Can Macy’s Recover From the Earnings Catastrophe?
Retail stores have been under pressure as of late and Macy’s (M) didn’t help their cause as the retailer released a terrible earnings report earlier this week. The sales, the guidance, the conference call, everything about Macy’s Q1 release was just horrendous.For the reported quarter, Macy’s EPS of $0.40 per share beat the consensus by $0.04. However, it was the falling sales trend that did not go down well with the market. Macy’s reported revenues of $5.77 billion, down almost 7.5% as compared to the year-ago period, missing the consensus by $10 million.
Comparable sales fell 5.6% during the quarter on an owned plus licensed basis and 6.1% on an owned basis while the company slashed its FY2016 EPS guidance to $3.15-$3.40 from $3.80-$3.90 prior, again falling short of the $3.80 consensus.
All in all, the earnings were terrible and as a result, shares plunged over 15% in the next trading session. Macy’s was already down over 6% in the week before the earnings and the post-earnings decline means that the stock is now trading near its 52-week lows.
Everything about Macy’s has been bad for the past few days, but can the company turnaround in the coming months? While it is possible, I think investors should stay away from retail stocks due to the falling sales trend.
Although Macy’s may look like an attractive value play, I think the retailer is capable of performing worse-than-expected in the future due to the weakening retail environment. Macy’s is already working on reducing costs and closing stores, which does not bode well for its revenue growth. However, with its market cap currently standing at just $9 billion, it seems like investors have already priced in all the concerns.
Macy’s does have attractive real estate assets, however, it has failed to monetize this. Even if Macy’s does manage to make the most of its assets, there’s no guarantee that the company will use the money wisely to grow its business. Amid the weakening sales environment, I expect Macy’s to struggle irrespective of what it does with its real estate assets.
The weakening sales environment spells trouble for all retailers including Macy’s. Although the stock may look like an attractive value play, I expect it to struggle going forward. Macy’s real estate assets are a plus, but investors shouldn’t buy the stock in the hopes of Macy’s monetizing them. For me, staying on the sidelines is currently the best option with regards to Macy’s.