Macy’s (M) is set on a strong path for the remainder of the year

Shares of Macy’s Inc. (NYSE: M) were up 3% on Friday after delivering a strong earnings report a day ago. The stock has gained 97% since the beginning of the year and 22% over the past three months. Aside from beating market estimates for both revenue and earnings, the company reported a couple of highlights that boosted optimism over the stock for the near term. Here are a few positive points from the report:

Strong numbers

Net sales rose 59% year-over-year to $5.6 billion in the second quarter of 2021, helped by strong growth in comparable sales, on an owned plus licensed basis, of 62%. Comparable sales on an owned basis was up 61%. The company reported adjusted EPS of $1.29 during the quarter compared to a loss of $0.81 per share in the year-ago period. Both the top and bottom line numbers exceeded expectations.

Growth trends

During the second quarter, Macy’s benefited from the rebound in consumer activity as people ventured out and returned to in-store shopping. The company witnessed strong trends in categories like fancy apparel, fine jewelry and fragrance as people prepared for social events and back-to-school. These categories were also popular with those looking for gifts to celebrate missed occasions like Mother’s Day and Father’s Day.  

Macy’s is seeing strong demand in toys and this is an area which provides further growth opportunity. To take advantage of this, the company has partnered with WHP Global to roll out Toys “R” Us in over 400 Macy’s stores across the country in 2022.

The casual and home categories performed well during the pandemic and Macy’s saw the momentum continue during Q2.

Shareholder returns

Macy’s reinstated its dividend at $0.15 per share on its common stock and this is expected to grow over time. This will allow an annualized return of nearly $200 million in cash to shareholders with a return of up to $95 million in 2021. The company’s board has also authorized the repurchase of $500 million in stock.

Raised outlook

Macy’s raised its guidance for the full year of 2021 and the company now expects net sales of $23.5-23.9 billion and adjusted EPS of $3.41-3.75. This compares to the previous outlook for sales of $21.7-22.2 billion and adjusted EPS of $1.71-2.12.

The company expects to generate digital sales of $8.3-8.4 billion versus the previous outlook of approx. $8 billion. The gross margin rate is expected to increase by up to 9 percentage points from the previous year compared to the prior outlook of approx. 8 percentage points. Adjusted EBITDA margin is expected to be 11-11.5% versus the previous range of 9-9.5%.

For the third quarter of 2021, Macy’s expects sales to be $5.0-5.1 billion and adjusted EPS to be approx. $0.17-0.26.

Click here to read the full transcript of Macy’s Q2 2021 earnings conference call