Macy’s (M): These are the retailer’s expectations for the near and long term

Shares of Macy’s Inc. (NYSE: M) were up over 5% on Thursday. The stock has gained 54% over the past 12 months. The company reported strong results for the fourth quarter of 2021 this week with both revenue and earnings beating estimates. Here are some of the expectations the company has outlined for the near and long term.

Revenue and margins

On its quarterly conference call, Macy’s provided updates on its three-year outlook. The company is targeting a low single-digit compound annual growth rate for net sales over this period. The long-term sales growth is expected to be driven by scaling of the digital marketplace, improving mall-based trends through investments in omnichannel capabilities, and the expansion of off-mall stores.

Macy’s aims to achieve low double-digit adjusted EBITDA margins annually and in 2024, the company expects to be within a range of 11.5-12%. For gross margin, the company is targeting a rate in the high 30s even as digital penetration rises to the low to mid 40s as a percent of net sales.

Cash and capital

Looking at its long-term capital allocation plans, Macy’s is targeting capital expenditures of approx. $3 billion over the next three years. This spend will mainly be targeted towards building technological capabilities, improving the digital platform as well as fulfillment capabilities in stores, and personalization efforts. During this time, the company also expects to meaningfully monetize its real estate.

After accounting for Capex and asset sale proceeds, Macy’s expects to generate between $3.2 billion and $3.6 billion of free cash flow over the next three years. The company will continue to return capital to shareholders through dividends and share repurchases. Macy’s increased its dividend by 5% and authorized a new open-ended $2 billion share repurchase program.

Near-term outlook

For full-year 2022, Macy’s expects net sales to be flat to up 1%. The company expects a three-year compound annual growth rate of between 1.1% and 1.4% for its owned plus licensed comp sales. Digital sales are estimated to make up around 37% of net sales. Gross margin is expected to range between 38.1-38.3%, reflecting a slight decrease from last year mainly due to increased digital penetration and cost pressures from inflation.

Adjusted EPS is estimated to range between $4.13-4.52 and this excludes the impact of any share buyback that might take place during the year. Adjusted EBITDA margin is expected to range between 11-11.5%. The company expects to generate asset sale gains of $60-90 million during the year. For the first quarter of 2022, Macy’s expects net sales of $5.3-5.4 billion and adjusted EPS of $0.77-0.85.

Click here to read the full transcript of Macy’s Q4 2021 earnings conference call