Stifel Keeps Macy's (M) at Hold Following 'Challenging' Q2; EPS, Margins Outpace Expectations
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Stifel affirms Macy's (NYSE: M) at Hold following Q2 results and store closing plans, as announced earlier Thursday.
Analyst Richard Jaffe commented today:
- Macy’s to Close 100 Stores – The company plans to close 100 Macy’s full-line stores (out of a portfolio of 728). Most of the stores will close in early 2017, with the balance closing as leases expire. Management indicated that the stores being closed are cash flow positive but profitability has been declining in recent years. We estimate that these stores are among the worst performers in the portfolio. The annual loss in sales will be roughly $1 billion, but the reduction in EBITDA is expected to be offset by expense savings beyond the costs associated with store closings. Non-cash asset impairment and other charges of $249 million were booked in 2Q and include a preliminary estimate of upcoming stores closings in 2016 and beyond.
- Macy’s Likely to Sell Union Square Men’s Store – The company is in negotiations to sell the Macy’s Men’s Store on Union Square in San Francisco. When the transaction is finalized, the men’s store will be built within the main Union Square store. We anticipate more real estate deals to be forthcoming.
- Operating Expense Deleverage/GM Flat – SG&A decreased 1.6% excluding settlement and store closure costs, deleveraging 80 bps on a -2.6% comp. Gross margin was flat, better than our estimated 30 bps decline.
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