Macy's (M) Under Pressure After Another Weak Quarter

Macy's, Inc. (M) is trading lower by more than 3% in Thursday's pre-market after beating third quarter 2020 earnings and revenue estimates. The retailer lost $0.19 per share during the quarter, $0.63 better than expectations, while revenue fell 22.9% year over year to $3.99 billion, also beating consensus. Digital sales grew a respectable 27%, penetrating 38% of total owned comparable sales. Inventories fell 29%, while gross margin rose from 23.6% to 35.6%, highlighting tight cash controls needed to survive the pandemic.

Key Takeaways

  • Macy's fell after reporting a third quarter loss on dwindling revenue.
  • Mall anchors have posted mixed results, with Kohl's Corporation (KSS) booking the strongest numbers.
  • Tight inventories and aggressive cost controls should help these retailers survive through a second pandemic wave.

Other mall anchors have reported mixed third quarter results as well in the past week. Dillard's, Inc. (DDS) posted a small loss after revenue fell 26% year over year and comparable store sales fell an equally troubling 24%. On the flip side, Kohl's stock rallied more than 10% after the company beat humble expectations with a profit of $0.01 per share even though revenue fell 14% year over year to $3.98 billion. Comparable store sales fell a relatively modest 3.3%.

The retail trio has slashed inventories to maintain tighter cash control and expand narrow margins while building out online portals after years of resisting or underfunding their e-commerce spaces. For example, Dillard's inventory has fallen 22% since the second quarter, while the company has maintained tight discipline on other expenses, putting the beaten-down retailer on a stable trajectory to survive a second pandemic wave this winter.

There's little love for Macy's stock on Wall Street, despite the retailer's aggressive cost-cutting measures, with a highly bearish "Sell" rating based upon one "Hold" and four "Sell" recommendations. Notably, not one analyst recommends opening a new position at this time. Price targets currently range from a low of $4.00 to a Street-high $7.00, while the stock is set to open Thursday's session about $2 above the high target. There won't be much room for higher prices in this configuration.

Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sale.

Macy's Long-Term Chart (2007 – 2020)

Chart showing the share price performance of Macy's, Inc. (M)

Macy's stock topped out in the mid-$40s in 2007 and plunged into the single digits during the 2008 economic collapse. The subsequent recovery wave completed a round trip into the prior high in 2013 and broke out, lifting to an all-time high in the mid-$70s in the third quarter of 2015. Reports about brick-and-mortar retailers losing market share to e-commerce then hit the financial headlines, triggering a steep decline that initially found support in the mid-teens in 2017.

A bounce into 2018 came up short, giving way to renewed selling pressure that broke the prior low in August 2019. The stock plunged during the first quarter's pandemic downdraft, dropping more than 75% and cutting through 2008 support before bottoming out at an all-time low just above $4.00. A bounce into June faded above $10, while price action into November has settled into a shallow uptick that is still trading below the second quarter peak.

The monthly stochastic oscillator has crossed into the first buy cycle since 2018, raising the odds for a long-term bottom. However, that isn't the same thing as a healthy uptrend, and the slow-motion uptick since April has made little progress. Even so, accumulation readings are testing 2020 highs, indicating that a large supply of bottom fishers and value players has entered new positions. Their patience could pay off after the pandemic runs its course.

A bottom fisher is an investor who looks for bargains among stocks whose prices have recently dropped dramatically. Bottom fishers are optimistic about choosing these low-priced stocks because they believe that a price drop is temporary or is an overreaction to recent bad news and that a recovery is soon to follow.

The Bottom Line

Macy's stock is scraping against the all-time low posted in April, but rising accumulation and positive long-term cycles predict higher prices in 2021.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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