Macy's Continues to Outperform: Time to Buy?

Recent earnings reports from retailers like Bed Bath & Beyond (NASDAQ: BBBY  ) , Sears (NASDAQ: SHLD  ) , and Family Dollar (NYSE: FDO  ) are confirming that the retail industry in general is going through a tremendously challenging period. In this context, Macy's (NYSE: M  ) is delivering solid performance and a strong outlook. Should investors go shopping for Macy's stock?

The dismal retail industry
Beth Bath & Beyond crashed by almost 12.5% on Thursday as the company reported lower-than-expected sales and earnings for its fiscal third quarter ended on Nov. 30. Sales during the quarter increased by 6% to $2.9 billion, comparable-store sales grew by 1.3%, and earnings per share came in at $1.2, an increase of 8.7% year over year.

This performance was below analysts' estimates, but the really negative news was the reduction in guidance for the fiscal fourth quarter. Earnings-per-share guidance was cut to between $1.60 and $1.67 versus a previous range of $1.70 to $1.77.

Sears has been reporting declining sales over the last few years, so the company's problems probably come from a combination of a tough economic environment for the industry and a management team that can't seem to find a way to turn the company in the right direction.

The stock was falling by more than 14% on Friday as Sears reported a big decline of 7.4% in quarter-to-date holiday season comparable sales and a 3.9% fall in year-to-date comparable-sales figures. The company is forecasting a loss of between $2.35 and $3.39 per share for the quarter ending on Feb. 1.

Family Dollar reported earnings for the first quarter of its fiscal year on Thursday, and the numbers were also below expectations. Total sales increased by 3.2% during the quarter, but comparable-store sales fell by 2.8% versus the same period in the previous year. Earnings per share during the quarter ended on Nov. 30 dropped to $0.68 per share versus $0.69 in the year-ago period.

Family Dollar also reduced guidance for fiscal 2014; the company is now expecting earnings per share in the range of $3.25 to $3.55 versus a previous guidance of between $3.80 and $4.14 per share. Like many other companies in the industry, Family Dollar is warning about a difficult economic environment for the sector, according to Chairman and CEO Howard R. Levine: "Many of the top-line challenges we faced in the first quarter, including a challenged consumer and an intensified promotional environment, have continued to impact our business."

What Macy's is doing right
In stark contrast to reports from other industry players, Macy's is actually doing quite well in such a challenging environment. The company reported that comparable sales including departments licensed to third parties jumped by 4.3% in the holiday shopping season, which includes November and December combined.

Management expects sales to increase between 2.3% and 2.5% in the fourth quarter of 2013 and between 2.2% and 2.3% for the full year. Macy's reiterated its fiscal 2014 guidance of comps growth in the 2.5% to 3% range and earnings per share are forecast to be between $4.40 and $4.50 during the coming year.

The company announced a series of initiatives aimed at reducing $100 million in annual expenses starting in 2014. Unfortunately, Macy's plans to cut around 2,500 jobs as a consequence of this reorganization. These kinds of decisions can be tough to make and also to understand, especially for a company that is doing quite well financially. But the move also shows that management is focused on maximizing efficiency to succeed in a savagely competitive environment.

Macy's is staying ahead of the pack by relying on private-level offerings, efficient inventory management, and price optimization. The company's omnichannel approach seems to be bearing fruit, and its My Macy's localization initiative is providing a more tailored retail experience for customers while improving economies of scale for investors.

The fact that the company is reducing its workforce in spite of reporting healthy sales figures could be interpreted as a sign of growing online sales as a proportion of total revenues. This is a crucial competitive factor considering industry trends and also a positive driver when it comes to profit margins.

Bottom line
Even mediocre companies can prosper when the wind is at their back, but it takes a superior management team to thrive in an aggressively competitive environment. Macy's is doing quite well in a challenging scenario for the industry, and that says a lot about the quality of its management team and the company's competitive strengths.

Our top stock for 2014
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

 


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2790641, ~/Articles/ArticleHandler.aspx, 9/2/2014 10:48:21 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement