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.
Macy's closed at $59.76 yesterday.