Key takeaways
- Macy’s falling revenue was not as bad as investors feared, leading to a spike in its stock price.
- This comes just before the holiday season, the busiest time of the year for retailers.
- Investors wonder if the company can beat future projections of stagnating revenue.
Macy’s is one of the world’s largest department stores, with 722 locations across the United States. This past week, the company announced its earnings for Q3. Despite falling revenue, it beat earnings per share expectations and saw its stock price spike.
With the holiday season coming up, investors wonder whether this jump in price will hold into the new year.
The history of Macy’s
Macy's traces its history to Federated Department Stores, a conglomerate that started as F&R Lazarus & Company, which was founded in 1851.
Shortly before the 1929 Wall Street Crash, Fred Lazarus Jr. met with many major department store owners, including Walter Rothschild and Edward Filene, merging their stores in Federated Department Stores.
Lazarus played a big role in making department stores what they are today. He is even credited with convincing the U.S. President to move Thanksgiving to extend the holiday shopping season. In doing this, he created Black Friday, the biggest sales day of the year.
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Federated Department Stores spent the next five decades expanding and acquiring other department stores. Its acquisitions included Macy’s, which it purchased in 1994.
Macy’s eventually became the consumer-facing identity of the company.
What’s going on with Macy’s today?
Today, Macy's is one of the world's largest department stores and fashion retailers.
Unfortunately, the past few years have been less than ideal for the company. With the onset of the COVID-19 pandemic, many retailers were forced to make major changes to how they operate. They faced issues including lockdowns, supply chain delays, and staffing issues.
Complicating recovery matters was the fact that consumers were slow to return to stores once they did reopen.
Since 2020, Macy’s has been trying to recover and expand upon its pre-pandemic earnings.
Macy’s earnings and stock price
On November 17th, Macy’s reported its earnings for Q3 2022.
Overall, the company saw drops in most of its essential metrics compared to 2021. Some key details include the following:
- Net sales: Down to $5.2 billion from $5.4 billion in Q3 2021
- Net income: Down to $108 million from $239 million in Q3 2021
- Diluted Earnings per Share: Down to $0.39 compared to $0.76 in Q3 2021
However, these numbers beat the company’s guidance and investor expectations. That helped push the stock higher by almost 15%.
Jeff Gennette, chairman and CEO of Macy's, said in the company's earnings release, "Our Polaris strategy is working. In the third quarter, we achieved solid top line results and a strong beat to our bottom line guidance. Macy's brand position as a style and fashion source resonated with our customers, while luxury continued to outperform at Bloomingdale's and Bluemercury…"
He continued, “We know the consumer is under increasing pressure and has choices on where to spend. As a leading gifting destination with fresh inventory across the value spectrum, we are ready to meet our customers’ needs this holiday season.”
The impacts of the pandemic on the company’s operations are clear. Macy’s noted that digital sales were down 9% compared to last year but up 35% compared to 2019.
It’s also adapted its supply chain methods, improving inventory turnover by 15% compared to before the pandemic.
Moving forward
Macy’s has weathered the pandemic relatively well, adapting its digital sales and inventory strategies to work with a post-COVID world and changes in consumer habits.
The announcement comes just before Black Friday and the holiday shopping season, which are traditionally some of the busiest times for retailers in the United States. It also comes during a time of economic uncertainty, with high inflation and a potential impending recession.
This means that some investors worry about whether the company will produce strong sales during the holidays. Analysts also expect revenue to stagnate over the next three years, which is a concern for investors.
Despite these concerns, Macy’s CFO remains confident, saying, “We are operating from a position of strong financial health – with appropriate levels of inventory, a strong balance sheet with ample liquidity, investment grade credit metrics, and fixed interest rate debt in a rising interest rate environment. We have the tools, data-driven processes, and talented teams to manage through this uncertain time and are committed to long-term, profitable growth.”
What it means for investors
Investors looking for exposure to retail might be interested in Macy’s. The company is one of the country’s largest department stores, with a market capitalization of more than $6 billion.
Despite its recent spike in price, Macy’s could still be a good potential investment. This is especially true for investors who are interested in dividends. The company’s approximate 2.8% dividend yield is relatively solid.
Though many analysts expect Macy’s revenue to stay flat over the next three years, if it beats expectations, the company could see another large spike in its stock value.
However, the risk of investing is that recession fears may come to pass. If inflation remains high and the economy slows down, many of Macy’s target consumers will likely feel the squeeze and start to cut spending in discretionary areas, including many of the products sold at Macy’s.
Before buying shares, investors need to consider their predictions about the direction of the economy as a whole. They also need to evaluate Macy's ability to adapt to post-pandemic realities of employee shortages, supply chain slowdowns, and changing consumer habits.
The bottom line
Macy’s is one of the world’s largest department stores and has a strong brand thanks to events like its annual Thanksgiving Day parade. Investors who want to add a well-known retailer to their portfolio might be interested in the company due to its recent ability to beat expectations.
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