Macy’s Reports Solid Earnings But The Price Action Doesn’t Think So

Macy’s (Ticker Symbol: M) released its earnings report before the opening bell on Wednesday morning.  The historic American retailer that has been in business since 1858, reported an earnings per share beat of .44 cents vs. Wall Street’s analysts’ expectations of .33 cents. Revenue was a slight miss and reported at $5.504 billion vs. Wall Street’s expectations of $5.505 billion. The highlight was same-store sales were up .07% vs. expectations of a decline of .02%.

In the first quarter of this year, Macy’s announced it would be cutting 100 management jobs in a new restructuring plan to help increase the speed of decision making among its upper management.  Macy’s has also been working on strategies to get rid of excess inventory that has been left unsold and putting pressure on profits. The company announced that it has plans to target $100 million in cost savings for this year.

Macy’s has been trying numerous new things to try and draw more shoppers into its stores. The company has been using virtual reality headsets to help sell furniture and increase the buyer’s experience. Macy’s is also adding mobile checkout to some locations to cut costs and help shoppers pay with ease.  The company has been downsizing some locations and partnering with other retailers like Starbucks and Sunglass Hut to profit off of the unused space and attract customers.

Macy’s stock started off to a great start in 2018 rallying over 50% in the first three quarters led by two positive earnings and guidance reports. In the third quarter, the stock topped, forming a bearish divergence pattern, where the stock makes a higher high in price but the Relative Strength Index (As indicated on the chart by the purple circles) makes a lower high. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in Macy’s case. Macy’s stock then broke down through its 8-month long uptrend, proceeded to sell off over 45%, and has been trading below its 100 and 200-day Moving Averages for six months.  Currently, Macy’s stock is putting its first very oversold condition in its Relative Strength Index (Indicated by the red boxes on the chart) in 18-months.

Based on a survey of 9 analysts offering 12-month price targets, the average price target for Macy’s stock is $26.00. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $21.66.

Macy’s also announced plans that it is going to continue to grow its discount clothing business, Macy’s Backstage, which competes with TJ Maxx and Nordstrom Rack. The company has plans to open more than 40 locations within the next year. As you can see Macy’s has some exciting new things coming in its pipeline. Investors within the retail space should look to Norstrom’s earnings release next week on May 21st for fresh news within the sector.

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