Cleveland Research Downgrades Macy's Amid 'Challenging QTD Performance'

• Shares of Macy's, Inc. M have declined 24.36 percent over the past six months, while rising more than 2 percent in the last five trading days.
• Matthew Delly of Cleveland Research Company has downgraded the rating on the company to Neutral.
• The downgrade is based on the company’s quarter to date performance, which Delly sees as “challenging.”

According to the Cleveland Research report, “Underlying sales trends look difficult for M through mid-quarter, with continued headwinds from lower traffic/tourism traffic rates and decelerating performance in key merchandising segments.”

Analyst Matthew Delly believes that Macy’s could be “tapping the breaks” on its forward inventory, while preferring to remain cautious regarding the management of its fall receipts.

Delly also mentioned that there have been channel concerns regarding the outlook for the company over the next 12-18 months, given the growing issues with its merchandise mix.

Macy’s has not provided EPS guidance for 3Q15. Delly expects comps to decline by about one percent during the quarter, which is higher than the consensus forecast. Gross margin is also expected to decline by about 10-20 bps, although SG&A is likely to rise in 3Q.

Delly believes that Macy’s business is likely to have been the “most challenging in the channel,” quarter to date.

The reasons for this include “1) Weak customer traffic levels during both back-to-school and September, 2) On-going headwinds from lower tourism levels and 3) Stagnation to moderating performance in key national brands and core traffic driving categories,” the report explained.

The headwinds facing the company are expected to continue into fiscal 2017.