Understanding Macy's Conservatism In Annual View Amid Choppy Consumer Spending: Analyst Insight Into Q1 Earnings Beat

  • 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.
  • Macy’s reported better than expected 1Q EPS of $0.56, coming in well ahead of the consensus estimate of $0.45 and the guidance range of $0.42-$0.48.
  • The beat, according to the analyst, was driven by gross margin leverage and better SG&A discipline, while sales came in a touch below expectations.
  • Net sales for the quarter fell 6.8% to $4.983 billion, coming in below the consensus estimate for a 6.2% decline to $5.014 billion and guidance of $5.0-$5.1 billion.
  • The analyst added that the merchandise margin came in flat Y/Y due to lower markdowns and lean inventory levels, offset by higher promotions and category mix shifts.
  • On weaker demand trends than initially anticipated, as well as plans for greater markdowns in the second quarter, Macy’s took a more conservative view of the year, noted the analyst.
  • After reporting a strong finish to FY22 three months ago, trends slowed in March as consumer spending patterns deteriorated leading to the softer first quarter net sales result, said the analyst.
  • With consumer spending remaining choppy and unpredictable, Macy’s anticipates incremental markdowns in Q2 to help alleviate elevated spring seasonal merchandise as well as better position both inventory composition and levels heading into 2H23.
  • While the analyst believes management deserves credit for taking a more conservative view of the year given current trends, the analyst sees limited visibility to overall improved top and bottom line performance in the current environment.
  • Price Action: M shares are trading higher by 3.38% at $14.05 on the last check Thursday.
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