Key Takeaways from Macy's (M) Q2 Results - Stifel

Stifel maintains Macy's (NYSE: M) at Buy following Q2 results.

Analyst Richard Jaffe highlighted the following key takeaways from the quarter:

• Despite Sales Shortfall, EPS Guidance Reiterated – Management indicated that trends improved at both Macy’s and Bloomingdale’s in the 2Q, reflecting a rebound in shopping activity once the weather turned seasonable. In addition, the company reiterated its 2014 EPS guidance in the range of $4.40-$4.50 but lowered its comp store sales expectation slightly to +1.5%-+2% (previous guidance of +2.5%-3%). Our estimates are currently under review.

• Derivative Call – We believe KSS and to a lesser degree, JWN likely experienced similar trends to Macy’s during 2Q with soft sales and some gross margin pressure. (We reckon JWN had the benefit of a strong Anniversary Sale in July). This could result in EPS below our expectation.

• Gross Margin down 35 bps but Expenses Tightly Managed – Gross margin decreased 35 bps during 2Q likely due to an increase in promotions in efforts to drive traffic. Expenses were tightly managed, up 1% y/y, and leveraged 70 bps on the 3.4% comp.

• Inventory Well Managed – Ending inventory per square foot decreased by 1% by our estimation. The lean inventory levels likely helped minimize gross margin pressure during the quarter. We believe the company is in a good inventory position heading into the Fall selling season.

• Share Repurchase In-Line with our Estimate – The company repurchased 8.9 million shares during 2Q for a total of $517 million. YTD the company has repurchased 16.3 million shares for $949 million. We also anticipate the buyback will continue apace as part of management’s ongoing efforts to enhance shareholder value.

For an analyst ratings summary and ratings history on Macy's click here. For more ratings news on Macy's click here.

Macy's closed at $59.76 yesterday.

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