Macy's (NYSE:M) Surprises With Q2 Sales But Stock Drops

Department store chain Macy’s (NYSE:M) beat analysts’ expectations in Q2 CY2024, with revenue down 3.5% year on year to $5.10 billion. On the other hand, the company’s full-year revenue guidance of $22.25 billion at the midpoint came in 1% below analysts’ estimates. It made a non-GAAP profit of $0.53 per share, improving from its profit of $0.26 per share in the same quarter last year.

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“During the second quarter, we delivered strong earnings performance in a challenging consumer environment,” said Tony Spring, Chairman and Chief Executive Officer of Macy’s,

With a storied history that began with its 1858 founding, Macy’s (NYSE:M) is a department store chain that sells clothing, cosmetics, accessories, and home goods.

Department Store

Department stores emerged in the 19th century to provide customers with a wide variety of merchandise under one roof, offering a convenient and luxurious shopping experience. They played an important role in the history of American retail and urbanization, and prior to department stores, retailers tended to sell narrow specialty and niche items. But what was once new is now old, and department stores are somewhat considered a relic of the past. They are being attacked from multiple angles–stagnant foot traffic at malls where they’ve served as anchors; more nimble off-price and fast-fashion retailers; and e-commerce-first competitors not burdened by large physical footprints.

Sales Growth

Macy's is one of the larger companies in the consumer retail industry and benefits from economies of scale, enabling it to gain more leverage on fixed costs and offer consumers lower prices.

As you can see below, the company’s revenue has declined over the last four years, dropping 1.8% annually as its store count and sales at existing, established stores have both shrunk.

This quarter, Macy’s revenue fell 3.5% year on year to $5.10 billion but beat Wall Street’s estimates by 1%. Looking ahead, Wall Street expects revenue to decline 6.6% over the next 12 months, a deceleration from this quarter.

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Same-Store Sales

Macy’s demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 5% year on year. The company has been reducing its store count as fewer locations sometimes lead to higher same-store sales, but that hasn’t been the case here.

In the latest quarter, Macy’s same-store sales fell 4% year on year. This decrease was an improvement from the 8.2% year-on-year decline it posted 12 months ago. It’s always great to see a business improve its prospects.

Key Takeaways from Macy’s Q2 Results

We were impressed by how Macy's blew past analysts’ EPS expectations this quarter. On the other hand, its full-year revenue and earnings guidance was lowered, missing Wall Street’s estimates. Overall, we think this was a weaker quarter due to the outlook. The market seemed to focus on the negatives, and the stock traded down 6.7% to $16.55 immediately following the results.

So should you invest in Macy's right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.