Is It Time To Buy The Macy’s (NYSE:M) Recovery Story?

The Short-Story On Macy’s

Retailers like Macy’s (NYSE:M) got hit hard during the pandemic. The company is heavily dependent on brick&mortar, mall traffic, and economic opening so the 2nd quarter loss is no surprise. The surprise is that shares are up more than 5.0% after the release raising the question, is it time to buy. Looking at the short-interest, it's pushing 42%, now may not be time to buy this stock but it certainly looks like the shorts are starting to get nervous.

“We are encouraged by our second-quarter performance; however, we continue to approach the back half of the year conservatively. Our immediate priority is successfully executing Holiday 2020. We are also focused on laying the groundwork for 2021 and beyond. We plan to invest in fashion, digital and omnichannel, work with agility, and galvanize the resources of the company to serve our customers and move the Macy’s, Inc. business forward,” said Jeff Gennette, chairman and chief executive officer.

It Wasn’t A Good Quarter For Macy’s

Macy’s did not have a good quarter in the fiscal 2nd, don’t get me wrong, but results were better than expected and set this company up for a robust holiday season. Revenue came in at $3.56 billion, down -36% from the previous year, but slightly above the consensus.

At the bottom line, results were much better than expected on both a GAAP and Adjusted basis. GAAP earnings came in at -$1.39, not good but Macy’s is a big ship to navigate through such troubled waters, and better than consensus by $0.36. Adjusted earnings, the number that counts for comparability, was a much smaller loss of -$0.81 and $0.99 better than expected.

Sales were underpinned by the eCommerce business. At face value he 53% increase in YOY digital sales isn’t that great compared to say, the 332% reported by Shoe Carnival. The difference is that Macy’s already had an established eCommerce presence. The important figure for us today is that eCommerce penetration reached 54% of total sales. I can’t say enough how important that is as it shows this company successfully navigating the post-pandemic world. The combination of brand, quality, and eCommerce are the underlying recipe for every successful retailer today.

“Going into this crisis, we had a well-developed digital business and we’re seeing that thrive as we attract new and welcome existing customers back to our brands,” said Jeff Gennette,

Two more highlights, before I move on, are the margins and inventory. Margins improved 650 basis points to 23.6% of sales on positive mix-shift and better realization of clearance items. That’s great news. The better news is that inventories are down 29% from the previous year freeing up capital and leaving the company in a lean, clean position going into the holidays.

The Technical Outlook: A Short-heavy Stock But The Bottom Is In

Shares of Macy’s have been wallowing near the post-correction lows for nearly six months and still not really showing signs of life. The 2Q report has the market moving a little but this is probably shorts and short-covering more than anything else. That said, it looks like a bottom is in at the $6 level. All we need now is a reason to buy and the 2Q report might be it.  With the company’s rebound underway, inventory so low, and the holidays soon upon us this stock could easily see a 100% increase in share price by the first quarter of 2021. And I’m being conservative with that estimate.