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Vivek M. Kumar
Macy's stock

Macy’s Inc, an American department store chain founded by Xavier Warren in 1929, reported better-than-expected earnings in the fourth quarter, largely driven by strong online sales as shoppers purchased everything from the comfort of their homes amid the COVID-19 pandemic, sending its shares up about 3% on Tuesday.

The fashion retailer said its diluted earnings per share of $0.50 and adjusted diluted earnings per share of $0.80 both exceeded the expectations for the quarter the company set in the fall. That was also higher than the market expectations for a profit of $0.05 per share.

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Macy’s net sales declined about 19% to $6.78 billion in the fourth quarter; however, it came in well above the Wall Street estimates of $6.50 billion. Digital remained a growing and increasingly profitable platform.

Sales grew 21% over fourth quarter 2019, with digital penetration at 44% of net sales. Nearly 25% of Macy’s digital sales were fulfilled from stores, including curbside pickup and same-day delivery.

The U.S. premier omni-channel fashion retailers forecast sales in the range of $19.75 billion and $20.75 billion for 2021.

Macy’s shares, which slumped over 30% in 2020, rose over 37% so far this year. The stock traded about 3% higher at $15.69 on Tuesday.

Executive Comments

“We anticipate annual digital sales to reach $10 billion within the next three years, and that digital will become an even more profitable contributor to our business. Additionally, we exited the quarter with a lower cost base and a strong liquidity position, supported by a $3 billion asset-based lending facility that we have not drawn upon,” said Jeff Gennette, chairman and chief executive officer.

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Macy’s Stock Price Forecast

Six analysts who offered stock ratings for Macy’s in the last three months forecast the average price in 12 months of $12.00 with a high forecast of $15.00 and a low forecast of $8.00.

The average price target represents a -22.78% decrease from the last price of $15.54. From those six analysts, two rated “Buy”, one rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $11 with a high of $22 under a bull scenario and $1 under the worst-case scenario. The firm gave an “Underweight” rating on the department store chain company’s stock.

Several other analysts have also updated their stock outlook. Macy’s had its target price increased by analysts at Telsey Advisory Group to $14 from $10. The brokerage currently has a “market perform” rating on the stock. Jefferies Financial Group upgraded shares of Macy’s from a “hold” rating to a “buy” rating and set a $14 target price. Credit Suisse Group upped their target price on shares of Macy’s from $6.00 to $7.00 and gave the company an “underperform” rating.

Analyst Comments

Macy’s continues to undergo core operating challenges, similar to peers in the department store space (eg. market share cessation to peers, falling store traffic, contracting margins, eCommerce disintermediation). Despite closing stores proactively, store-only comps remain negative and we forecast them to remain so in the future, eroding ROIC,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

“Expense cuts (eg. headcount reduction), real estate monetization, and secondary growth initiatives are encouraging but are unlikely to stimulate enough cash flow to reinstate its dividend while also covering upcoming debt maturities. We anticipate COVID related disruption accelerates market share loss to peers, especially to brands with owned eComm.”

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