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Why Investors May Be Cautious about Macy’s 2Q15 Earnings

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Updated

Earnings expectations

With Macy’s 2Q15 earnings slated to release on August 12, we will analyze the factors that might weigh on the company’s bottom line. In May 2015, the company reiterated the diluted earnings per share (or EPS) guidance of $4.70–$4.80 per share for fiscal 2015. However, the company stated that it expects 2Q15 earnings to decline on a year-over-year basis.

The consensus Wall Street analyst EPS estimate for 2Q15 is $0.78. This represents an expected 3.1% decline in 2Q15 earnings compared with the second quarter of the previous year.

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Earnings in the previous quarter

Macy’s adjusted EPS in 1Q15 came in at $0.56. The company missed the consensus Wall Street analyst estimate of $0.62. The 6.7% decline in Macy’s earnings in the previous quarter was triggered by lower sales and higher expenses. The quarter saw a $6 million rise in depreciation and amortization expenses. Retirement expenses increased by $2 million from the corresponding quarter of the previous year.

Macy’s makes up ~1% of the portfolio holdings of the SPDR S&P Retail ETF (XRT) and 0.1% of the SPDR S&P 500 ETF (SPY).

Comparison with peers

Nordstrom’s (JWN) 1Q15 earnings declined by 8.3% to $0.66, due to growth investments, including the Trunk Club acquisition and expansion into Canada.

Kohl’s (KSS) adjusted EPS increased by 5% to $0.63 in 1Q15, driven by higher revenue and tight expense control.

Sears Holdings (SHLD) reported a loss per share of $2.00 in 1Q15, compared with $2.08 in the first quarter of the previous year.

Factors that might impact 2Q15 earnings

As discussed in Part 1 of this series, Macy’s sales might be weak in 2Q15. Besides lower sales, investments to support growth might also impact Macy’s earnings. This includes the planned rollout of Macy’s Backstage off-price stores.

The company also expects its margins to decline in 2Q15. Our next article discusses the company’s expected margins in 2Q15.

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