Light Domestic Spending Hampered Macy's (M) Q3 Results, Outlook; Stifel Still Favorable on L-T Initiatives
Stifel affirms its Buy rating and $60 price target on Macy's (NYSE: M) following Q3 results and an update on REIT conversion plans.
Analyst Richard Jaffe noted that Macy's Q3 EPS of $0.56 came in above the firm's $0.54 outlook. The analyst noted weak sales, with comps falling 3.9 percent, were largely related to lower domestic spending.
Jaffe noted the following key points from Macy's release:
- Management lowered its 2015 EPS guidance to the range of $4.20-$4.30 (from $4.70-$4.80) including a gain of $310 million related to the sale of its downtown Brooklyn store and Seattle store, suggesting a significant decline in operating income versus our estimate. Guidance also excludes asset impairment charges related to store closings. It now anticipates comps to decrease 2.3%-2.7% on a company owned basis versus previous guidance of -0.5%. Our estimates are currently under review.
- Macy’s has begun to explore joint ventures or other deal structures with third parties to redevelop flagship real estate in Manhattan, San Francisco, Chicago and Minneapolis, which would bring alternate use to the buildings. The company has decided to not pursue the formation of a REIT as it does not offer sufficient upside potential for value creation. We believe the company will continue to weigh the best options for its real estate and anticipate more asset sales in the future.
Overall, Jaffe expects near-term weakness in Macy's, but believes longer-term initiatives will play out favorably, including the sale of some real estate.
For an analyst ratings summary and ratings history on Macy's click here. For more ratings news on Macy's click here.