Macy's (NYSE:M) Reports Q4 In Line With Expectations
Department store chain Macy’s (NYSE:M) met Wall Street’s revenue expectations in Q4 CY2024, but sales fell by 4.4% year on year to $8.01 billion. On the other hand, the company’s full-year revenue guidance of $21.2 billion at the midpoint came in 0.7% below analysts’ estimates. Its non-GAAP profit of $1.80 per share was 16.7% above analysts’ consensus estimates.
Revenue: $8.01 billion vs analyst estimates of $7.99 billion (4.4% year-on-year decline, in line)
Adjusted EPS: $1.80 vs analyst estimates of $1.54 (16.7% beat)
Adjusted EBITDA: $903 million vs analyst estimates of $823.6 million (11.3% margin, 9.6% beat)
Management’s revenue guidance for the upcoming financial year 2025 is $21.2 billion at the midpoint, missing analyst estimates by 0.7% and implying -7.9% growth (vs -3.5% in FY2024)
Adjusted EPS guidance for the upcoming financial year 2025 is $2.15 at the midpoint, missing analyst estimates by 7.3%
Operating Margin: 6.2%, up from -1.8% in the same quarter last year
Free Cash Flow Margin: 13.4%, up from 10.8% in the same quarter last year
Same-Store Sales were flat year on year (-5.4% in the same quarter last year)
Market Capitalization: $3.70 billion
Company Overview
With a storied history that began with its 1858 founding, Macy’s (NYSE:M) is a department store chain that sells clothing, cosmetics, accessories, and home goods.
Department Store
Department stores emerged in the 19th century to provide customers with a wide variety of merchandise under one roof, offering a convenient and luxurious shopping experience. They played an important role in the history of American retail and urbanization, and prior to department stores, retailers tended to sell narrow specialty and niche items. But what was once new is now old, and department stores are somewhat considered a relic of the past. They are being attacked from multiple angles–stagnant foot traffic at malls where they’ve served as anchors; more nimble off-price and fast-fashion retailers; and e-commerce-first competitors not burdened by large physical footprints.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
With $23.01 billion in revenue over the past 12 months, Macy's is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because it’s harder to find incremental growth when you’ve penetrated most of the market. For Macy's to boost its sales, it likely needs to adjust its prices or lean into foreign markets.
As you can see below, Macy's struggled to generate demand over the last five years (we compare to 2019 to normalize for COVID-19 impacts). Its sales dropped by 1.9% annually as it didn’t open many new stores and observed lower sales at existing, established locations.
Macy's Quarterly Revenue
This quarter, Macy's reported a rather uninspiring 4.4% year-on-year revenue decline to $8.01 billion of revenue, in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to decline by 4.1% over the next 12 months, a slight deceleration versus the last five years. This projection doesn't excite us and indicates its products will face some demand challenges.
A retailer’s store count influences how much it can sell and how quickly revenue can grow.
Over the last two years, Macy's has kept its store count flat while other consumer retail businesses have opted for growth.
When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.
Note that Macy's reports its store count intermittently, so some data points are missing in the chart below.
Macy's Operating Locations
Same-Store Sales
A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.
Macy’s demand has been shrinking over the last two years as its same-store sales have averaged 4.5% annual declines. This performance isn’t ideal, and we’d be concerned if Macy's starts opening new stores to artificially boost revenue growth.
Macy's Same-Store Sales Growth
In the latest quarter, Macy’s year on year same-store sales were flat. This performance was a well-appreciated turnaround from its historical levels, showing the business is improving.
Key Takeaways from Macy’s Q4 Results
While revenue was in line, EPS beat handily. On the other hand, both its full-year revenue and EPS guidance missed Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 4.2% to $12.75 immediately following the results.
