Macy's Earnings a Penny Ahead of Ests - Analyst Blog

Macy's Inc. M posted first-quarter fiscal 2014 results, wherein earnings of 60 cents a share came a penny ahead of the Zacks Consensus Estimate, and rose 9% from 55 cents earned in the prior-year quarter. Effective cost management and share repurchase activity provided cushion to the bottom-line.

Shares rose 2.4% to $59.23 during pre-market trading hours.

However, total sales of this Cincinnati, Ohio-based company tumbled 1.7% to $6,279 million in the quarter from $6,387 million in the year-ago period, and also fell short of the Zacks Consensus Estimate of $6,460 million. Adverse weather conditions and calendar shift for its major event hurt the company's sales. The company witnessed softness in business trends from January through March, with signs of improvement only seen from April.

Comparable-store sales for the quarter declined 1.6%, while including sales generated from third party licensed departments, comparable sales fell 0.8%.

Despite a top-line decline, management reaffirmed its outlook counting on the company's strong fundamentals. My Macy's localization initiatives, omnichannel integration and promotional strategies still remain the driving factors.

Gross profit in the quarter declined 1.3% to $2,443 million, whereas gross profit margin increased 10 basis points to 38.9%. Operating income grew 1.8% to $443 million, whereas operating margin expanded 30 basis points to 7.1%.

Store Update

As a part of its mall redevelopment project, Macy's during the quarter merged 2 outlets in the same mall in Houston, TX into one.

Other Financial Aspects

Macy's ended the quarter with cash and cash equivalents of $1,878 million, long-term debt of $6,722 million, and shareholders' equity of $6,100 million.

Macy's has been actively managing its cash flow, 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.

During the quarter, the company bought back approximately 7.4 million shares for about $432 million. The company's board also increased the share buyback authorization by $1.5 billion, thereby bringing the total authorization to $2.5 billion at the end of the first quarter on May 3, 2014. Since the recommencement of share buyback activity in August 2011, the company had repurchased about 93 million shares for approximately $3.9 billion through May 3, 2014.

Macy's also hiked its quarterly dividend by 25% to 31.25 cents. The increased dividend will be paid on July 1, 2014, to shareholders of record as of June 13, 2014.

The company generated net cash flow of $86 million from operating activities in the quarter compared with $298 million in the prior year.

Strolling Through Guidance

Management continues to anticipate comparable-store sales growth of 2.5% to 3% in fiscal 2014. Macy's maintained full-year earnings projection of $4.40 to $4.50 per share. The current Zacks Consensus Estimate for the fiscal year is $4.47 per share.

Other Stocks to Consider

Currently, Macy's holds Zacks Rank #3 (Hold). Other well performing stock in the retail sector include Hanesbrands Inc. HBI, V.F. Corp. VFC and Columbia Sportswear Co. COLM all sporting a Zacks Rank #2 (Buy).

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