Macy’s quarterly sales were poor. Here are 5 reasons Wall Street still cheered the stock
Macy’s (M) reported a 1.4% drop in comparable third-quarter sales on Wednesday, and lowered its profit forecast for the year, two moves that typically send a company shares hurtling downward. Instead, the department store chain’s shares rose about 5%.
Why? Because there was lots of good news in the report and conference calls, including Macy’s ability to protect its margins, promising sales in categories that are even more important during the holiday season, and encouraging signs that the retailer is capitalizing on its tech lead over rivals like J.C. Penney (JCP) and Kohl’s (KSS). Here are five bright spots.
1. Gross profit margin steady despite the sales drop
That Macy’s, which reported a 23% increase in profit thanks to cost cuts, was able to keep its gross profit at 39.2% of sales, suggests that it was able to keep a handle on markdowns.
2. No sign of excess inventory buildup
Macy’s inventory was up 1% at the end the quarter, but it said it expects comparable sales to be up 1.8%-2.8% this holiday quarter, lowering the odds of the retailer having to dump unsold merchandise at big margin-depleting discounts at the end of the season.
3. Macy’s “buy-online/pick up in store” is available at all of its stores this holiday season, while Kohl’s only has it at a fraction of their stores. Macy’s also uses its stores to ship product to fill online orders, something Kohl’s and Penney are getting started on.
“Buy online/pickup in store has the potential of driving lots of last-minute gift purchasing, as convenience becomes so important to our busy shoppers,” Chief Financial Officer Karen Hoguet told Wall Street analysts on a conference call to discuss the results.
4. Some of the strongest categories during the quarter ended Nov. 1 were handbags, fragrances and activewear (athleisure included), key gift categories during the Christmas season.
5. The economy is being more co-operative.
“We also see positive factors in the economy: lower gas prices, lower unemployment and health financial markets…” said Hoguet (see below for rest of quote)
BUT, lest we let Macy’s off the hook too easily, a couple of reasons to be cautious:
1. People are spending what they have on other items.
Here is the rest of that Hoguet quote from point 5: “We are, however, balancing these factors with the reality of the recent trend caused in part by customers spending more of their disposable dollars on categories we don’t sell, like cars, healthcare, electronics, and home improvement.”
2. And stating the obvious, Hoguet thinks it will be a tough season: “We do expect the competition to be fierce.”