Digital Delivers An Earnings Beat For Macy’s

Today’s news is something of a departure from the more mournful tone of Macy’s Q4 earnings release, when a holiday shopping season that was forecast to come up big for the retailer ended up fizzling rather than sizzling. Things were a bit more upbeat this time around – profits were up and same-store sales came in ahead of expectations.

But the tariffs on Chinese goods – along with looming trade concerns – left Macy’s warning investors that its furniture business is already taking a hit, and that apparel and accessories could be facing troubles next. CEO Jeff Gennette noted that an “escalation of tit-for-tat” tariffs could be a drag on both Macy’s private labels and national brand offerings – and though escalation has not yet been factored into the company’s annual outlook, it remains a concern.

As for the department store chain’s performance, the company earned $136 million, or 44 cents per share, in the first quarter ending in May. That is down from the $139 million, or 45 cents per share, in earnings it reported last year, but ahead of analysts’ estimates of EPS of 33 cents. Sales came in at $5.5 billion, roughly in line with analysts’ forecasts, though down from the $5.541 billion reported this time last year.

Same-store sales at Macy’s were up 0.7 percent – a narrow increase over an expected 0.2 percent drop. That strength, according to Macy’s, was largely driven by Macy’s Backstage locations. Gennette noted that eCommerce has been a particularly strong channel, and that revenues grew at “double-digit” rates during the quarter, while mobile remained Macy’s fastest-growing channel for sales growth. Gross margin in the quarter fell to 38.2 percent from 39 percent, mostly pushed by a slow start to spring that kept the wrong inventory on shelves. Macy’s expects gross margin pressure to continue in the second quarter as it continues to clear excess spring products.

For fiscal 2019, Macy’s is still calling for net sales to be flat compared with 2018. The retailer still expects adjusted earnings per share to fall within a range of $3.05 to $3.25, slightly ahead of analysts’ estimates.

The news initially went over favorably on the street, as Macy’s saw its stock price go up 7 percent in pre-market trading. However, as they trading day went on, and concerns about a potential trade war’s effect combined with weaker than expected retail sales figures changed the direction of that growth: Macy’s stock price was down 1 percent as the trading day neared its close.