Macy’s (M -2.94%) is expected to report its results for the first quarter of fiscal 2022 on May 16. The brick-and-mortar retailer has a confluence of factors working in its favor.
Supply chain shortages allow it to sell products at higher profits. Meanwhile, the scarcity of labor causes it and its competitors to operate with fewer staff, cut expenses and increase profits.
It’s unclear how long these tailwinds will last, but Macy’s is looking to reap the benefits while they linger, and investors are hoping the momentum continues. Let’s take a closer look.
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Sales and profits increase for Macy’s
In its most recent quarter, which ended Jan. 29, Macy’s generated net sales of $8.66 billion. This is a 28.3% increase from the same quarter a year earlier, when pandemic restrictions were more common and people felt less comfortable shopping in person. More impressively, Macy’s sales in the last quarter were above the $8.3 billion reported at the same time in 2019, before the outbreak.
Interestingly, the benefits trickled down to profitability. Macy’s diluted earnings per share (EPS) rose to $2.44, from just $0.50 in the same quarter a year earlier and $1.09 in the same quarter in 2019. Competitive pressure eased significantly as retailers struggle to secure enough inventory to keep their shelves stocked. . As a result, there are fewer markdowns, sales, and promotions, leading to higher profits. After all, why put items on sale if you can barely keep up with customer demand?
Macy’s full-year 2021 review tells a similar story. Revenues were up 43% from pandemic-hit 2020. Earnings per share were $4.55, compared to $1.81 in fiscal 2019. Perhaps more than anything else, the EPS figure highlights the scale of the upside in favor of Macy’s right now. It doubled EPS from 2019 to 2021, even though the pandemic isn’t over yet.
M Diluted EPS (TTM) given by Y-Charts
Supply chains remain blocked and companies are still reporting labor and inventory shortages. For now, the factors supporting Macy’s strong performance don’t seem to stop. However, the recent surge in inflation could impact margins as it will cost Macy’s more to ship items to consumers. Already, Macy’s mentioned that delivery charges as a percentage of net sales rose 190 basis points in the last quarter compared to the same quarter in 2019. That’s something investors should watch when Macy’s releases the numbers. of the first trimester.
What this could mean for Macy’s investors
Wall Street analysts expect Macy’s to post revenue of $5.33 billion and earnings per share of $0.82. If the company reaches the profit estimate, it will represent a 110% increase over the same period a year ago.
Price M vs Free Cash Flow given by Y-Charts
Despite the strong performance, Macy’s stock is down 9% year-to-date, as is the broader market. Investors may be perceiving the short-term nature of Macy’s buoyant profitability. Either way, Macy’s is trading at such a low valuation – less than four times cash flow and about five times earnings – that investors should consider buying its stock in hopes that improving performance may last longer than expected by the market.
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