A month has gone by since the last earnings report for Macy’s M. Shares have added about 1.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Macy’s due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Macy’s Q2 Earnings Beat Estimates, Comps Decline Y/Y

Macy’s has reported second-quarter fiscal 2024 results, wherein the top line lagged the Zacks Consensus Estimate while the bottom line surpassed the same. Total revenues declined and earnings increased from the year-ago quarter’s reported figures. Comparable sales (comps) fell on an owned basis and an owned-plus-licensed basis.

Sales & Earnings Picture

Macy’s has reported adjusted earnings of 53 cents per share, surpassing the Zacks Consensus Estimate of 32 cents. Also, the bottom line increased from 23 cents in the year-ago period.

Net sales of $4,937 million missed the consensus estimate of $5,091 million. Also, the top line dipped 3.8% from the year-ago quarter. Comps fell 4% on an owned basis and 3.3% on an owned-plus-licensed-plus-marketplace basis from the prior-year quarter.

Macy’s ongoing business comps, including both go-forward locations and digital platforms across all nameplates, decreased 3.8% on an owned basis and 3% when including owned, licensed and marketplace channels.

Net credit card revenues were $125 million, up 4.2% from the year-ago period. The metric represented 2.5% of sales, up 20 basis points from the year-ago quarter.

Details by Brands

Comps across Macy’s declined 4.5% year over year on an owned basis and 3.6% on an owned-plus-licensed-plus-marketplace basis. At the Bloomingdale’s brand, comps decreased 1.1% on an owned basis and 1.4% on an owned-plus-licensed-plus-marketplace basis. Comps at the Bluemercury brand rose 2% on an owned basis.

Margins

The gross margin was 40.5%. The metric increased 240 basis points from 38.1% in the prior-year quarter. The merchandise margin increased 210 basis points primarily due to reduced year-over-year discounting, favorable inventory shortages resulting from the company’s asset protection efforts and M’s transition to cost accounting.

Delivery expenses as a percentage of net sales improved year over year by 30 basis points, driven by lower shipped sales volumes and enhanced delivery expense management, reflecting cost-saving measures and process re-engineering initiatives.

The company reported selling, general and administrative (SG&A) expenses of $1.97 billion, down 0.4% from $1.98 billion in the year-ago period. As a percentage of net sales, SG&A expenses increased 140 basis points year over year to 40% on lower net sales.

Macy’s reported an adjusted EBITDA of $438 million, up 26.2% from an adjusted EBITDA of $347 million in the year-ago quarter. We note that the adjusted EBITDA margin was 8.9%, up 210 basis points year over year.

Other Financial Aspects

M ended the fiscal second quarter with cash and cash equivalents of $646 million, long-term debt of $2.99 billion, and shareholders’ equity of $4.30 billion. Merchandise inventories rose 6% on a year-over-year basis. In the second quarter of fiscal 2024, Macy’s provided cash from operating activities of $137 million.

A Peek Into Guidance

The company has revised its annual outlook to account for more cautious consumers and a more intense promotional environment than previously anticipated. This updated outlook is intended to provide the flexibility needed to navigate the continued uncertainty in the discretionary consumer market. M has reaffirmed its annual adjusted earnings per share outlook.

However, Macy’s continues to see fiscal 2024 as a transitional and investment year, focusing on key strategic initiatives to improve customer experience. With the support of a strong balance sheet, the company will prioritize enhancing its gross margin and maintaining expense control to safeguard profitability amid ongoing macroeconomic challenges.

Net sales are projected to be $22.1-$22.4 billion, a slight reduction from the previously stated $22.3-$22.9 billion. Notably, the company reported net sales of $23.1 billion in fiscal 2023.

The outlook for comparable owned-plus-licensed-plus-marketplace sales on a 52-week basis has also been adjusted, with a projected year-over-year decline of 0.5-2%, down from the previously stated range between a drop of 1% and an increase of 1.5%.

Adjusted earnings per share are envisioned to be $2.55-$2.90 for fiscal 2024, implying a decline from the $3.50 earned in the prior year.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -100% due to these changes.

VGM Scores

Currently, Macy’s has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. It’s no surprise Macy’s has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Macy’s belongs to the Zacks Retail – Regional Department Stores industry. Another stock from the same industry, Dillard’s DDS, has gained 6.1% over the past month. More than a month has passed since the company reported results for the quarter ended July 2024.

Dillard’s reported revenues of $1.49 billion in the last reported quarter, representing a year-over-year change of -4.9%. EPS of $4.59 for the same period compares with $7.98 a year ago.

Dillard’s is expected to post earnings of $6.47 per share for the current quarter, representing a year-over-year change of -30.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -4.2%.

Dillard’s has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.

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