Earnings preview: Will Macy’s regain momentum in Q2?

Clothing retailer Macy’s Inc. (NYSE: M) is set to unveil its second-quarter numbers on August 14, at 8 am ET. The general outlook is not very encouraging, with market watchers predicting a 34% year-over-year decrease in earnings to $0.46 per share on flat revenues of $5.55 billion.

After posting above-consensus earnings for all the trailing four quarters, the company is likely to beat the estimates this time too. Investments in growth initiatives could impact earnings negatively in the June quarter and beyond, which will be partially offset by the cost-cutting efforts. Comparable sales growth is estimated to be flat this time, considering the not-so-impressive inventory position after the spring season.

Mixed Bag

On the sales front, the improved weather conditions point to better store traffic, while the bottom-line stands to benefit modestly from tax refunds. While the aggressive marketing initiatives, such as the Growth 150 program, has been effective in retaining footfall, the management might close some of the underperforming stores. The present scenario calls for additional focus on the company’s e-commerce segment.

Macy’s Q1 2019 Earnings Conference Call Transcript

With the US-China trade relation deteriorating recently, Macy’s is in for trouble in terms of long-term growth prospects, as it might end up paying more for China-sourced items. The company might also fail to meet the full-year guidance issued by CEO Jeff Gennette recently.

Looking Back

Macy’s had a rather weak start to the fiscal year, with earnings dropping 8% to $0.44 per share in the first quarter amid muted comparable sales growth. At $5.5 billion, revenues were flat year-over-year. However, the bottom-line came in above the estimates. While pinning hope on its strategic initiatives to improve the momentum during the remainder of the year, the management guided flat sales growth for the full fiscal year.

Competition

Rival apparel retailer JC Penney (JCP) will be reporting its second-quarter results on August 15 before the opening bell. Analysts expect the company’s loss to narrow to $0.31 per share, while revenues are seen falling 4% year-over-year.

Macy’s is one of the worst affected stocks after the US-China trade war escalated as investors went into a selling spree. In the last session, the company’s shares traded at the lowest level in nearly two years. The stock lost about 35% since the beginning of the year.

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