

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