Macy's (M 33.80, -1.99, -5.56%) is trading lower despite reporting solid
third quarter results this morning.
Same store sales grew 3.1%, 60 basis points better than expected. Adjusted for the calendar shift that benefited the first quarter and weighed on second quarter results, comparable store sales have grown four quarters in a row after declining eleven consecutive quarters.
Macy's executives said consumer spending remains strong.
Meanwhile, the company's initiatives are taking hold. Management said eCommerce is Macy's 'recipe for success'. The company's digital business is growing by double digits while stores are becoming more like fulfillment centers. Some initiatives that are doing well are the buy online and pick up in store and buy online ship to store initiatives..
Coming back to third quarter results, the gross margin was flat as merchandise margin expansion was offset by higher delivery costs.
Adjusted earnings per share grew 22% to $0.27. Excluding asset sales gains in both periods, adjusted EPS grew 113% to $0.17/share.
The company said inventories were on track to be down by year end and management sees momentum continuing in to the fourth quarter and next year.
Macy's raised guidance for sales and earnings while reaffirming its gross margin outlook. Investors may be concerned about whether positive comparable store sales are sustainable.
Macy's is the largest department store in the US and trades at ~8x earnings estimates. That represents a notable discount to Dillard's (DDS) at 12x, Kohl's (KSS) at 14x, higher end Nordstrom (JWN) at 17x and the average retailers at 16x.
One would think that Macy's recent success puts them on track to emerge as a survivor following the collapse of Bon-Ton and Sears, but investors are not yet willing to pay up for Macy's earnings despite support from the 4% dividend yield.
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