Macy’s shares jumped more than 6% in premarket trading on Tuesday after the fashion retailer generated higher-than-expected profits in the holiday quarter and forecast better sales for this year.
U.S.-based fashion retailers reported quarterly adjusted earnings of $2.45 per share in the fiscal fourth quarter ended Jan. 29, beating market expectations of $2.00 per share. The company said its revenue jumped more than 27% to $8.67 billion from a year earlier. It also exceeded market expectations by $8.47 billion.
New York-based Macy’s said its digital sales were up 12% from the fourth quarter of 2020 and 36% from the fourth quarter of 2019.
The company’s gross margin for the year was 38.9%, up from 29.2% in 2020 and up 70 basis points from 2019. Fashion retailers expect sales in the region of $24.46 billion and $24.70 billion for 2022. This was above analyst estimates of $24.2. billion.
“The resolution to the co-evaluation of an e-com spin (prompted by an activist on Nov 21), is to stay integrated. This is not a big surprise as the heat of the activists had cooled and the complexity/risk ratio was high. After the assessment, Macy’s (M) is ramping up its strategy – “accelerating Polar is initiatives that span digital, brand partners, private label, marketing and loyalty,” noted Stephanie Wissink, equity analyst at Jefferies.
“Macy’s (M) has also re-committed to rolling out its non-mall small-format stores, and we’re looking for an update on larger mall stores marked for closure (paused in 2H21). “
Following that, Macy’s stock jumped more than 6% to $27.28 in premarket trading on Tuesday. The stock has fallen nearly 2% so far this year after jumping more than 132% in 2021.
“Macy’s continues to experience core operational challenges, similar to those of its peers in the department store space (e.g., cessation of market share to peers, declining in-store traffic, shrinking margins, disintermediation of commerce Despite proactive store closures, store-only earnings remain negative and we expect them to remain so in the future, which will erode return on investment,” noted Kimberly Greenberger, equity analyst at Morgan Stanley.
“Spending cuts (e.g. downsizing), real estate monetization and secondary growth initiatives are encouraging, but are unlikely to stimulate enough cash flow to restore its dividend while still covering upcoming debt maturities.We expect the COVID-related disruptions to accelerate the loss of market share to peers, especially for brands with eComm in ownership.
Macy’s stock price forecast
Eight analysts who offered stock quotes for Macy’s over the past three months forecast a 12-month average price of $36.63 with a high forecast of $50.00 and a low forecast of $25.00.
The average price target represents a 42.53% change from the last price of $25.70. Of these eight analysts, four rated “Buy”, three rated “Sell”, according to Tipranks.
Morgan Stanley gave the base price target of $23 with a high of $35 in a bullish scenario and $15 in a worst-case scenario. The investment bank assigned an “underweight” rating to the department store chain’s shares.
Several analysts also updated their stock outlook. Deutsche Bank cut the target price to $32 from $35. Telsey Advisory lowered the price target to $30 from $40. Citigroup reduced the price target to $25 from $29.
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