UPDATE: Macy's (M) Tops Q1 EPS by 3c; Cuts FY16 EPS Outlook

Macy's (NYSE: M) reported Q1 EPS of $0.40, $0.03 better than the analyst estimate of $0.37. Revenue was $5.77 billion, versus the consensus at $5.93 billion.

Comparable sales on an owned plus licensed basis were down by 5.6 percent in the first quarter. On an owned basis, first quarter comparable sales declined by 6.1 percent.

Plan for Near-Term Improvement

The company outlined three areas of action designed to improve the 2016 business trend:

1. Speed up/scale up what’s working – This includes continued rollout of in-store pilots of Macy’s Backstage (six stores-in-stores already open; nine additional by the fourth quarter) and Bluemercury (five in-store shops already open; a total of 22 expected to be in place by the fourth quarter). Macy’s also is rolling out its upgraded jewelry department concept, successfully piloted in 40 stores in fall 2015, to more than 350 stores by year-end 2016. Additional staffing, space and/or marketing are being applied to accelerate already-strong momentum in beauty categories, active products and experiences, and the Macy’s Last Act clearance pricing programs.

2. Excite customers with greater newness and more exclusive merchandise – An array of new and exclusive product launches will be coming in the weeks and months ahead, including Love Bravery (clothing and accessories supported by Sir Elton John and Lady Gaga), WHT Space (a men’s collection in collaboration with X Games Gold Medalist Shaun White), and new wearable technology from Samsung and other resources. A robust holiday gift strategy incorporates technology innovations in partnership with Brookstone, as well as whimsical merchandise in apparel, accessories and home.

3. Intensify expense reduction efforts while investing in key areas of customer service – As we pursue additional opportunities to moderate spending across the company, we are investing in front-line service (such as more full-time store associates and enhanced online customer support), and technology (including increased digital and mobile shopping functionality) at Macy’s and Bloomingdale’s.

Real Estate

We are continuing the previously announced process for maximizing the value of the company’s real estate. Under the leadership of Douglas W. Sesler, our new senior-level real estate executive, and with the help of our advisors, we are evaluating proposals from potential partners for joint ventures or similar arrangements involving Macy’s flagship locations and the company’s mall-based store portfolio. These complex transactions are being thoroughly explored. Meanwhile, the company will continue its work to monetize unproductive real estate.

Extended and Amended Bank Credit Facility

On May 6, 2016, the company entered into a new $1.5 billion, five-year Credit Agreement that will mature on May 6, 2021. It replaces a previous $1.5 billion facility maturing in May 2018. Given Macy’s, Inc.’s strong balance sheet, the company was able to extend the maturity of the agreement on similar terms.

GUIDANCE:

Macy's sees FY2016 EPS of $3.15-$3.40, versus prior guidance of $3.80-$3.90 and the consensus of $3.80.

For earnings history and earnings-related data on Macy's (M) click here.

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