Macy’s, Inc. (M) Upgraded to Neutral

Macy’s, Inc. (M) Upgraded to Neutral

Buoyed by Macy’s Inc.’s (MAnalyst Report) impressive third-quarter fiscal 2013 performance, we upgraded our recommendation to Neutral from Underperform on Nov 25, 2013. Macy’s currently carries a Zacks Rank #3 (Hold).

Why the Upgrade?

Macy’s posted better-than-expected third-quarter fiscal 2013 results, wherein earnings of 47 cents a share surpassed the Zacks Consensus Estimate of 38 cents, and rose 31% from 36 cents earned in the prior-year quarter.

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Management cited that My Macy’s localization initiatives, omnichannel integration, Magic Selling and promotional strategies were the driving factors behind the sturdy performance amid a tepid economic environment. This is 15th successive quarter in which the company registered year-over-year growth in earnings per share.

Total sales increased 3.3% to $6,276 million in the quarter from $6,075 million in the year-ago period, and also came ahead of the Zacks Consensus Estimate of $6,183 million.

We believe Macy’s sustained focus on price optimization, inventory management, merchandise planning and private label offering are the primary catalysts driving traffic, facilitating in meeting customer-oriented demand and improving in-store shopping experience. In an attempt to increase sales, profitability and cash flows, the company has been taking steps such as integration of operations, consolidation of divisions as well as developing e-commerce business and online order fulfillment centers.

The stronger-than-anticipated results triggered an uptrend in the Zacks Consensus Estimates, as analysts become more constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that jumped 2.4% to $3.87 for fiscal 2013 and 0.9% to $4.38 per share for fiscal 2014 in the past 30 days.

Despite a sturdy performance, Macy’s reiterated its comparable-store sales and earnings outlook. Management remained concerned about consumers’ cautious attitude on making any discretionary purchases during this holiday season. Moreover, we are cautious about margins being under pressure if the company employs an aggressive pricing strategy to drive in customers.

Other Stocks to Consider

However, until any further upward revision in the Zacks Rank on Macy’s, other better ranked stocks worth considering in the retail sector include Hanesbrands Inc. (HBIAnalyst Report), carrying a Zacks Rank #1 (Strong Buy), DSW Inc. (DSWSnapshot Report) and Five Below, Inc. (FIVESnapshot Report), both sporting a Zacks Rank #2 (Buy).

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