Macy’s Stock is Basing For a Breakout

Retail department store chain Macy’s NYSE: M stock has been consolidating in a tightening range setting up for a potential breakout. The Company was an epicenter stock that suffered drastically during the pandemic as brick-and-mortar stores faced mandated closures and consumers were under lockdown. Fast forward to 2021 and the rollout of the COVID-19 vaccinations have accelerated re-openings boosting traffic at malls and department stores. While this narrative has been reflected in the performance of value stocks versus growth stocks, the markets will determine which stocks deserve the valuations. Prudent investors can watch for opportunistic pullbacks on this retailer value play for the potential for a breakout.  

Q4 FY fiscal 2020 Earnings Release

On Feb. 23, 2021, Macy’s released its fourth-quarter fiscal 2020 results for the quarter ending January 2020. The Company reported earnings-per-share (EPS) of $0.80 excluding non-recurring items versus consensus analyst estimates for a profit of $0.12, a $0.68 per share beat. Revenues fell (-18.7%) year-over-year (YoY) to $6.78 billion, beating consensus analyst estimates for $6.5 billion.  Comparable same-store-sales (SSS) were down (-17%) YoY. Gross margins fell 33.7% in Q4. Digital sales rose 21% for Q4 making up 44% of net sales. The Company issued flat guidance for fiscal year 2021 with EPS ranging between $0.40 to $0.90 versus $0.74 consensus analyst estimates. Revenues are expected to come in between $19.75 billion to $20.75 billion versus $19.91 billion consensus analyst estimates.

Conference Call Takeaways

Macy’s CEO Jeff Gennette set the tone, “Sales for the quarter were $6.8 billion with all brands outperforming expectations for the quarter and back half of the year. This solid performance has continued into 2021. Significant growth in digital sales supported these results as we took series of actions to win over new customers, while some of our core customers paused spending with us during the pandemic. We accelerated our focus on digital shopping, extended our assortment to help customers in expressing their unique styles through a growing number of categories, and clarified and simplified our customer value equation.” The Company gained 7 million new customers in the quarter with many under the age of 40. November and December demand continued into January 2021. The pandemic accelerated the Company’s focus on becoming an omnichannel retailer, which they dubbed the Polaris strategy. Macy’s expects digital channels will generate $10 billion in sales by 2023. CEO Gennette remarked under the Polaris strategy, “We have shifted current and future capitals to digital, supply chain and technology platforms to better integrate our digital and physical assets and deliver the most relevant shopping experiences.” The Q4 digital sales reached $3 billion, up 21% YoY.

Digital Transformation

Macy’s expects apparel sales to recover as customers return to their prior habits. The Company was able to bolster its Star Rewards Loyalty program with a 45% increase in Bronze tier members. They are also the youngest and most diverse customers and vital to the under 40 strategy which is the future driver as higher tier members dropped off. Nearly 25% of sales were fulfilled in stores and inventories dropped (-27%) YoY. The Polaris cost savings amounted to nearly $900 million in permanent savings. Polaris has also provided the Company with analytics and insights into customer preferences and metrics. Regions with physical brick-and-mortar stores generate 2X to 3X more digital sales.

M Opportunistic Pullback Price Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for M stock. The weekly rifle chart uptrend peaked at the $22.30 fib Fibonacci (fib) level. The daily market structure high (MSH) triggered on the break back below $19.97. The weekly 5-period moving average (MA) is at $16.51 as it started to slope down while the weekly 15-period MA continues to rise at $15.75. This sets up a make or break situation as the stochastic mini pup failed and crossed back down versus a potential pup breakout if the stochastic can cross back up. The daily rifle chart is attempting to form a pup breakout with the rising 5-period MA at $16.66 as the weekly stochastic tries to cross back up. The daily market structure low (MSL) buy triggers above $17.06. The daily Bollinger Bands (BBs) have been compressing as the range tightens between $17.52 and $15.36 as it precedes an impending price range break with the direction to be determined. Opportunistic pullback levels sit at the $16.54 daily 15-period MA, $15.61 fib, $14.34 fib, and the $13.27 fib. Upside trajectories range from the $19.15 fib up to the $23.26 fib. Keep an eye on peers JWN and GPS as they tend to move together.