I don't get the excitement around Macy's Inc. M. Headlines paint the picture the company destroyed earnings per share. Well, technically, it did, reporting $0.44 per share versus expectations of $0.33 per share. However, this came in a penny less than the year-ago period as revenue of $5.5 billion was basically in line with expectations.
In addition, Macy's guided for fiscal 2019 earnings per share in the range of $3.05 to $3.25 against current estimates of $3.09. This implies a range of minus $0.04 to plus $0.16 for the rest of the year, but when you factor in the $0.11 beat this quarter, the range is really minus $0.15 to plus $0.05. That's much less impressive. Comp sales for owned and licensed stores came in at a 0.7% increase, well ahead of expectations, which likely spurred pre-market buying.
While those numbers made for great headlines, I don't believe they made for great quality. An asset sale gain (from real estate) added $0.10 per share to the bottom line. Although not unusual, this is almost twice the gain the company had from an asset sale in the year-ago period -- a period that was actually a penny better on the bottom line. Macy's added that the full-year estimate would include a quarter per share in gains from asset sales.
To this, we need to add a benefit of nearly $0.06 per share from lower taxes this year as compared to 2018 and a lower interest expense of $0.044 compared to the year prior. All told, Macy's quarter came in a penny lower than last year, but from an operational standpoint the result was really about $0.15 shy of last year's result. Also, without the asset sale, the current quarter is close to expectations, not the crushing beat the headlines would have you believe.
It's not better business driving the bottom line. Lower interest expenses, lower taxes and asset sale gains drove the beat. This was actually a disappointing quarter operationally, and the risk to lower guidance or future misses for the rest of the year are very real. As for cash, it is half what it was just one year ago.
Macy's did enjoy double-digit growth in its digital business, with mobile its fastest channel of growth. Sadly, if you are a brick-and-mortar retailer and not seeing double-digit growth in digital business it is a huge red flag, as double-digit growth should be the norm. Management is moving to downsize larger stores and take on Nordstrom Rack by opening 120 Backstage stores. I favor this approach as a way to generate cash and avoid any large inventory builds.
In terms of price action, a close under $22 this week will put pressure on bulls. I believe we could see $18-19 before finding a bottom. A close back above $22 should create a trading range of $22 to $26 for the summer, so how we finish the week will be far more key than how we finish Wednesday's trading.
Even with low-quality earnings, Macy's is cheap, so I would be intrigued with shares on a close above $22, but below that level I'll wait for $19.