Macy's (M 1.44%) is scheduled to report fiscal 2022 first-quarter earnings on May 16. The brick-and-mortar retailer is gaining the benefit of a confluence of factors working in its favor.
Supply-chain shortages are allowing it to sell products at higher profits. Meanwhile, the scarcity of labor has it and its competitors operating with fewer staff, lowering expenses and increasing profits.
There is no telling how long these tailwinds will last, but Macy's is looking to capture the benefits while they persist, and investors hope the momentum will continue. Let's take a closer look.
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Sales and profits are surging for Macy's
In its most recent quarter, which ended Jan. 29, Macy's generated net sales of $8.66 billion. That was a 28.3% increase from the same quarter the prior year, when pandemic restrictions were more common and folks felt less comfortable shopping in person. More impressively, Macy's sales in the most recent quarter were higher than the $8.3 billion it reported at the same time in 2019, before the outbreak.
Interestingly, the benefits flowed to profitability. Macy's diluted earnings per share (EPS) increased to $2.44, up from just $0.50 in the same quarter the year before and $1.09 in the same quarter in 2019. The competitive pressure has eased significantly as retailers struggle to secure enough inventory to keep their shelves stocked. As a result, there are fewer markdowns, sales, and promotions, leading to higher profits. After all, why put items on sale if you can hardly keep up with customer demand?
Looking at Macy's entire fiscal year 2021 tells a similar story. Revenue surged 43% higher from pandemic-stricken 2020. Earnings per share came in at $4.55, up from $1.81 in fiscal 2019. Perhaps more than anything else, the EPS figure highlights the magnitude of benefits working in Macy's favor right now. It doubled EPS from 2019 to 2021, even though the pandemic is not yet over.
M EPS Diluted (TTM) data by YCharts
Supply chains remain snarled, and businesses are still reporting shortages of labor and inventory. For the time being, there appears no end in sight to the favorable factors leading to Macy's excellent performance. However, the recent surge in inflationary pressure could impact margins as it will cost Macy's more to ship items to consumers. Already, Macy's mentioned that delivery expenses as a percentage of net sales increased by 190 basis points in the most recent quarter from the same quarter in 2019. That is something investors should keep an eye on when Macy's reports Q1 figures.
What this could mean for Macy's investors
Wall Street analysts expect Macy's to report revenue of $5.33 billion and earnings per share of $0.82. If the company meets the earnings estimate, it will represent an increase of 110% from the same period a year before.
M Price to Free Cash Flow data by YCharts
Despite the excellent performance, Macy's stock is down 9% year to date along with the broader market. Investors perhaps perceive the short-term nature of Macy's thriving profitability. Regardless, Macy's is trading at such a low valuation -- less than four times cash flow and about five times earnings -- that investors should consider buying its shares with the hope that improved performance can last longer than the market expects.
