Macy’s, Inc. M reported fourth-quarter fiscal 2022 results, wherein both the top and the bottom line beat the Zacks Consensus Estimate but declined from the respective year-ago fiscal quarter’s reported figures. Comparable sales fell on an owned basis and an owned-plus-licensed basis.
Management believes that the Polaris Strategy positions M well to navigate the dynamic retail landscape. Also, both Bloomingdale’s and Bluemercury brands outperformed in the said quarter.
Shares of Macy’s have increased 19.4% over the past three months compared with the industry’s 13.7% gain.
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Sales & Earnings Picture
Macy’s, currently carrying a Zacks Rank #3 (Hold), reported adjusted earnings of $1.88 per share, surpassing the Zacks Consensus Estimate of $1.57 and our estimate of $1.56. However, the bottom line declined from the adjusted earnings of $2.45 reported in the year-ago fiscal period.
Net sales of $8,264 million came ahead of the Zacks Consensus Estimate of $8,222 million and our estimate of $8,190.2 million. However, the top line dipped 4.6% from the year-ago fiscal quarter’s reported figure. Comparable sales fell 3.3% on an owned basis and 2.7% on an owned-plus-licensed basis from the prior-year fiscal quarter’s tally. The metric fared better than our estimate of a 4.2% fall on an owned basis and a 4% decline on an owned-plus-licensed basis.
Macy’s’ digital sales dropped 9% from the prior-year fiscal quarter’s level. Approximately 68% of digital sales came from mobile devices. Stores fulfilled 33% of digital sales in the quarter. Brick-and-mortar sales dipped 2% year over year.
Digital penetration was 37%, 40% and 23% at Macy’s, Bloomingdale’s and Bluemercury brands, respectively, during the quarter under discussion.
Net credit card revenues were $262 million, down 0.8% from the year-ago fiscal period’s level, mainly benefiting from increased balances in the portfolio and better-than-anticipated bad debt levels. The metric represented 3.2% of sales, up 20 basis points from the year-ago fiscal quarter’s level.
Brand-Wise Details
Comparable sales across Macy’s declined 3.9% on an owned basis and 3.3% on an owned-plus-licensed basis. On a trailing 12-month basis, 42.7 million active customers shopped the Macy’s brand, down 4% from the year-ago fiscal quarter’s level. Star Rewards program members accounted for roughly 70% of the overall Macy's brand owned-plus-licensed sales, up about 1 percentage point year over year.
At the Bloomingdale brand, comparable sales increased 1.2% on an owned basis and 0.6% on an owned-plus-licensed basis. Management informed that 4.1 million active customers shopped the Bloomingdale’s brand on a trailing 12-month basis, reflecting an increase of 5% from the year-ago fiscal period’s level. Under the Bloomingdale banner, strength in luxury along with its 150th Anniversary activation and robust customer engagement aided growth.
Comparable sales at the Bluemercury brand were up 7.2% on an owned basis. About 662,000 active customers shopped the Bluemercury brand on a trailing 12-month basis, representing a 12% increase from the year-ago fiscal quarter’s level.
Margins
The gross margin came in at 34.1%, down from 36.5% in the prior-year fiscal quarter’s level. The decline from the prior-year fiscal quarter’s level was due to a 300-basis point contraction in the merchandise margin as a result of planned markdowns and promotions that were higher year over year. Delivery expenses, as a percentage of net sales, were 60 basis points lower from the year-ago fiscal period due to a contraction of 200 basis points in digital penetration coupled with reduced peak delivery surcharges.
SG&A expenses dipped 1.2% from the prior-year fiscal quarter’s reported figure to $2,399 million. As a percentage of net sales, SG&A expenses increased 100 basis points year over year to 29%.
Macy’s reported an adjusted EBITDA of $910 million, down from an adjusted EBITDA of $1,247 million in the year-ago fiscal quarter. We note that the adjusted EBITDA margin shriveled 340 basis points to 11% from the prior-year fiscal period’s level.
Other Financial Aspects
Macy’s ended the quarter with cash and cash equivalents of $862 million, a long-term debt of $2,996 million and shareholders' equity of $4,082 million. M’s inventories were 3% lower than fiscal 2021.
During fiscal 2022, M repurchased 24 million shares worth $600 million and paid out $173 million as dividends. Macy’s had $1.4 billion remaining under its share repurchase authorization.
During fiscal 2022, Macy’s generated cash flow from operating activities of $1,615 million and incurred capital expenditures of $1.3 billion. It generated a free cash flow of $457 million. Management expects capital expenditures of $1 billion for fiscal 2023.
A Sneak Peek of Guidance
Management highlighted that the highly volatile macroeconomic environment will persist in 2023. The outlook for 2023 is presented on a 53-week basis. Net sales are projected to be $23.7-$24.2 billion, down 1-3% from 2022. Comparable owned plus licensed sales on a 52-week basis are expected to decline 2-4% year over year. Digital sales are likely to be roughly 32-34% of net sales.
Other revenues are likely to be nearly 3.7% of net sales (credit card revenues make up for roughly 84% of the other revenues). The gross margin is anticipated to be 38.7-39.2% for the fiscal year. SG&A expense rate is expected to be roughly 35% of the total revenues, while adjusted EBITDA margin is estimated to be nearly 10-10.4% of the total revenues. Adjusted earnings per share are envisioned in the bracket of $3.67-$4.11 for the fiscal year, down from $4.48 earned last fiscal.
For the first quarter of fiscal 2023, management anticipates net sales between $5 and$5.1 billion versus $5.4 billion delivered last fiscal. It projected adjusted earnings of 42-48 cents a share for the first quarter, suggesting a decrease from $1.08 reported in the first quarter of fiscal 2022. Macy’s expects the gross margin rate to shrivel not more than 20 basis points from the prior-year fiscal period’s level, implying the impacts of lower markdowns and promotions, partly offset by the lapping of higher tickets. Ending first-quarter inventories are likely to be down mid-single digits versus the prior-year period on a percentage basis.
Three Top Retail Stocks
We have highlighted three top-ranked stocks, namely Abercrombie & Fitch ANF, American Eagle Outfitters AEO and Boot Barn BOOT.
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and EPS suggests growth of 0.5% and 526.3%, respectively, from the year-ago reported figures. ANF delivered an earnings surprise of 107.7% in the last reported quarter.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently sports a Zacks Rank of 1. AEO delivered an earnings surprise of 82.6% in the last reported quarter.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and EPS suggests growth of 3.3% and 24.2%, respectively, from the year-ago reported figures.
Boot Barn, a fashion retailer of apparel and accessories, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 8.2% and 9.1%, respectively, from the year-ago reported figures.
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