Macy’s stock Down 13.7% on Q2 Earnings ReportsMacy’s (NYSE: NYSE:M ) has been a staple of American retail for over a century, but in Q2 CY2024, the iconic department store faced a challenging environment that reflected the shifting dynamics of consumer behavior and broader economic trends. Despite delivering a robust earnings performance, Macy’s sales struggled, leading to a revised outlook that has left investors cautious.
Key Earnings Highlights
In the second quarter of 2024, Macy’s reported a non-GAAP earnings per share (EPS) of $0.53, a significant 80% beat over the $0.29 expected by analysts. This marked a notable improvement from the $0.26 EPS in the same quarter last year. The company also generated $5.10 billion in revenue, slightly surpassing expectations of $5.05 billion, despite being 3.5% lower than the previous year.
One of the most encouraging signs from the report was the improvement in gross margins, which rose to 42.3% from 39.8% in the same period last year. This growth was driven by cost-cutting measures, including reduced promotional activity and better inventory management, resulting in a higher EBITDA margin of 8.6%, up from 6.5% in Q2 2023.
A Revised Outlook: Caution Amidst Uncertainty
Despite these positive earnings figures, Macy’s revised its full-year revenue guidance downward, projecting net sales between $22.1 billion and $22.4 billion. This is a decrease from the previous forecast of $22.3 billion to $22.9 billion, indicating a challenging environment ahead. The company also lowered its full-year EPS guidance to $2.72 at the midpoint, missing analyst estimates by 2%.
Macy’s (NYSE: NYSE:M ) CEO, Tony Spring, highlighted the difficulties the company is facing, citing selective consumer spending and an increase in promotional activities as key factors contributing to the lowered forecast. “As the quarter progressed, our customer became more discriminating, which we attribute to ongoing macroeconomic uncertainty and an increasingly complex news cycle,” Spring noted.
Consumer Behavior Shifts and Store Closures
The retail landscape is evolving, with consumers becoming more discerning about where they spend their money. Macy’s has been attempting to adapt to these changes by closing underperforming stores and focusing on more profitable locations. The company announced earlier this year that it plans to shutter about 150 of its namesake stores by 2027, while investing in the remaining 350 locations.
Technical Outlook
Macy stock, (NYSE: NYSE:M ), is presently experiencing a notable decline of 13.3%. This decline has resulted in the stock trading below several key moving averages, including the 50-day, 100-day, and 200-day moving averages. The daily price chart reveals a bearish symmetrical triangle pattern, indicating potential further downward movement. Additionally, the stock is currently oversold, which is reflected in a relatively weak Relative Strength Index (RSI) reading of 39.78. This low RSI suggests that the selling pressure may be dominating the market sentiment for Macy stock (NYSE: NYSE:M ) at this time.
Interestingly, while Macy’s flagship brand saw a decline in comparable sales by 3.6%, its beauty brand Bluemercury continued to perform well, with comparable sales rising 2%—marking its 14th consecutive quarter of growth. This highlights the divergent performance within Macy’s portfolio, with some segments thriving
Macysinc
Macy’s Revamps Board with New Directors Amid Acquisition TalksIn a surprising move, Macy’s ( VIE:MACY ) has announced the appointment of two new independent directors, Richard Clark and Richard Markee, while simultaneously continuing discussions with Arkhouse and Brigade regarding a potential acquisition deal. The reshuffle also sees Tony Spring, Macy’s CEO, taking on the additional role of chairman.
Richard Clark, a seasoned veteran with four decades of experience in real estate, mergers and acquisitions, and capital markets, brings a wealth of expertise to the board. His tenure at Brookfield Corp. and its predecessors, coupled with his role as Chairman of the Alliance for Downtown New York, positions him as a strategic asset in Macy’s strategic decision-making.
On the other hand, Richard Markee, with extensive retail experience including CEO roles and directorships at various companies like Vitamin Shoppe and Toys “R” Us, adds a deep understanding of the retail industry to the board. His presence could be instrumental in guiding Macy’s through the rapidly evolving retail landscape.
The timing of these appointments is particularly noteworthy, considering Macy’s ( VIE:MACY ) ongoing discussions with Arkhouse and Brigade regarding a potential acquisition. While Arkhouse and Brigade have withdrawn their director nominations, Macy’s remains open-minded about the best path to create shareholder value.
The addition of new directors, coupled with the continuation of acquisition talks, suggests that Macy’s is undergoing a strategic shift aimed at revitalizing its business and enhancing shareholder value. Tony Spring’s acknowledgment of the departing board members, Jeff Gennette and Frank Blake, further underscores the significance of this transition.
