Whoever Said Retail Is Dead Hasn’t Been Listening to Macy’s


Source: Macy's

Maybe I'm just watching too much CNBC, but I really expected Macy's (NYSE: M  ) to show a weak first quarter report. Between all the talk of retail dying and the winter storms, surely Macy's was going to be the next member of the disappointment club. Instead, not only was the report a good one, but the company's actions spoke even louder than its guidance.

The blooming results
On May 14, Macy's reported fiscal first quarter results. Sales were down 1.7% to $6.279 billion. Same-store sales slipped 1.6%. Net income popped 9% to $0.60 per diluted share. It was a decent start to what will hopefully be a sixth year in a row of double-digit growth in earnings per share.

Terry J. Lundgren, CEO of Macys, did mention that the business trends were soft in the first quarter in part due to weather in the northern climate zones, but it was mostly due to "a calendar shift" in the company's popular "Friends & Family" event. As Lundgren points out, in the year-ago period Macy's had robust sales from this event and same-store sales were up 3.8%. For Macy's to only be down on same-store sales by 1.6% despite this calendar shift and the weather is remarkable.

Time for Macy's to strut its stuff
As always, the more important point is where Macy's is going from here. Macy's reiterated its guidance for the full year 2014. Assuming that the first quarter came in worse than the company had expected internally, this reiteration essentially is a guidance raise for the rest of the year as Macy's expects the shortfall to be made up.


Source:  Macy's

Lundgren stated, "The fundamentals of our business and our ongoing strategies remain strong." Lundgren put the company's money where his mouth is and raised the dividend by 25% and share buybacks by $1.5 billion. Often these types of raises speak louder than any words can about a company's prospects. So much for the death of retail. Lundgren said the dividend and buyback increases is a direct result of the confidence the board of directors has.

Macy's expects 2014 to show same-store sales growth of between 2.5% and 3% compared to a loss of 1.6% in the first quarter. Based on that, expect the rest of the year to average well above 3%. Earnings per share for the full year are expected to come in between $4.40 and $4.50, which comes out to between $3.80 and $3.90 for the rest of the year.

If achieved, earnings per share will show a jump of between 10% and 12.5%; this will mark the sixth year in a row of double-digit earnings per share gains. The additional $1.5 billion share buyback, based on the current market cap of $22 billion, could further boost long-term earnings per share by 7%.

Source: Macy's

Retail apparently not dead
During a conference on May 28, Peter Sachse, Chief Stores Officer of Macy's, said that the company doesn't even think of online shopping as separate from its brick and mortar stores any more. He believes that the two channels complement each other. People shop online and then come into the store to buy. People shop in the stores and then buy online. People even buy online then pick up in the store. The results are "tremendous" and "far surpassed [Macy's] expectations." Sachse says, "We are very, very excited." That's a lot of emphasis!

Foolish final thoughts
Sachse interestingly points out that the millennial generation is now the largest generation out there, and Macy's is successfully resonating with this crowd that has been tough for others. This bodes very well as this generation of people move into their 30s and 40s and their spending power increases. Based on current growth trends and the outlook, Macy's deserves a closer look.

Macy's will do well but do you want something that can make you rich?
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.


Read/Post Comments (0) | Recommend This Article (3)

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: 2978614, ~/Articles/ArticleHandler.aspx, 9/1/2014 10:16:33 AM

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