Macy's Earnings: Listen for Potential Holiday Headwinds and More

The department-store sector has battled slowing mall traffic and stepped-up online sales competition amid a stronger dollar, slowing tourism because of that beefy buck, and unseasonably warm weather that has delayed the winter supply stock up, so to speak. What might this mean for Macy’s M as it reports Q3 results and issues forecasts for the upcoming holiday season?

M reports pre-open on Wednesday morning. Analysts reporting to Thomson Reuters are pegging earnings at $0.53 a share on revenue of $6.12 billion.

Macy’s—the parent of the namesake mid-level department store, higher-priced Bloomingdale’s and its outlets, as well as the beauty products-focused Bluemercury—hasn’t had a very good track record in recent quarters, missing Wall Street’s consensus on the last two earnings outings. The company reported that Q2 sales tumbled 2.6% to $6.1 billion because, among other reasons, international tourist sales were taking a beating with the stronger dollar.

Where’s That Consumer?
Last week’s unexpected jump in October employment could ring up improved sales for retailers of all colors in coming quarters simply because consumers may have more money to spend against a backdrop of low gasoline and other energy prices. That’s potentially crucial as we march into the all-important holiday-shopping season when some retailers bank the bulk of their fiscal sales.

Investors already have beaten M down (figure 1) and an analyst downgrade on Monday added another stock-bruising jab. Citigroup analyst Paul Lejuez slashed his stock-price target after checking on sales channels and taking into account the recent commentary from retailers ranging from Wal-Mart WMT to Michael Kors KORS and Ralph Lauren RL.

The 70-degree temps in late October and early November have hurt sales of wearable gear that’s heavier than cotton and khaki, Lejuez notes. He also points out that both KORS and RL said recently that they are facing an inventory glut while WMT talked about how higher wages will take a bite out of profits. That’s something that many analysts say will affect retail-sector earnings in coming years. Citi analyst Lejuez pulled down his Macy’s Q3 estimate to $0.47 per share for all those reasons.

What’s more, Gap GPS was trading lower, weighing on the retail sector in Tuesday trading, after it reported a 15% same-store sales drop for its Banana Republic stores in October. That overshadowed the namesake store’s 3% drop in October same-store sales.

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Short-term options traders are pricing in a potential 8% move in either direction for the stock around earnings, according to TD Ameritrade’s thinkorswim® platform’s Market Maker Move indicator. Implied volatility is lofty, in the 100th percentile.
Notable action includes buyers of the weekly Nov 45½ puts and the monthly Nov 42 puts. On the call side, volume has been fairly light in the near term but sellers emerged in the Jan 57½ calls; weekly call activity is a mixed bag.

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