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Earnings Results: Macy’s stock soars after earnings beat as consumers bought gifts, men’s tailored apparel and beauty products

Macy’s Inc. stock soared 10% Thursday, after the department store chain beat earnings estimates for the fourth quarter and offered upbeat guidance for fiscal 2023.

Chief Executive Jeff Gennette said the company “elevated its approach to inventory management,” after high levels of inventory derailed performance a year ago.

“As a modern department store operating from off price to luxury, we have a full view of (the consumer), aided by high penetration of loyalty members and (a) robust credit card portfolio,” Gennette told analysts on the company’s earnings call, according to a FactSet transcript.

“On the surface, the consumer’s in better shape than in 2019. Jobs and wages are strong and savings levels are elevated relative to historical levels. But prices for services and goods were higher. Inflation has surpassed wage growth and revolving credit is rising.”

The company

posted net income of $508 million, or $1.83 a share, for the quarter to Jan. 28, down from $742 million, or $2.44 a share, in the year -earlier period. Adjusted per-share earnings came to $1.88, ahead of the $1.58 FactSet consensus. Some 17 cents of the adjusted EPS beat was due to the favorable resolution of a state income tax litigation.

Sales fell to $8.264 billion from $8.665 billion, but were also ahead of the $8.234 billion FactSet consensus.

Sales were driven by strength in gifting and other special occasion categories, including beauty, men’s tailored apparel, dresses and shoes, while sales in active, casual and soft home declined. The categories that declined were much in demand during the peak pandemic period, when many people were working from home full time.

Same-store sales at owned store fell 3.3% and fell 2.7% at owned plus licensed stores, but were up 3.1% and 3.3% versus 2019, before the start of the pandemic.

Gross margin fell to 34.1% from 36.5% a year ago, which the company attributed to planned markdowns and promotions, which were higher than a year ago, when inventory constraints led to low promotional activity.

Net credit card revenue fell to $262 million, down $2 million from a year ago and equal to 3.2% of sales. That was 20 basis points higher than in 2022, due to higher balances and better-than-expected bad debt levels.

Macy’s is now expecting fiscal 2023 adj. EPS of $3.67 to $4.11 and sales of $23.7 billion to $24.2 billion. The FactSet consensus is for EPS of $3.78 and sales of $24.2 billion.

For the first quarter, the company is expecting adjusted EPS of 42 cents to 48 cents on sales of $5.0 billion to $5.1 billion, Chief Financial Officer Adrian Mitchell said on the earnings call. The FactSet consensus is for EPS of 66 cents and sales of $4.8 billion.

“Our net sales outlook assumes that the strongest sales we experienced in the peak holiday season and into January do not continue as the consumer further depletes their savings and becomes even more selective in their spend across goods and services,” he told analysts.

TD Cowen analysts cheered the numbers and said it expects Macy’s has strategies to capture market share and improve its long-term operating margins. These include expanding to off-mall locations, growing the marketplace and advertising businesses, personalization and pricing strategies.

TD Cowen has an outperform rating on the stock, equal to a buy rating.

The stock has fallen 22% in the last 12 months, while the S&P 500

has fallen 10%.

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