What happened
Shares of Macy's Inc (M +1.96%) were heading south today as the department store chain got downgraded by Morgan Stanley ahead of its earnings report. The investment bank said it expected Macy's to report lower-than-expected earnings this year due to ongoing operating challenges. As a result, shares of the retailer were down 4.7% as of 11:14 a.m. EDT.
So what
Analyst Kimberly Greenberger lowered her rating on the department store chain from equal-weight to underweight. "Macy's continues to undergo core operating challenges, similar to peers in the department store space," Greenberger said. "Despite closing stores proactively, store-only comps remain negative and we forecast them to remain so in the future." She also said the company could face an "uphill battle" after the first quarter, though she gave the company credit for expense cuts, real estate monetization, and new retail initiatives. She lowered her price target from $27 to $25.
Image source: Macy's.
Now what
Indeed, Macy's comparable sales growth has consistently lagged that of peers like Nordstrom, Kohl's, and J.C. Penney, and the company just snapped a streak of 12 quarterly comparable sales declines in its fourth-quarter earnings report. While its core department stores may continue to struggle, the company is making smart moves, adding its off-price Backstage chain to more department stores, expanding the Bluemercury beauty brand it acquired in 2015, and it recently bought the concept store Story -- largely to make its founder Rachel Shechtman its brand experience officer. Macy's hopes Shechtman can remake its stores to drive traffic and correct some of the issues Greenberger noted.
We'll learn more about Macy's prospects when the company reports first-quarter earnings on May 16. Analysts are expecting revenue of $5.39 billion, up 1% from a year ago, and for earnings per share to increase from $0.24 to $0.35.
