Macy’s (NYSE: M) Q3 earnings preview: Check margins, outlook for cues on recovery

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Shares of Macy’s (NYSE: M) are yet to recover from the multi-year lows seen a few months ago, following its dismal second-quarter results. The department store chain also slashed its full-year outlook, leaving investors with little hope ahead of the third-quarter report, which is expected to be published Thursday before the opening bell.

Macy's (M) Q2 earnings fall 60% on high costs

The ongoing weakness in store-traffic indicates that the slump in comparable sales persisted in the third quarter. Considering the muted top-line performance and unfavorable inventory position, the market will be keeping an eye on gross margin when the results are unveiled. The outcome will depend on how much of the piled-up inventory was cleared in the first half of the year.

Related: Macy’s Q2 2019 Earnings Conference Call Transcript

Another key area of interest would be the management’s projection for the rest of the year, especially in the backdrop of the intense store remodeling program, which was rolled out last year with the aim of reviving traffic. An optimistic outlook, ahead of the holiday season, might help the stock emerge from the current lows and end the year on a positive note.

Looking Ahead

With the store revamp almost done, it’s time for Macy’s to win the market’s confidence with effective execution in the final months of the year. Though there is uncertainty about the near-term benefits, the growth initiatives, combined with the efforts to strengthen the digital platform and improve logistics capabilities, should start yielding results by next year.

Also see: Walmart stock rises on Q3 earnings beat

Market watchers predict break-even bottom-line results for Macy’s in the third quarter, compared to earnings of $0.27 per share last year. Revenues are expected to be $5.32 billion.

Q2 Outcome

In the July-quarter, a marked decline in gross margin dragged the bottom-line as the company took big markdowns in response to slow sales in the early weeks of the quarter. Adjusted earnings more than halved year-over-year to $0.27 per share. Comparable store sales gained a meager 0.3%, while revenues were flat at $5.5 billion.

Peer Performance

Last week, JCPenney (JCP) posted a narrower net loss for the third quarter, despite unimpressive comparable sales and revenue performance. What helped the store chain is the effective management of inventory and its cost-cutting efforts – something Macy’s can emulate.

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