There's no denying that Macy's (NYSE:M) took it on the chin during the last year or so, but there are some terrific signs that the company is turning things around. What kind of signs, you wonder? How about the store chain's first profitable quarter in a year, for a start? That's an excellent sign of a recovery in the making, and there were others to follow.
Macy's Biggest Win in a While
Not only did Macy's turn in a profitable quarter for the first time since the pandemic hit, it also turned in a win of surprising dimensions. The company posted earnings of $0.80 per share, which destroyed the consensus earnings per share figure of $0.12. Revenue was also a win, though a bit narrower victory; the company was expected to bring in $6.5 billion for the quarter. The company actually brought in $6.78 billion.
The company's clearest win was in e-commerce sales, which saw a 21% jump during the fourth quarter. This was a sentiment echoed throughout the retail sector, as companies discovered it was now vital to have a robust online presence just to remain a going concern. Digital sales were actually responsible for 44% of total sales for Macy's, and around a quarter of same were fulfilled from store locations.
The wins didn't come without losses, though; same-store sales were actually down from 2019's figures, down about 17.1%, in fact. Analysts expected much worse, however, looking for a 21.3% drop from the company.
Cautious Analysts Getting Bullish
The broader analyst pool, meanwhile—based on our latest research—is urging caution on Macy's, though sentiment now is more bullish than it has been. In fact, starting from about a month ago, a major shift has been in evidence, one that hasn't been seen in a while and is increasingly supported by the numbers at Macy's.
Six months ago, the company stood at a consensus rating of “sell”, with nine “sell” ratings squaring off against four “hold” and one “buy”. Three months ago, that was the exact same ratio.
Starting a month ago, however, a tectonic shift hit for Macy's, and the ratings went to eight “sell”, three “hold” and three “buy”, bringing the consensus rating up from “sell” to “hold”. Now, it's a little less bullish, with eight “sell”, three “hold” and two “buy”, which is still good enough for a consensus “hold”.
The price target, meanwhile, has seen wild fluctuations on a percentage basis. Six months ago, it started out at $8.54. Three months ago, it rose to $8.77 before beginning a steady decline. A month ago, the stock price target was at $8.65, and today, it's at $8.50, which is actually less than it was six months ago when the broader analyst pool was advising bailing out altogether. Given that Macy's is currently selling at $15.19, however, there's clearly some staleness left in the price target. Three analysts have raised their price targets so far this year, though only Deutsche Bank Aktiengesellschaft's target of $15 is even close to the current price.
Better Conditions Make for Better Sales
While stores like Home Depot (NYSE:HD) benefited from the conditions on the ground of widespread lockdowns and people constantly home, Macy's suffered from constant closures and a lack of need for nice clothes since people couldn't go much of anywhere anyway. With stores opening, and much of the rest of the world doing likewise, this is likely to give Macy's a leg up going forward. Throw in Macy's increasingly robust online presence and that only stands to improve operations further; it can accommodate those who are dying to get out of the house and walk around a store like they used to, but it can also accommodate those concerned about catching something while doing so.
Of course, Macy's will be trading one set of problems for another here, and that's a point it will have to address. Instead of facing external circumstances, it will now have to face competitors, as it has all along. There are signs that Macy's has been lagging other retailers, especially retailers that have diversified beyond being just clothing focused and spreading into a wider range of goods. Though there are high points for Macy's—it's expecting online sales to clear $10 billion annually within the next three years—it's still going to have to face off against all the troubles it had before, back when it was only turning in mediocre reports.
With a newfound online presence, slimmed-down inventories, and a decreased reliance on heavy discounting, Macy's might have a chance to turn it around here. The analysts are certainly more confident than they were, and if Macy's can make its fashion-forward stance stick, Macy's might be able to make itself better than it was even before the pandemic.
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