What Macy’s Guidance Means For Retail

Key Points

• Macy's cut guidance, and the market cut its share price. 
• The stock is in a range but will likely hit the low end before the high one. 
• Analysts' sentiment is pressuring the market lower and should not be expected to change. 

Macy’s (NYSE: M) just cut its guidance, and the stock is down more than 7.0%. The news had a lesser effect on the broader retail sector (NYSEARCA: XRT) than it might have, but investors should not be complacent about the news. Macy’s says the peak holiday shopping season was as-expected than slightly-better-than-expected but the off-peak times were much worse than forecast.

What this means for Macy’s and the broad sector is calendar Q4 results may meet the analyst's expectations but the outlook for the Q1 period could darken. If these “non-peak” results turn into a trend and the first 2 - 3 months of the year see a downturn in consumer activity the retail sector will most likely come crashing down. 

Macy’s Lower Guidance, Downside Risks Prevail 

Macy’s lowered its guidance, but the news is mixed. The company lowered its revenue outlook but maintained its guidance for earnings due to inventory management and mix. The risk is that revenue, which is guided to below the analyst's consensus, will be even weaker than expected, and the margin will also come under pressure.

The company is now expecting revenue to fall in the low end of the forecast range, somewhere in the vicinity of $8.16 to $8.28 billion compared to the consensus of $8.30, with no change to the EPS. However, the midpoint of the current range is below the analyst consensus. The takeaway is that results will be weak, and there is no reason to expect the guidance to be any better, nor is there a reason to expect anything different from other retailers.

"Black Friday/Cyber Monday sales were in line with our expectations, while the week leading up to and following Christmas were ahead. However, the lulls of the non-peak holiday weeks were deeper than anticipated … This has contributed to clean inventories and an expected gross margin rate roughly in line with previously issued fourth-quarter guidance,” said Macy’s CEO Jeff Genette. “Based on current macro-economic indicators and our proprietary credit card data, we believe the consumer will continue to be pressured in 2023, particularly in the first half, and have planned inventory mix and depth of initial buys accordingly.

The Analysts Are Weighing On Macy’s

Macy’s analyst's sentiment has been souring in recent months, and that may change following the investor day event, but that is a big maybe. The guidance update is not confidence inspiring, and the trend in sentiment is downward, so investors should expect that pressure to continue. The Marketbeat.com consensus rating is steady at Hold, but the price target is moving steadily lower and will likely move even lower before it hits bottom. 

The institutions are weighing on share prices as well. The institutional activity was mixed for the 1st 3 quarters of 2022 but turned decidedly bearish in the 4th quarter. Total selling was not much, but it did help put a cap on price action, and it may do so again. Macy’s will next report earnings at the end of February. 

The Technical Outlook: Range Bound Macy’s Moves Lower 

Macy’s price action is range bound but moving lower within that range. The guidance update has the stock down more than 7.0%, and this is something investors should expect from names like Kohl’s (NYSE: KSS), TJX Companies (NYSE: TJX) and even Target (NYSE: TGT) and Walmart (NYSE: WMT) as the earnings season progresses.

This could lead to a retest of the $16 level, a 25% decline in the market cap for Macy's. If this trend is seen across the retail sector, not only will the XRT price action implode, but it may bring down the entire S&P 500..