Macy’s Stock Rose Despite a Disappointing Earnings Report.

On Wall Street, gloomy profit forecasts are the new source of good news—as long as you are a shop selling discretionary goods like Macy’s.

In spite of the department retailer lowering its full-year profit projection from $4.53-to-$4.95 per share to $4.00-to-$4.20 per share, the stock of Macy’s increased by around 5% as of 1:030 p.m. Eastern Time on Tuesday.
The tone on Wall Street indicated a prevalent opinion that it could have been worse and that investors spotted the warning a mile away thanks to recent adjustments from Target, Walmart, Best Buy, and others. This view was consistent with the sentiment that it might have been worse.

“The market has generally been rewarding those that reduce the bar for the second half,” Paul Lejuez, a retail analyst at Citi, said in a note to clients. “The market has generally been rewarding those that lower the bar for the second half.” We anticipate that [Macy’s] stock will increase today given that it has a low multiple and that the bar will be lowered in the second half.

The store had a difficult quarter as customers cut back on non-essential purchases like garments in response to increasing inflation, which prompted Macy’s to issue a caution, which is similar to the one that its competitor Kohl’s disclosed the previous week.

While sales at Macy’s brand stores were down 2.8% during the quarter, inventory levels increased by 7.7%, and gross profit margins were down 70 basis points compared to the same period in the prior year.
Here is how Macy’s did in comparison to the estimates provided by Wall Street:

Net Sales: $5.6 billion vs. $5.49 billion

Gross Margin: 38.9% vs. 39%

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EPS: $1.00 vs. $0.85

Despite the gain in the stock on Tuesday, Macy’s shares are still down 25% year to date, which is far worse than the decrease of 13% that has been seen in the S&P 500.
The disappointing numbers and profit warning may cause investors to be more wary of the company in the near future.

According to Stephanie Wissink, an analyst at Jefferies, “Following a pattern throughout retail, the outlook for the 2H takes into account softening trends, worsening consumer fundamentals, excess inventory clearance/markdowns, a more promotional and competitive environment.”

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