Macy’s stock rallies after surprise profit, improved outlook

Shares of Macy’s Inc. powered higher Thursday, after the department store chain reported a surprise third-quarter profit that beat expectations by a wide margin, as margins improved and inventories fell to “healthy” levels.

“Sales results exceeded expectations with strength in beauty, particularly fragrances and prestige cosmetics, women’s career sportswear and men’s tailored clothing,” said Chief Executive-elect Tony Spring on the post-earnings conference call, according to an AlphaSense transcript. “Women’s casual sportswear, big ticket and handbags were challenged.”

The stock
M,
+7.30%
surged 7.3% toward a three-month high in morning trading. The stock has rocketed 26.0% amid a three-day win streak, which would be the best three-day performance since it rocketed 33.1% over the three days ended May 27, 2022.

Net income for the quarter to Oct. 28 fell to $43 million, or 15 cents a share, from $108 million, or 39 cents a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share of 21 cents beat the FactSet consensus of breakeven.

Sales fell 7.1% to $4.86 billion, but topped the FactSet consensus of $4.78 billion.

Same-store sales, or sales of stores open at least a year, fell 7.0% to beat expectations of a 7.2% decline, as Macy’s branded stores saw same-store sales fall 7.6%, Bloomingdale’s same-store sales were down 3.2% and Bluemercury’s same-store sales rose 2.5%.

Gross margin improved to 40.3% from 38.7%, and the value of merchandise inventories fell 5.9% to $6.03 billion.

For the holiday season, Spring said Macy’s customers continue to be “under pressure and discerning” in how they spend in discretionary categories, but stressed that the company has the flexibility to react to customer demand.

For fiscal 2023, the company raised its adjusted EPS guidance range to between $2.88 and $3.13 from the $2.70-to-$3.20 range, which increases the midpoint of guidance to $3.01 from $2.95.

The outlook for sales was lifted to between $22.9 billion and $23.2 billion, from between $22.8 billion and $23.2 billion.

“Our sales outlook reflects our confidence in Macy’s Inc. as a gift-giving destination, including the expected increase in beauty sales penetration, particularly fragrances,” said Chief Financial Officer Adrian Mitchell on the post-earnings call with analysts.

The stock has dropped 10.4% over the past three months, while the SPDR S&P Retail ETF
XRT
has lost 3.6% and the S&P 500 index
SPX,
-0.18%
has gained 2.4%.

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