Macy’s Inc (M): Upbeat Earnings but Debt Heavy

Macy’s (NYSE: M) beat earnings estimate by $.01 today, continuing a positive trend for better-than-expected growth and earnings since the start of the year for both Macy’s and Bloomingdale’s stores.

The struggling retailer reported earnings of $.05 per diluted share for the first quarter, compared with a loss of $0.16 per diluted share for the same period a year ago. Earlier this year, the company revised guidance for 2010 to $1.75 to $1.80 per diluted share, up from $1.55 to $1.60 per diluted share.

Sales were up 7.2 percent for all channels and up by 5.5 percent for same-store sales. The company reported sales of $5.574 billion compared to sales of $5.199 billion in first quarter 2009.

According to Terry J. Lundgren, Macy’s, Inc. chairman, president and chief executive officer,  “Macy’s and Bloomingdale’s both had an excellent quarter and outperformed most of their key competitors. While the direction of the overall economy remains unclear, we believe we are well-positioned to continue to gain market share. With major changes now behind us, the Macy’s organization has settled in and is hitting its stride in capitalizing on the advantages of My Macy’s. Our team is fully focused on driving sales by taking well-planned actions in each of our four strategic priorities – Assortment, Value, Shopping Environment, and Marketing.”

The stock popped up by $0.64 at market open to $25.54.

Comments: From a strategy perspective, Macy’s is on the right track. The company has increased revenue, reduced operating expenses, improved profit margin, improved cash flow, consolidated and closed stores, repurchased stock, and retired debt, earning an upgrade to BB+ (highest junk level) from Standard & Poor’s. On closer inspection, their improved position included a financial restructuring, which looks like an exchange of long-term debt with significantly higher shorter-term debt. The stock has had a significant run-up since March and is now trading at about 27 times earnings, not a great buying opportunity. All in all, a mixed bag. Best to take a wait-and-see approach on this one.
Disclosure: No positions