The Daily Dose: The Report of the Month

 | Aug 12, 2014 | 11:00 AM EDT
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Forget the rest of the economic calendar for August. The second quarter earnings report from Macy's (M), due on Wednesday before the bell, will be THE report of the month. Here is why:

This could be a bounce-back quarter: Polo Ralph Lauren (RL) had a solid second quarter at wholesale, so did Michael Kors (KORS) through its zillions of splashy-looking shop remodels at department stores. Even the bruised and bloodied Coach (COH) had second-quarter wholesale sales that weren't as bad as feared. So, the opportunity exists for Macy's to recover from its minus 1.6% first-quarter comp, and raise its fiscal year earnings guidance (last time, it reiterated it). In doing so, there would be hope that mid-to-upper income families are prepared to spend more freely this back-to-school and holiday seasons; buying in best-in-class retail stocks could then occur. No solid ($0.02 or more) earnings beat from Macy's, and it would be a serious further blow to sector sentiment.

Bloomingdales: It now has 37 full-price stores and 10 outlets in the U.S., all of which should buffer Macy's results amid the rising stock market. Macy's tends to not disclose much on the jewel that is Bloomies, but if consolidated gross margins surprise consensus, best believe that the upscale chain played a role.

Last week I had the opportunity to walk the nearly completely remodeled NYC Macy's Herald Square with a company executive. These are a couple takeaways from that visit, and a few things to be listening for on the earnings call:

  • Athletic apparel should be a very hot full-price category for Macy's. The company's new and remodeled stores are boasting athletic shops from branded vendors such as Nike (NKE) and Under Armour (UA), showcasing premium offerings. I think Dick's Sporting Goods (DKS) should be concerned by Macy's advances on new shop structures; ditto Lululemon (LULU).
  • Macy's is quietly improving its footwear offering via its deal with Finish Line (FINL). In new and remodeled stores, the presentation for men's and women's footwear has expanded, compared to earlier shops that opened in 2013. I think Foot Locker (FL) and Genesco (GCO) should be taking note of Macy's maneuvers. Further, Lids (owned by Genesco) is in the process of being rolled out as a licensed partner. I can tell you the localized sports assortments and presentation are impressive at the NYC Herald Square store, and represent another financial win for Macy's.
  • Without getting too lost in the weeds, I like how Macy's is using RFID technology on its assortment on the sales floor. By tapping into the power of RFID, Macy's is keeping inventory as productive as possible. Similar to Nordstrom (JWN), it is distributing handheld devices to its associates to check stockroom inventory, which allows them to stay in close contact with the consumer. That raises the prospect of securing a sale and driving repeat business due to strong customer service.

I believe that Macy's is likely to announce a major expansion of its same-day delivery service pilot within the next 12-months, if not before the holiday season. My sense is that the company continues to work on the structure of the system so as to deliver on the promise of same-day delivery of merchandise for consumers. Nonetheless, Macy's is so far ahead of its competitors J.C. Penney (JCP), Kohl's (KSS), and Sears (SHLD) on this next focal point for the retail industry it's laughable.

As for the stock market, do the opposite of what newsletter pioneer Marc Faber suggests. For the entirety of my career on Wall Street, I have watched this guy being pulled from his hole at periods of stress for the market, only to see him be wrong and then disappear into hiding for months. Do yourself a favor; compile your own thoughts on investing, through rigorous research ... and by reading whatever I write!

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