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Last Minute Shoppers Give Macy's (M) an Edge in Fourth Quarter Earnings

Posted on Tuesday, February 25th, 2020 by Steve Anderson

Last Minute Shoppers Give Macys (M) an Edge in Fourth Quarter Earnings

It wasn't looking good for Macy's (NYSE: M) for a while there, like it wasn't looking good for pretty much any store that has its primary retail connection to a shopping mall. However, word emerged about Macy's fourth-quarter earnings that gave the company a bit of a boost, as it revealed it had a friend in the procrastinator that gave the company's earnings a Christmas goose and let it quietly beat expectations.

Almost a Blue Christmas for Macy's

Most of what we'd heard about Macy's going into the fourth quarter—and even coming out of it—was not good news. Plans of store closures were front and center—even a Bloomingdale's was going on the block!—and less-than-exciting earnings reports just ahead of Black Friday cast a pallor on the shopping season as Macy's was likely to see it.

About the only thing Macy's had that looked like good news was a report last month that holiday sales weren't down as much as investors thought they'd be down, which is about like being happy that you've only lost three pints of blood as opposed to the five you originally thought you'd lost.

Indeed, same-store sales did fall 0.6% in year-to-year comparisons between the latest November and December and those in 2018. Yet it was the last-minute shopper, Macy's said, that proved a welcome friend to the store, as a “meaningful sales uptick” in the last week and a half before Christmas gave the store its improved fortunes.

The Last-Minute Shopper Proves Macy's Best Friend

That last-minute shopper was a welcome friend, all right; a look at the numbers makes that much clear. While adjusted earnings per share (EPS) was expected to be $1.96 per share, the actual number turned out to be $2.12 per share. Revenue, meanwhile, turned in just a tick above expectations, coming in at $8.34 billion instead of the $8.32 billion expected.

While same-store sales were still down, they weren't down as much as previously expected. The original drop looked for 0.9% lost on last year's figures, while the actual drop turned out to be 0.5%. Net income for the fourth quarter proved to be $340 million, but that's a far cry from 2018's fourth quarter of $740 million.

It's a Long Way to Go for Macy's

The fact that most of Macy's good news revolves around not failing as hard as expected proves that Macy's has a long way to go before it can get back to its salad days, if such days can ever really be had again. Jeff Gennette, the company's chairman and CEO, noted that 2020 is expected to be a “transition year” for the company, and we've already seen the impact of such a strategy start to play out.

The market isn't exactly happy with Macy's either; while the share price popped up this morning in pre-opening trading, the company gave back all of those gains and is currently trading below yesterday's close, down around $15.34 as of this writing as compared to yesterday's close of $15.44.

The plain and simple truth so far is that mall stores are not doing well these days, and for the most part, neither are malls in general. We've already seen this point bear out not only at perennial anchor store favorite Macy's, but also at the interior level, with stores like Children's Place (NASDAQ: PLCE), American Eagle (NYSE: AF) and Foot Locker (NYSE: FL) also seeing their share of hard times of late.

Looking at retailers—especially for clothing stores and similar consumer goods—the rewards seem to be going to stores like Target (NYSE: TGT) and Walmart (NYSE: WMT), who are focusing on their online experience, taking advantage of their massive footprint of stores to essentially serve as fulfillment centers for online orders. This allows a handy way to beat Amazon (NASDAQ: AMZN), who has a hard enough time getting same-day shipping into place in more than a few major cities.

Macy's is certainly trying to pivot to provide the shopping experience that's more in line with what customers want, but it's working from a position of declining strength. Its revenues are falling, its profits are dropping, and issues of cash flow may become a problem soon. This is a transition year for Macy's, all right, but if it doesn't transition to something profitable soon, another major brand may fall into the retail dustbin of history.

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