Macy’s (M) Performance Improves Outlook but Debt Overshadows
Last time we checked in with Macy’s, the company beat estimates with higher sales across all channels and other operating and structural improvements. The negative in the first-quarter picture: Macy’s was shouldering high debt. Our overall assessment was that Macy’s management team was on the right track but the picture needed more clarity.
Macy’s proved itself again in today’s second-quarter earnings report. M topped expectations of $0.29 per share, reporting diluted eps of $0.35 on over a 7-percent increase sales (year-over-year). Same-store sales rose 5.2 percent over second-quarter 2009, helped out by jumps in online sales at macys.com and bloomingdales.com.
A year ago, Macy’s reported $0.20 eps (excluding non-recurring charges) for the second quarter. Operating margins improved to 5.2 percent of sale for the first half of 2010 from 3 percent (excluding nonrecurring costs) of sales for the first half of 2009. The company had sales of $23.5 billion for fiscal year 2009.
“The improvement in our business is not the result of a single factor. Rather, our performance reflects a number of strategic initiatives that are working successfully and complementing each other,” said Terry J. Lundgren, Macy’s, Inc. chairman, president and chief executive officer.
“This includes My Macy’s localization of merchandise assortments, centralization of key Macy’s organizational functions, customer centricity activity, continued development of private brands, introduction of new exclusive market brands, improvement in associate selling and service skills, and integration of stores and online channels at Macy’s and Bloomingdale’s,” he added. “We are entering the fall season with tremendous momentum that has energized the exceptionally talented people in our company. We are motivated to continue to innovate, test new ideas, accelerate the penetration of distinctive and exclusive merchandise, and tailor our offering to the diverse customers who shop in our stores and online.”
Macy’s (NYSE: M)
Comments: Macy’s profited from stronger sales this quarter, but also by improved operating margins. The company’s management strategy has paid off as M increased guidance over the prior quarter from $1.75-$1.80 to $185-$1.90. Still debt heavy, M restructured debt and substantially improved their cash position. Refinancing long-term debt with cheaper, short-debt makes good sense as the company plans to open four new stores in second half 2010. Still the debt burden is onerous (total debt equals $8.19 on a market cap of $8.56B) and the recent sales trends could fade going forward, which makes M a risky play.
Disclosure: No positions.