The U.S. economy has long been grappling with the turbulent financial environment, which has gradually engulfed the global market. Amid this economic upheaval, Macy’s Inc. (M) has been moving on and keeping its upbeat note.
Macy’s exited 2011 with a bang, and we believe it will sustain the same tempo in 2012. The company’s relentless endeavors to keep itself on the growth trajectory have paid off in an economy, which is looking for ways to shield itself from a financial turmoil that seems to have no end. Early hours store openings, huge discounts, promotional activities and free shipping on online purchases were enough to lure customers.
Riding on Positive Comps
Macy’s saw its comparable-store sales rising 6.2% for the five-week period ended December 31, 2011 that fared better than what analysts expected. The growth compared with comparable-store sales increases of 4.8% in November 2011 and 3.9% in December 2010.
For the 48-week period ended December 31, 2011, comps climbed 5.4%. Comparable-store sales for the combined November/December holiday sales period jumped 5.7%.
Cincinnati, Ohio-based Macy’s said that its total sales for December grew 6.6% to $4,925 million compared with $4,618 million in the same month last year. For the 48-week period sales rose 5.8% to $25,070 million from $23,693 million reported in the prior-year period.
Online sales, which include sales from macys.com and bloomingdales.com, continued to show growth momentum in December soaring 35.8%. The company seeks to expand both Macy's and Bloomingdale's brands online. For the 48-week period, online sales were up 39.7%. For the combined November/December period, online sales surged 40.3%.
In terms of performance, J. C. Penney Company Inc. (JCP”>JCP) lagged far behind Macy’s, posting a marginal growth of 0.3% in comparable-store sales.
Enhancing Shareholders’ Return
Macy’s has been actively managing its cash flows, returning much of its free cash to shareholders via dividends or share repurchase activity, while maintaining a healthy balance sheet and credit ratios that are necessary for an investment-grade rating. The share repurchases and dividend increasing strategies not only enhance shareholders’ return but also raise the market value of the stock.
Increase in dividend, reflects the company’s sound financial position and well-defined future prospects. The company recently announced a two-fold increase in its quarterly dividend of 10 cents to 20 cents a share. The increased dividend will be paid on April 2, 2012, to stockholders of record as on March 15, 2012. The last quarterly dividend hike was from 5 cents to 10 cents, which was paid in July 2011.
In addition, Macy’s board of directors declared a new share repurchase program of $1 billion bringing the total authorization to $1.6 billion as of December 31, 2011. The company had bought back 9.1 million shares aggregating $250 million through December 31, 2011, after it resumed its share buyback activity in late August 2011.
Upbeat Guidance
Macy’s is becoming one of the favorite stock pick. After posting better-than-expected sales results and declaring a dividend increase and share repurchase program, the company went on to announce increased sales and earnings guidance, thereby further bolstering investors’ confidence in the stock.
Management now expects comps to increase between 5.3% and 5.5% in the fourth quarter and 5.3% in fiscal 2011. Earlier, the company had guided comps in the range of 4% to 4.5% for the fourth quarter and between 4.8% and 5% for the full year.
Macy’s now projects earnings in the range of $1.55 to $1.60 for the fourth quarter and between $2.73 and $2.78 per share for fiscal 2011. Management had earlier forecast earnings between $1.52 and $1.57 for the fourth quarter and between $2.70 and $2.75 for the full year.
The current Zacks Consensus Estimate for the fourth quarter is $1.61 and for fiscal 2011 is $2.78.
The earnings guidance does not take into account $25 million to $30 million of anticipated costs in conjunction with the closure of Macy's and Bloomingdale's stores, recently announced.
Let’s Conclude
Macy’s department stores sell a wide range of merchandise. Its products include men’s, women’s, and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods.
Macy’s, which competes with Dillard’s Inc. (DDS) and Saks Incorporated (SKS”>SKS), currently operates approximately 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico.
In an attempt to increase sales, profitability and cash flows, the company has been taking steps such as integration of operations, consolidation of divisions, customer-centric localization initiatives, as well as developing e-commerce business and online order fulfillment centers. Moreover, Macy’s continues to focus on price optimization, inventory management and merchandise planning to drive traffic.
Currently, we have a long-term Outperform rating on the stock. Moreover, Macy’s holds a Zacks #1 Rank that translates into a short-term Strong Buy rating, and correlates with our long-term view.
DILLARDS INC-A (DDS): Free Stock Analysis Report
PENNEY (JC) INC (JCP): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
SAKS INC (SKS): Free Stock Analysis Report
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