Earnings Preview: A Look At Retail With Macy’s On Tap Tomorrow
TD Ameritrade | Jul 08, 2018 01:07AM ET
Iconic department store chain Macy’s (M) reports third-quarter earnings before the market opens on Thursday, Nov. 9. It’s been a busy couple of months for the retailer as it prepares for the holiday shopping season. Management’s guidance for the upcoming fourth quarter, far and away the company’s biggest quarter of the year, is likely to be one of the primary focuses among analysts.
When it last reported results, management reaffirmed their previous guidance for full-year 2017. M expects comparable stores on an owned plus licensed basis to decline between 2% and 3%, and total sales are expected to decline between 3.2% and 4.3% as the company has continued to execute its restructuring strategy that includes store closings. Excluding M’s anticipated fourth quarter gain on the sale of its Union Square property in San Francisco, as well as certain charges related to debt repurchases, management guided towards adjusted earnings in the range of $2.90 to $3.15 per share for 2017.
To support the influx of online and in-store shoppers over the holidays, M said it plans to hire 80,000 seasonal associates across its Macy’s and Bloomingdale’s brands. While a bulk of those employees are dedicated to in-store support, 18,000 of the total seasonal positions is expected to be based in its direct-to-consumer fulfillment facilities, 3,000 more positions than 2016, according to the company.
The increase in direct-to-consumer positions aligns with its previously announced company-wide restructuring focused on implementing an omnichannel strategy with an emphasis on growing digital sales. It also comes on the heels of M’s announcement in August that it had doubled the coverage of its same-day delivery service to 33 markets across the United States.
For the upcoming holiday quarter, one of the big questions on a lot of analysts’ minds—and not just for M—is how margins are going to be impacted at companies that are trying to balance brick-and-mortar with their online businesses. Companies don’t make much from the heavily discounted items they use to entice shoppers in the door over the holidays. Instead, they hope the door-buster prices will drive traffic, and shoppers will buy a few not-so-discounted items as well. At the same time, more and more consumers are increasingly shopping online, further pressuring margins at many retailers, largely a result of increased shipping costs.
Another area analysts are likely to be looking for updates is on the company’s real estate portfolio and partnership with Brookfield Asset Management (BAM). On last quarter’s call, CFO Karen Hoguet indicated that BAM is likely to recommend proceeding on re-developing or monetizing roughly two-thirds of the 50 properties it was evaluating. In mid-October, The Chicago Tribune reported M had struck a preliminary deal to sell the upper half of its flagship Chicago location. M’s stated intent with the partnership is ultimately to “create value and to improve the retail location”.
Get The News You Want
FIGURE 1: MACY’S YTD PERFORMANCE.
Macy’s (M) shares have lost over half their value so far this year, declining 50.24%. Ahead of tomorrow’s report, shares aren’t too far off from their recent 52-week low of $17.41. The subgraph shows the stock’s implied volatility, which was at the 100th percentile this morning.
Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Macy’s Earnings and Trading Activity
For the third quarter, M is expected to report adjusted earnings of $0.19 per share, up from $0.17 in the prior-year quarter, on revenue of $5.31 billion, according to third-party consensus analyst estimates. Revenue is projected to decline 5.7% year-over-year, not too far off from the 5.4% decline reported in the second quarter.
So far in today’s trading session, the stock has been hovering above its new 52-week low of $17.41 that it hit yesterday. After the recent decline, the company’s dividend yield has been pushed to 8.5%, although some analysts think it would be prudent for M to cut its dividend to pay down debt faster. Around the upcoming earnings release, options traders have priced in a potential share price move of 10% in either direction, according to the Market Maker Move indicator on the thinkorswim® platform .
In short-term trading at the November 10 weekly expiration, the 18-strike and 20-strike calls have been the most active—up until late-October, the stock had been trading in a low-$20 range for the past several months. On the put side, most of the trading has been concentrated at the 17.5 and 18 strikes. As of this morning, the implied volatility sits at the 100th percentile.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.
Looking Ahead
Tomorrow brings results from several of the brick-and-mortar retailers, with more slated to report in the week ahead. Home Depot (HD) reports before market open on Tuesday, Nov. 14, Target (TGT) reports before market open on Wednesday, Nov. 15 and both Best Buy (BBY) and Wal-Mart (WMT) report before the opening bell on Thursday, Nov. 16. If you have time, make sure to check out the October 2017 Investor Movement Index ® to see how TD Ameritrade’s retail clients positioned themselves in the market last month.
TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read .
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.