Macy's (M +5.09%) is scheduled to report fourth-quarter earnings on Feb. 21. After suffering devastating consequences at the pandemic onset when it had to shut its doors to in-person shopping, the retailer has been thriving.
Driving its robust recovery is an improved online shopping experience. Macy's digital business has impressed enough to attract potential suitors. Therefore, when the company reports fourth-quarter results, much attention will go to its e-commerce channel.
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Macy's digital business is thriving
In its most recent quarter, ended Sept. 30, Macy's digital sales increased 19% versus the same time last year. Looking back over the previous two years, Macy's digital sales are up 49% versus 2019. That's impressive growth from a company that has struggled to increase revenue at all in the last decade. Management can be commended for quickly emphasizing its digital channel at the pandemic onset. With its stores closed to in-person shopping, it had no other choice if it wanted to sustain itself.
Most recently, in the third quarter, Macy's launched a refresh and relaunch of its mobile app. Early indications show that consumers love the change. In the month since launching, monthly active users are up 21%. More people are using the app, but the percentage of visits turning into purchases is also up, by 80 basis points.
The online channel is thriving, and Macy's management are not the only ones seeing the potential. The interest from outside suitors is no secret, and Macy's has hired a consultant to help it evaluate a potential sale of its e-commerce business, a decision that could cause its stock to go parabolic.
Still, even without a sale, Macy's website and the app are also leveraging its brick-and-mortar locations. Digital sales per capita are three times higher in markets where Macy's has a store than in areas that don't. That's understandable. Consumers feel more comfortable shopping online if there is a store close by. That way, if there is a need to make a return, they can make a quick visit to a nearby store.
While e-commerce businesses have made significant improvements in delivering products to your home, the return process is still cumbersome in most cases. Therefore, having a physical presence can boost sales to customers who hesitate to purchase items that might need a return.
What this could mean for Macy's investors
Analysts on Wall Street expect Macy's to report revenue of $8.43 billion and earnings per share (EPS) of $1.96. If it meets those projections, it would be increases of 24.40% and 145%, respectively, from the same period the year before.
Macy's improving operating performance has not gone unnoticed by the market. The stock has been up 70% in the last year. If management announces a conclusion to its analysis of the sale of the e-commerce business that pleases the market, it could move the stock substantially higher. The same might be valid to the downside if it reveals it is no longer considering a sale. Either way, there could be an extra degree of volatility in Macy's stock following the Q4 earnings release.
