Macy's ( NYSE:M )
Macy’s (NYSE: M) is a US-based retailer that operates both brick and mortar stores as well as a variety of e-commerce websites and apps. The company operates under three primary brands; Macy's, Bloomingdale's, and bluemercury. To widespread surprise, Macy’s posted excellent Q1 earnings, causing a massive 284% increase in mentions as people everywhere wondered if Macy’s is a good investment. The current price of Macy’s stock is hovering around $23.44, down 14.39% YTD.
Is Macy’s a Good Investment - Positives
Despite low expectations, Macy’s has come swinging with its Q1 earnings report. Here are a few reasons why it might be the perfect time to pick up Macy’s stock before it climbs higher.
Despite inflation and interest rate-related woes pushing Macy’s stock down significantly during the first half of May, it’s now recouped most of its losses thanks to a massive 29% surge following a better-than-expected earnings report.
Macy’s cost-cutting measures have clearly been paying off as it managed to get its figures for fiscal 2021 back in line with pre-pandemic levels. Earnings per share (EPS) even climbed by a wildly impressive 82% compared to fiscal 2019, hitting $5.31. This is a great testament to Macy’s ability to thrive even during times of economic turmoil.
In retail, the quicker your inventory turnover, the more money you make. Macy’s has been experiencing high demand and using it in conjunction with tight inventory control to cut back on discounting, aiding the company’s bottom line. This resulted in Macy’s Q1 margin coming in at 39.6%, up against even 2019’s 38.2%. Furthermore, sales hit $5.35 billion, a 13.6% year-on-year increase, showing consumer spending isn’t dying down quite as much as expected.
After beating its own guidance by almost 50% ($0.77-$0.82 vs $1.08), Macy’s has upped its full-year EPS forecast from between $4.13 and $4.52 to the $4.53 - $4.95 range.
Macy’s has been making an effort to branch out of the department store roots by acquiring the bluemercury beauty chain and investing in a series of small concept stores. This expansion will allow Macy’s to compete in more markets, likely leading to increased profits. In addition to its beauty and concept store segments, Macy's has been investing heavily in its digital business. Considering an ever-increasing amount of people are doing their shopping online, this seems like a great idea to stimulate Macy’s continued growth.
In order to bolster its EPS, Macy’s has been repurchasing shares while it’s trading at comparatively discounted levels. This is great news for long-term Macy’s investors as share buybacks reduce the open-market supply and drastically increase ‘per-share’ statistics.
Is Macy’s a Good Investment - Negatives
Before investing, it’s crucial to weigh the positives against the negatives. This allows you to make impartial investments based on facts rather than speculation. Here are a couple of reasons to avoid Macy’s despite its strong earnings report.
Macy’s has attributed the majority of its growth to its share buybacks and its high-margin credit card program. Because of this, Macy’s has not upped its full-year net income projection, suggesting that the retailer may be expecting a decrease in revenue from its core department store business.
Inventory management is the key to success in retail. Every day you have excess inventory is a day you could have sold a different product. Because of the recent shift in demand from casual wear to more dressy, formal wear, there is an imbalance in Macy’s inventory that could affect sales and margins.
Hype Asset of the Day - Conclusion
All in all, Macy’s is in an interesting position, despite a phenomenal earnings report, it’s still trading at a relatively low price-to-earnings ratio of 4.75, making it a compelling buy for value investors. While it's true that much of this Q1 growth can be linked to its credit card and share buyback programs, it seems likely that Macy’s will continue performing well as demand has stayed strong despite bleak predictions. If you’d like to receive more trending stocks straight to your inbox, check out our premium plans. Alternatively, if you’d like to hear more about the services offered by HypeIndex, you can check out our FAQ page.
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