Earnings did beat estimates, but overall total sales revenue declined year over year. This undermines the enthusiasm over Macy's double-digit percentage rate increase in online sales.
I've always rooted for Macy's. That old school Americana gets to me, but I'm beginning to worry that I've suffered cognitive bias. The saving grace has been the giant retailer's ability to sell off real estate assets, but you can only sell off so many assets before you lose the company that you had.
Macy's reported sales growth on a comparable basis. Same-store sales increased 0.7% (including licensed locations), while overall revenue actually declined.
Total net sales were $5.50 billion vs. $5.54 billion in 2018. Net income came in at $136 million vs. $139 million a year ago. On a per-share basis, those earnings broke down to $0.44 per diluted share vs. $0.45 a year ago. On an adjusted basis, net income was $137 million, breaking down to $0.44 per diluted share.
There are two ways to view these earnings.
Yes, Macy's results did beat estimates on the earnings end. Earnings of $0.44 per share beat estimates of $0.33. Revenues were relatively in line with estimates of $5.5 billion. The surprise on same-store sales was much better than expected. Some analysts had estimates of a 0.2% decline in same-store sales, compared to the actual 0.7% increase.
Still, I had expected a surprise on same-store sales to give Macy's stock more of a bump today. Unfortunately, I believe the combination of net sales declines and weak year-over-year earnings, combined with the generally timid sentiment in the market right now, is just too much for the stock to overcome.
My sentiment on Macy's is definitely weakening, despite the nostalgia.
The company has a strong balance sheet, and announced a new $1.5 billion credit facility that will replace an old one. At the end of the first quarter the retailer had $737 million in cash/equivalents. That's a 58.7% decrease in cash. Nonetheless, liquidity is not a problem, and Macy's certainly isn't in dire straits yet.
There just hasn't been anything that marks a big turn.
I'd describe Macy's as in limbo. When the iconic retail chain announced big improvements last December, the stock had quite a run. Now, investors are waiting to see more. They're waiting for that next step where Macy's demonstrates it can regain dominance in retail, rather than simply surviving. Macy's maintained its current guidance for the year, and I don't think it's enough to create that momentum.
Full-year guidance suggests same-store sales growth of 0-1%. Macy's expects net sales revenue to be flat year over year.
An added negative to the equation is the weaker retail data reported in April. Granted the bulk of the slowing was in automobiles, food services, and building materials, but weaker consumption is always something to mind.
I view Macy's as a hold. There's still a lot of equity here, as the company continues to decrease long-term debt. Long-term debt is down to $4.68 billion vs. $5.85 billion. There's prudent financial management.
It's just a question of sales. Macy's has to invigorate sales. Comp sales did have growth, but the flat overall revenue picture, combined with weak year-over- year earnings growth, is limiting the stock.
2019 guidance suggests earnings of $3.05 to $3.25 per diluted share. Conservatively, $3.05 per share would mean the stock is trading at 7.16x full year earnings.
Macy's is cheap right now, but you have to remember the stock trades cheap for a reason.