Macy's Q4 Guide Reflects Caution & Uncertainty Around Consumer Demand, Says Analyst

  • Telsey Advisory Group analyst Dana Telsey reiterated a Market Perform rating on the shares of Macy's Inc M with a price target of $25.
  • The analyst said the Q3 earnings beat was driven by sales and gross margin upside relative to expectations.
  • Net sales for the quarter fell 3.9% to $5.23 billion, coming in better than the consensus estimate for a 4.4% decline to $5.20 billion and at the high end of management's guidance range of $5.16 billion to $5.23 billion.
  • Gross margin for the quarter fell 230 basis points to 38.7%, topping the consensus estimate for a 340- basis point decline to 37.6%.
  • The merchandise margin declined for the quarter, driven by increased promotions and markdowns at the Macy's brand, as the business worked through slower-moving categories, Telsey added.
  • At the end of Q3, inventory was up just 4.3% year over year (and down 11.8% vs. 3Q19), as the company manages carefully through supply chain disruptions and macro volatility.
  • The analyst cited that the management brought in seasonal merchandise earlier in preparation for holiday and has the capacity to chase in-season trends.
  • She also added that, not surprisinglyBloomingdale's outperforms Macy's brand as the higher-end remains less exposed to macro factors.
  • Telsey believes management deserves credit for operational discipline in a volatile macro environment.
  • However, while the Q3 performance improves confidence in the annual outlook at a time of mixed-at-best sentiment on holiday, the lower-than-expected Q4 guide speaks to the overall caution and uncertainty around consumer demand and the promotional environment.
  • Price Action: M shares are trading higher by 14.7% at $22.62 on the last check Thursday.
  • Photo Via Company
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