Macy’s Exceeds Q4 Expectations, Hikes Share Buyback and Dividend

Macy’s, Inc. (M) reported excellent results for its fourth-quarter ended January 29, 2022, beating both net sales and earnings estimates, which were highlighted by approximately 7.2 million new customers shopping at Macy’s. The omnichannel retailer has all the right elements working for it, ending the year on a positive note and putting behind the worst of the pandemic.

The retailer even stated that it no longer intends to spin-off its e-Commerce unit and its Board of Directors authorized a new $2 billion share buyback program. What’s more, Macy’s has also hiked its quarterly common dividend by 5%.

Following the news, shares spiked 9.8% momentarily but ended the day down 5% at $24.42 on February 22.

Excellent Q4 Results

Macy’s Q4 adjusted earnings of $2.45 per share significantly outpaced analyst estimates of $1.96 per share, and came in much higher than the prior-year quarter figure of $0.80 per share.

Moreover, quarterly net sales rose 27.9% year-over-year to $8.67 billion and also outpaced Street estimates of $8.43 billion. This was aided by a 28.3% jump in comparable sales (owned-basis) and a 27.8% jump in comparable sales on an owned-plus-licensed basis.

Similarly, the sales were also boosted by solid demand for home, fragrances, jewelry, watches, and sleepwear offerings.

FY21 Results and Shareholder Rewards

For FY21, Macy’s adjusted earnings of $5.31 per share came in much better than the FY20 adjusted loss of $2.21 per share. Similarly, FY21 net sales leaped 41% annually to $24.46 billion. Further, Macy’s new customers grew 40% compared to the prior year.  

Additionally, Macy’s Board of Directors hiked up its quarterly common dividend by 5% to $15.75 per share. The dividend is payable on April 1, to shareholders on record as of March 15.

Notably, the Board also hiked its open-ended share buyback authorization to $5 billion, after completing its existing $500 million share repurchase in Q4.

Executive Comments

Happy with the company’s performance, Chairman and CEO, Jeff Gennette, said, “Our team began the large-scale work of transforming Macy’s, Inc. two years ago when we launched the Polaris strategy, and today we believe the evidence is clear – our business is stronger, more agile, and financially healthier. We are more digitally-led and customer-centric and believe we are better positioned for long-term sustainable and profitable growth.”

Commenting on the management decision of not separating the E-Commerce business, Gennette said, “We are more confident in our path forward as one integrated company. The Board’s review reaffirmed our conviction that we are pursuing a robust strategy, and it provided us with greater clarity on several initiatives that could be further accelerated to unlock additional value for our shareholders, which we are pursuing. Our team will continue our work to deliver an even bolder and brighter future for Macy’s, Inc. and all its stakeholders, including our shareholders, our colleagues, and our customers.”

FY22 Guidance

Based on the current business momentum and successful implementation of its Polaris Strategy, Macy guided optimistically for the full year fiscal 2022.

In FY22, net sales are forecast to be between $24.46 billion and $24.70 billion, higher than the consensus estimate of $24.23 billion. Likewise, FY22 adjusted earnings are projected to fall in the range of $4.13 to $4.52 per share, much better compared to the consensus of $4.06 per share.  

Analysts’ Take

Responding to Macy’s quarterly results, Guggenheim analyst Robert Drbul reiterated a Hold rating on the stock and stated that his cautious view stems from the belief that, despite the overall growth of the company, its largely mall-based presence poses a structural risk.

Drbul said, “Macy’s is fully focused on growing its omni-channel capabilities… We continue to believe in the Polaris strategy with a number of upcoming new capabilities, including third party marketplace with a planned launch in the second half of 2022.”

Overall, the stock has a Moderate Buy consensus rating based on 4 Buys, 3 Holds, and 1 Sell. The average Macy’s price target of $36.63 implies 50% upside potential to current levels. However, its shares have lost 10.8% year-to-date against the 73.3% gain over the past year.  

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