E Macy's Is Turning The Corner

Macy’s (M) is a company that we have been following for several years. We have watched as this one great retail darling has fallen from grace, as sales and earnings have fallen dramatically in the last five years. With the ever-changing consumer, Macy’s was slow to adapt, and its share price suffered in the last five years:

Source: Yahoo Finance

That said, the company seems like it may now finally be turning the corner, but it is not out of the woods yet. In the present column, we discuss the performance of the name, homing in on sales, operating income, cash flows and the bottom line. Further, we offer our projections for 2018.

Top line sales improve—but there was an extra week of business

Sales in the fourth quarter of 2017 totaled $8.666 billion, an increase of 1.8 percent, compared with sales of $8.515 billion in the fourth quarter of 2016. As you can see Q4 had seen a disastrous slide in recent years, only to rebound:

Source: SEC filings, chart made in excel by author

So, what drove these results? We were pleased to see that comparable sales improved. On a company store owned basis, sales were up 1.3 percent in the fourth quarter and up 1.4 percent on an owned plus licensed basis. Total sales in the fourth quarter of 2017 reflect a 14^th week of sales, so the growth must be taken with a grain of salt. That said, comparable sales were up comparing a 13-week sales period. What about for the year?

Well, sales are still down comparing the fiscal year 2017 versus 2016. Sales in fiscal 2017 totaled $24.837 billion, down 3.7 percent from total sales of $25.778 billion in fiscal 2016. Comparable sales on a company owned basis declined 2.2 percent in fiscal 2017. Comparable sales on an owned plus licensed basis declined by 1.9 percent in fiscal 2017. This is even more painful because total sales for fiscal 2017 reflect a 53^rdweek of sales, whereas comparable sales are on the same 52-week basis as fiscal 2016. That said, much of the weakness was in the earlier part of the year. What about other metrics?