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Why Is Macy's (M) Down 8.5% Since Last Earnings Report?

A month has gone by since the last earnings report for Macy's (M). Shares have lost about 8.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Macy's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Macy’s Q1 Loss Narrower Than Expected, Revenues Miss

The coronavirus-induced stay-at-home orders, social distancing and store closures adversely impacted Macy’s, Inc. first-quarter fiscal 2020 performance. The New York-based company posted a loss for the quarter under review. Also, the company’s top line missed the Zacks Consensus Estimate and fell sharply from the year-ago period.

Let’s Delve Deep

Macy’s reported adjusted loss of $2.03 per share, narrower than the Zacks Consensus Estimate of loss of $2.37. Notably, the company had posted adjusted earnings of 44 cents a share in the year-ago period. Lower net sales hurt the company’s bottom line.

Net sales of $3,017 million fell short of the Zacks Consensus Estimate of $3,028 million, after surpassing the same in the preceding quarter. We note that the top line declined 45.2% on a year-over-year basis. The company generated credit revenue of $131 million, down 24% from last year.

Also, gross margin contracted to 17.1% during the quarter discussion from 38.2% in the year-ago period. Macy’s reported adjusted EBITDA loss of $689 million. The company had reported adjusted EBITDA of $447 million in the year-ago quarter.

Other Financial Aspects

Macy’s ended the first quarter with cash and cash equivalents of $1,523 million, which portrays a sharp rise from cash and cash equivalents of $685 at the end of the preceding quarter. We note that the company ended the quarter with a total debt of $5,657 million, which shows a sequential increase of almost 36%. Shareholders’ equity was $2,697 million as of May 2.

Key Notes

Management highlighted that almost all of the company's outlets have now reopened, including those in the major metropolitan areas. Notably the reopened stores have been performing above expectations. Also, the company's digital business remained robust across geographies. As a result, the company anticipates a steady recovery in sales. Undoubtedly, the company has been concentrating on improving financial flexibility and taking adequate steps to stabilize the business.

The company recently announced restructuring updates, including cost-containment measures and headcount reductions to address challenges related to the pandemic and position itself for future success.

The retailer informed that it will eliminate nearly 3,900 corporate and management jobs. The company’s actions will result in cost savings of roughly $365 million in fiscal 2020 and about $630 million on an annualized basis. The aforementioned savings is in addition to $1.5-billion annual cost savings announced in February, which is anticipated to be accomplished by 2022 end.

Macy’s also stated that it will turn into a smaller company going forward. Its lower cost base, coupled with about $4.5-BILLION new financing, will help it become more stable and flexible.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 21.07% due to these changes.

VGM Scores

Currently, Macy's has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Macy's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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