Macy’s is on the Rise
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The usual economic woes may still be weighing on consumer spending, but Macy’s (NYSE: M) sure doesn’t seem to care. Macy’s reported a nearly 16% jump in second-quarter profit as online sales grew and shoppers responded enthusiastically to its localized merchandise offerings.
Macy's EPS outpaced analyst estimates while the company's revenues came in line with predictions. The company reported 68 cents per share versus the 66 cents per share estimate and revenues of $6.12 billion versus the $6.13 billion estimate. EPS rose 23.6% while revenue climbed 3% from the same period last year. Macy's' revenue has grown during each of the past four quarters on a year-over-year basis. Macy's reported net income of $279 million during the second quarter, 15.8% higher than the year-ago quarter.
Macy's department stores sell a wide range of merchandise. Online sales, which include sales from macys.com and bloomingdales.com, continued to grow at a rapid pace and surged 35.1% in July. On a year-to-date basis, online sales shot up 34.8% from the comparable period last year. The company recorded a 3% increase in same-store sales for the quarter from last year.
Macy’s will take a scheduled break from remodeling its Herald Square store in New York City for the holiday season. The company expects to reopen all first and second floor selling spaces within the next 90 days, including what it describes as the largest women’s shoe department. It has a local “My Macy’s” plan, which tailors 15% of the merchandise at each store specifically to that store’s customer demographic.
A big part of Macy’s strategy has been to tailor its fashions to local markets. The company also has added exclusive brands like Tommy Hilfiger. It has improved sales force training. By the end of the month, Macy’s will be using 290 stores, or more than a third of its total, as online sales fulfillment centers.
Look at Macy’s competitors
The company's closest competitor is Wal-Mart (NYSE: WMT). Wal-Mart has been holding down prices to get customers to spend. It is expected that the company shall possibly beat the earnings for this quarter due to recent consumer confidence reports and the fact that they thrive when the US consumer is nervous about the economy.
Like many department stores, Macy’s suffered during the recession. But it has been able to navigate through the slow recovery better than rivals like J.C. Penney Co. (NYSE: JCP) and Kohl’s Corp (NYSE: KSS).
Analysts say that Macy’s is benefiting from the woes at J.C. Penney Co., which implemented its "everyday low price" model, meaning low sales every day. But of late, Penney eliminated the monthly sales events and increased the frequency of the periodic sales to every Friday. These had been called “Best Price” sales but are now being called “clearance.” Kohl’s reported 20% decline in second-quarter profit, helped by expense control and new items such as Jennifer Lopez clothing.
What’s in store ahead?
The outlook for the company's next-quarter performance is unfavorable. Macy’s said that it now expects earnings per share for the full year to be in the range of $3.30 to $3.35. It still believes that revenue at stores opened at least a year will rise about 3.7% for the year. Guidance for same-store sales in fiscal 2012 remains unchanged at an increase of approximately 3.7%.
The company seeks to expand both Macy's and Bloomingdale's brands online. During the quarter, the company opened two new Bloomingdale's Outlet stores. However, the company's expansion in regions where it already serves could cannibalize its sales performance and bring down traffic counts at its existing stores in these areas. Consequently, this may have a negative impact on the company's overall performance.
The company is also attracting shoppers with exclusive brands such as the Material Girl line designed by singer Madonna and her daughter Lourdes.
The company's strengths can be seen in multiple areas where it has been taking initiatives in order to increase its sales, profitability and cash flows. These steps include integration of operations, consolidation of divisions as well as developing e-commerce business and online order fulfillment centers.
Macy's has been actively managing its cash flows, returning much of its free cash to shareholders via dividends or share repurchase activity, while maintaining a healthy balance sheet and credit ratios that are necessary for an investment-grade rating. Macy's is expected to outperform the market over the next six months with less than average risk, thus making it a stable retail company with a green signal of investment undoubtedly.
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