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Bear of the Day: Macy's (M)

Macy’s (M) is a Zacks Rank #5 (Strong Sell) that is an omni-channel retail organization, that operates stores, websites, and mobile applications. The company trades in a wide range of merchandise, including men’s, women’s, and children’s apparel and accessories, cosmetics, home furnishings, and other consumer goods.

The stock is bouncing after a bad earnings announcement late last week. While this is a relief to those stuck in the name, this is likely a great opportunity to exit the stock. Technical resistance and falling earnings estimates will continue to be a hurdle going forward.

About the Company

Macy’s is headquartered in New York, NY, and employs over 94,000 people. The company was founded in 1930 and was formerly known as Federated Department Stores.

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Macy’s operates under three brands Macy's, Bloomingdale's, and bluemercury.

The stock values the company at $4.3 billion and has a Forward PE of 5. The low PE gives the stock a Zacks Style Score of “A” in Value. However, the stock scores an “F” in Momentum. The stock pays a dividend of just over 4%.

Q1 Earnings

In early June, Macy’s reported a 22% EPS beat but missed on revenues. The company also guided lower, dropping its FY23 range to $2.70-3.20 v the $3.73 expected. Macy’s sees comparable sales down -7.5 to -6%, lower than the previous -4% to -2% expected.

With that, the company guided Q2 lower. They now see Q2 at $0.10-0.15 v the $0.73 expected.

Management cited weakened demand trends in their discretionary categories. This forced markdowns, which was the reason for the adjusted guide lower.

Estimates

Analysts were forced to lower their estimates because of the guide.

Since earnings, numbers from the current quarter have fallen 70%, dropping from $0.73 to $0.22.

For the current year, we see a 14% drop, with estimates dropping from $3.79 a month ago to $3.26 today.

Looking to next year, there is little improvement. Analysts have lowered estimates 13% over the last 7 days.

Technical Take

After the numbers were released, Macy’s traded to the lows of the year, hitting $12.80. However, buyers stepped in and the stock got back most of the losses. Since then, the stock continued to squeeze higher, up over 25% from those lows.  

Some of the bad news was likely priced in, which created a buy-the-news event. But investors should remain cautious about this rally.

The stock has run into the 50-day moving average and last time this happened back in March, the stock dropped over 20% in just a couple of weeks.

Investors should expect volatility to remain and avoid the stock until the fundamentals improve.

Summary

Macy’s is bouncing due to oversold conditions, but investors should take the opportunity to take their lumps into the up move. There is likely more selling to show itself after the squeeze higher is over.

For those interested in the sector, a better option might be Dillard’s (DDS). The stock is a Zacks Rank #3 (Hold), that has recently moved above its 200-day moving average.

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