Macy's Shares Take a Hit Despite Strong Q2 Performance
Shares in Macy's saw a significant drop of 12% after the company announced a revision in its sales guidance for fiscal 2025, which fell short of analyst expectations.
Quarterly Performance Exceeds Expectations
In its fiscal Q2 2025, Macy's reported an earnings per share (EPS) of $0.53, which was notably higher than the analyst estimate of $0.30. The company also posted a revenue of $5.1 billion for the quarter, surpassing the consensus estimate of $5.06 billion. However, despite these strong results, comparable sales on an owned basis fell by 4%, and owned plus licensed comparable sales experienced a decline of 3.3%, against an anticipated increase of 0.63%.
Gross Margin and Inventory Insights
Macy's reported a gross margin of 40.5%, an improvement from the previous year's 38.1% and above the expected 39.8%. The company's inventory level was $4.38 billion, reflecting a 6% year-over-year increase and exceeding the estimate of $4.21 billion. Macy's has revised its full-year EPS expectations to a range of $2.55 to $2.90, compared to the consensus estimate of $2.78. Notably, the net sales forecast range has been adjusted downward to $22.1 billion – $22.4 billion, from the previous $22.3 billion – $22.9 billion, with the consensus sitting at $22.66 billion.
Analyst Reactions and Future Outlook
Analysts at UBS remarked that the lower sales outlook might lead to a slight trimming of FY24 EPS guidance, but it would still remain within Macy's forecast range. They anticipated a "modestly negative impact" on investor sentiment. Macy's now expects owned plus licensed comparable sales to decline between 0.5% and 2%, a revision from the earlier forecast of -1% to +1.5%, against the estimate of a 0.68% increase.
CEO Remarks on Strategy and Growth
Tony Spring, the chairman and CEO of Macy's, Inc., expressed optimism despite the challenging environment, noting strong earnings performance. He highlighted the success of Macy's strategy, particularly in its "First 50" locations, and reiterated the company's commitment to achieving sustainable profitable growth.
Cautious Market Sentiment
In their analysis, TD Cowen acknowledged Macy's execution on higher full-price sales and cost efficiencies. However, they expressed caution due to higher inventory levels moving into the second half of 2024, maintaining a Hold rating and advising a wait-and-see approach.
