Shares of Macy's (NYSE: M) were pulling back today after the department-store operator issued a weak sales result in its second quarter, even though profits were strong. As a result, the stock was down 12% as of 11:24 a.m. ET.
Macy's is still shrinking
The retailer reported a revenue decline of 3.8% to $4.9 billion, which was well below estimates at $5.12 billion. Comparable sales were down 3.3%, showing that the business is continuing to lose customers in what's been a challenging environment for discretionary retailers.
Comparable sales were down 4.5% at the Macy's brand on an owned basis. Bloomingdale's was down 1.1%, but BlueMercury, its beauty brand, rose 2%.
Image source: Getty Images.
The weak top-line result comes after Macy's turned down yet another buyout offer last month. The company still seems to be struggling to put together a long-term turnaround strategy.
However, Macy's did make improvements on the cost side, as gross margin increased 240 basis points to 40.5% due to lower discounting from a year ago. Selling, general, and administrative (SG&A) expenses fell by $7 million to $2 billion but were up 120 basis points on a percentage basis to 38.7%, due to the sales decline. Nonetheless, that was enough for generally accepted accounting principles (GAAP) operating income to double from $124 million to $222 million.
On the bottom line, adjusted earnings per share jumped from $0.26 to $0.53, ahead of the consensus estimate of $0.30. CEO Tony Spring called the results a "strong earnings performance in a challenging consumer environment."
What's next for Macy's
Investors also seemed disappointed by the guidance, as Macy's cut its full-year revenue forecast from $22.3 billion-$22.9 billion to $22.1-$22.4 billion. It also lowered comparable-sales guidance to between negative 2% and negative 0.5%, though it maintained its adjusted earnings-per-share guidance of $2.55-$2.90.
The stock is cheap based on that forecast at a price-to-earnings ratio of around 6, but it's unlikely to move higher until the business returns to sales growth.
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