Macy's (M) -0.8% is modestly lower despite beating first quarter estimates and reaffirming its outlook for fiscal 2020 this morning.
First quarter earnings fell 8% yr/yr to $0.44 for the nation's largest department store, $0.10 above estimates. Comparable store sales grew 0.6%, which marks the sixth consecutive quarter of growth. Analysts had expected a slightly negative comparable sales result. The company said that its brick and mortar sales trend improved sequentially. Macy's continues to make progress with its strategic initiatives to drive growth.
However, gross margin fell 80 bps to 38.2%, missing estimates by 30 bps. Macy's reaffirmed its guidance for moderate gross margin pressure in the first half of the year and slight gross margin pressure in the second half, with sequential improvement throughout the year.
The company also reaffirmed full year guidance for EPS of $3.05-3.25 (down 25%) with comp sales up 0-1%.
Macy's stock remains out of favor as secular headwinds continue to weigh on traffic and sales for the mall-based retailer.
The company said that consistent top-line growth with improved market share and cost reduction initiatives position it for long-term profit growth, but Wall Street expects earnings to fall 5% next year and 12% the year after.
The threat of additional tariffs on Chinese imports are adding to investor concerns. On the call, management said that the third tranche of tariffs going to 25% from 10% impacts some furniture but is manageable. However, the fourth tranche of tariffs that the US is considering on the remaining ~$300 bln of Chinese imports would impact apparel and accessories. Management implied that those higher costs would get passed down to the consumer.
If the trade spat with China persists and the US decides to go ahead with the fourth tranche of tariffs next month, retailers and consumers will likely feel some pain.
Weak April retail sales reported by the Census bureau this morning are not helping sentiment in the retail sector today.
Macy's has a $6.7 bln market cap and trades at ~7x EPS estimates with a 6.4% dividend yield. Investors continue to avoid department stores as the case for long-term earnings growth remains murky.