What Analysts Expect from Macy’s Bottom Line



Improvement in bottom line

Macy’s (M) sales and earnings have been persistently weak over the past several quarters. However, the company’s adjusted EPS (earnings per share) rose in fiscal 3Q17 (which ended on October 28, 2017) after falling for ten straight quarters.

This growth came despite a fall in sales in the company’s third quarter. Also, Macy’s adjusted EPS of $0.23 in fiscal 3Q17 handily surpassed analysts’ consensus estimate of $0.19.

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What drove third-quarter earnings?

Macy’s adjusted fiscal 3Q17 EPS rose due to improved inventory controls, which brought down costs. Macy’s bottom line also benefited from a lower effective tax rate. Macy’s effective tax rate was 27.7% in fiscal 3Q17 compared to 42.3% in fiscal 3Q16.

Including the impact of one-time items, such as restructuring and other costs totaling $33 million, the company’s reported EPS rose to $0.12 in fiscal 3Q17 compared to $0.05 in fiscal 3Q16.

Peers Nordstrom (JWN) and Kohl’s (KSS) experienced falls in their fiscal 3Q17 adjusted EPS. Nordstrom’s fiscal 3Q17 adjusted EPS fell 15.5% to $0.71 due to increased occupancy costs and higher technology and supply-chain expenses. Kohl’s adjusted EPS fell ~12.5% to $0.70 due to higher costs.

Earnings outlook

On January 4, 2018, Macy’s reported its 2017 holiday sales and provided an update about its guidance for fiscal 2017, which ends on February 3, 2018. Macy’s expects its adjusted EPS to be in the $3.06–$3.16 range (excluding the impact of federal tax reform) in fiscal 2017. The company’s previous fiscal 2017 adjusted EPS guidance was $2.91–$3.16. The company’s earnings outlook excludes the impact of its anticipated fiscal 4Q17 gain on the sale of the Union Square Men’s building in San Francisco and other one-time items.

Following the company’s announcement of its holiday sales, analysts expect its adjusted EPS to rise 30.6% to $2.64 in fiscal 4Q17. This growth is expected to be driven by an improvement in Macy’s sales trend and a reduction in its expenses.

We’ll discuss analysts’ expectations for fiscal 2017 and fiscal 2018 in the next article of this series.


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