Macy’s Queues Up for a Strong Holiday Quarter

Source: Macy's

Source: Macy’s

Macy’s Inc. (NYSE:M) closed Tuesday’s trading session down 1.57 percent at $46.33 per share, but the stock climbed as much as 8 percent in morning trading on Wednesday after the retailer reported third-quarter results that came in ahead of expectations. Sales climbed 3.3 percent on the year to $6.276 billion, beating the mean analyst estimate of $6.19 billion. Earnings climbed by 31 percent to 47 cents per share, beating the mean analyst estimate of 39 cents per share.

“We were able to achieve a very successful third quarter of 2013 despite the tepid economic climate,” CEO Terry Lundgren said in a press release. “This was our 15th consecutive quarter of improved earnings per share.”

For the nine months ended November 2013, diluted earnings were up 20 percent at $1.74 per share. Total sales this year to date are up 2.1 percent to $18.729 billion. Combined with sales from departments licensed to third parties, YTD sales are up 3.1 percent.

Most of the good news from the report was contained in the earnings beat. Operating income climbed to $360 million in the third quarter, or 5.7 percent of sales, up from 5.4 percent of sales in the year-ago period. YTD operating income of $1.329 billion is 7.1 percent of sales, up from 6.9 percent in the year-ago period. YTD net cash flow, however, is down slightly, falling to $819 million from $889 million.

Earnings, though, weren’t the only piece of good news out of the report.

“Our business improved during the quarter, with particular strength in October, so we are entering the fourth quarter with confidence,” said Lundgren. Macy’s is guiding a comparable sales increase in a range between 2.5 and 4 percent for the fourth quarter and an increase in a range between 2 and 2.9 percent for the full year. Full-year fiscal 2013 earnings are expected in a range between $3.80 and $3.90 per share, which is above the current mean analyst estimate of $3.78 per share.

There was a little bit of underwhelming news from the report, too. Gross margin in the third quarter fell to 39.2 percent of net sales, from 39.6 percent, as cost of sales increased to 60.8 percent of net sales from 60.4 percent. SG&A costs did decline, to 33.5 percent of net sales from 34.2 percent.

Macy’s stock has climbed nearly 21 percent this year to date, lagging the S&P 500 but faring far better than the likes of J. C. Penney (NYSE:JCP). Embroiled in dramatic changes to strategy and management, J. C. Penney stock has fallen nearly 60 percent this year to date. J. C. Penney will report earnings on November 20.

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