Macy’s Inc. (M), one of the leading department store retailers in the United States, recently posted first-quarter 2011 results that beat Zacks’ expectations on the heels of healthy sales, improved operating margin and effective cost management, thereby sending shares up $2.32 or 8.8% to $28.65 in pre-market trading. Consequently, the company doubled its dividend pay-out and raised its full year outlook.
The quarterly earnings of 30 cents a share outperformed the Zacks Consensus Estimate of 18 cents, and jumped 6 times from 5 cents earned in the prior-year quarter. The Zacks Consensus Estimate rose by 3 cents prior to the earnings release, with 7 out of 14 analysts covering the stock raising their estimates in the last 30 days.
Macy’s now expects fiscal 2011 earnings in the range of $2.40 to $2.45 per share, up from $2.25 to $2.30 forecast earlier, which lies ahead of the current Zacks Consensus Estimate of $2.32. Following an improved outlook, a positive sentiment may be palpable among the analysts, and we could witness a rise in the Zacks Consensus Estimates in the coming days.
The company has been taking prudent steps to increase sales, profitability and cash flows, which include integration of operations, consolidation of divisions and customer-centric localization initiatives. To help drive traffic, Macy’s continues to focus on price optimization, inventory management and merchandise planning.
The Cincinnati, Ohio-based Macy’s said that total sales grew 5.7% to $5,889 million in the quarter from $5,574 million delivered in the prior-year period. Total revenue also came well ahead of the Zacks Consensus Estimate of $5,844 million. Comparable-store sales for the quarter climbed 5.4%.
Management now expects comparable-store sales growth of 4.3% in fiscal 2011, up from 3% previously projected.
Online sales, which include macys.com and bloomingdales.com, sustained their growth momentum, and were up 38.3% in the quarter, favorably impacting comparable-store sales by 1.3%. Macy’s, the operator of about 850 department stores, seeks to expand both the Macy’s and Bloomingdale’s brands.
Despite a 6.2% increase in cost of sales, gross profit in the quarter climbed 4.9% to $2,303 million, aided by top-line growth. However, Macy’s notified that gross profit margin contracted 30 basis points to 39.1%. Operating income increased 62.6% to $330 million, whereas operating margin expanded 200 basis points to 5.6%.
Macy’s ended the quarter with cash and cash equivalents of $1,152 million, long-term debt of $6,343 million, reflecting a debt-to-capitalization ratio of 52.7% and shareholders’ equity of $5,688 million. During the quarter, the company repaid debt of $335 million and dividend of $21 million. The company raised its quarterly dividend by 50% to 10 cents a share, to be paid on July 1, 2011 to shareholders of record as on June 15, 2011.
Currently, we have a long-term ‘Neutral’ rating on the stock. Moreover, Macy’s, which competes with Dillard’s Inc. (DDS), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, and correlates with our long-term view.
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