As Macy’s ( VIE:MACY ) navigates through these changes, shareholders eagerly await further updates on the outcome of the acquisition talks and the company’s strategic direction under the leadership of its revamped board. Will these developments mark a turning point for Macy’s, propelling it toward a new era of growth and innovation? Only time will tell.
Technical Outlook
Macy ( VIE:MACY ) stock is trading higher above the 200-day Moving Average (MA) with a moderate Relative Strength Index (RSI) of 53. VIE:MACY 's 4-month price chart indicates the start of a Symmetrical triangle pattern attesting to the bullish nature of the stock.
Arkhouse Pursues Macy's Amidst Talks for Higher BidIn a bid to secure a higher offer from Macy's ( NYSE:M ), investor Arkhouse Management has disclosed ongoing talks with the department store giant for access to due diligence materials. The move comes in response to Macy's characterization of the latest offer as "less than compelling," signaling a potential escalation in the battle for control over the iconic retailer.
Arkhouse, along with Brigade Capital, raised their offer to $24 per share on March 3, valuing Macy's at $6.6 billion. However, Macy's board expressed reluctance to transact at this price level, prompting Arkhouse to push for further negotiations and access to crucial diligence materials.
According to a regulatory filing, Arkhouse and Brigade have submitted a due diligence request list to Macy's, including customary items necessary to confirm or potentially increase the offer. Negotiations regarding the confidentiality agreement are ongoing, with Arkhouse Management and Brigade awaiting access to the requested materials.
With a 4.4% stake in Macy's ( NYSE:M ), Arkhouse Management remains determined to pursue its objectives. The investment firm has nominated nine director candidates, including executives with expertise in retail, real estate, and capital markets, in a move to reshape Macy's board.
The proxy battle initiated by Arkhouse underscores the intensifying competition within the retail sector. As traditional retailers grapple with evolving consumer preferences and the rise of e-commerce, strategic investments and boardroom maneuvers become crucial avenues for asserting influence and driving growth.
For Macy's, navigating this challenging landscape requires a delicate balance between preserving shareholder value and addressing the demands of activist investors. The outcome of the ongoing negotiations with Arkhouse Management and Brigade Capital could significantly impact the future direction of the iconic department store chain.
Macy's to close 150 stores Amidst weak 2024 salesMacy's Inc. (NYSE: NYSE:M ) announced a comprehensive restructuring plan on Tuesday, including store closures and cost-saving measures, alongside a forecast for annual sales and profit below expectations.
Store Closures and Cost-Saving Measures
The department store giant revealed plans to shutter approximately 150 stores through 2026, aiming to streamline operations and save $100 million in costs this year alone. Macy's ( NYSE:M ) shares surged 7% following the announcement, buoyed by quarterly profit beats, although they have trailed behind industry peers in recent times.
While the closures represent less than 10% of Macy's annual sales and predominantly target underperforming mall-based locations, the move underscores the retailer's proactive stance in adapting to shifting consumer preferences and economic challenges. CFO Adrian Mitchell emphasized that no additional layoffs were planned due to the closures, offering some reassurance amidst uncertainty.
Strategic Vision and Forecast
Macy's CEO, Tony Spring, characterized fiscal 2024 as a transition and investment year, expressing optimism for a return to consistent sales and profit growth by 2025. The company also outlined plans to open 15 Bloomingdale's locations and at least 30 new Bluemercury stores over the next three years, focusing on accelerating growth in its luxury brands segment.
However, Macy's holiday-quarter comparable sales saw a decline of 4.2%, although it surpassed analysts' estimates, attributed partly to steep discounts that drew in shoppers. Notably, net credit card revenue took a hit, falling 26%, signaling economic pressures among its customer base.
Financial Performance and Outlook
The restructuring efforts resulted in a $1 billion charge in the fourth quarter, reflecting the company's commitment to realigning its operations for long-term sustainability. Despite the charge, Macy's exceeded earnings expectations, reporting adjusted earnings per share of $2.45, above analysts' estimates.
Looking ahead, Macy's (NYSE: NYSE:M ) forecasts net sales between $22.2 billion to $22.9 billion for 2024, slightly below analysts' average estimate. Similarly, adjusted earnings per share are expected to range between $2.45 and $2.85, falling slightly short of expectations.
The announcement comes amidst heightened scrutiny from activist shareholders and proxy battles, underscoring the urgency for Macy's to implement decisive measures to reignite growth and regain investor confidence. As the retail landscape continues to evolve, Macy's ( NYSE:M ) remains committed to strategic agility and innovation in navigating challenges and capitalizing on opportunities in the ever-changing market.
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Stop Loss: 13.28
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