Can Macy’s keep full-year guidance?

Macy’s will announce its third-quarter results on Wednesday 12 November; will its figures impress investors after the disappointing second-quarter update?

Taxis drive by a Macy's sign
Source: Bloomberg

Macy's surprised investors in August by announcing second-quarter earnings that failed to offset the poor performance in the first quarter of the financial year.

During the period from May to 2 August revenue was $6.26 billion and EPS was $0.80. Both metrics missed analysts’ estimates of $6.99 billion and $0.858; the retailer also reduced its full-year like-for-like sales forecast.

The announcement caused the stock to gap lower, as traders were banking on a robust set of figures to counteract the first-quarter numbers that were plagued by the cold weather. On the bright side, the company maintained its full-year EPS guidance range of $4.40 and $4.50.

The US economy is projecting mixed signals. In September, consumer spending declined for the first time in eight months, and this economic indicator is crucial as it counts for approximately 66% of economic activity. While in October, the Conference Board consumer confidence report jumped to its highest level in seven years, suggesting that optimism is high but only if the price is right.

Rival, Kohl's Corp reported a decline in second-quarter revenue, although its figures were an improvement compared with the numbers from its first quarter. Discount retailer JCPenney registered a 5.2% increase in second-quarter sales. The jump in revenue reiterates my point that consumers aren’t willing to spend on medium to high priced goods while wage growth isn’t great.

Equity analysts are extremely bullish on Macy’s. Out of the 24 broker ratings, 18 are buy recommendations, six are holds and the average target price is $64.44.

Macy’s is the preferred stock when compared with Kohl’s Corp and JCPenny. Eight percent of the analysts’ recommendations on Kohl’s are sells while it stands at 37% for JCPenny, although JCPenny’s high percentage of sells has more to do with debt restructuring.

Year to date, Macy’s is up 6.6% while Kohl’s and JCPenny are down 3% and 21% respectively.

Since the second-quarter results were announced in August, the number of short positions on Macy’s has increased by 59%, and the number of traders taking shorts positions is now at its highest for 2014.

Dealers are anticipating third-quarter revenue and EPS of $6.36 billion and $0.51 respectively, compared to last year’s figures of $6.28 billion and $0.47.

The Cincinnati-headquartered retailer will announce its full-year results in February 2015. Analysts are expecting full-year revenue to be $28.44 billion and EPS of $4.42.

The stock has been in a solid uptrend since November 2008 however, it has been running out of momentum lately. The $56 level is acting as support, and a move below could put the October low of $54.84 in sight. To the upside, the $60 mark has proven difficult to reach, and if this is taken out then $63 becomes the next target. 

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