Upcoming Earnings: Will Macy’s Rally Continue After Q2 Results?

Macy’s, Inc. reports second-quarter earnings before market open on Wednesday, August 15. The retailer’s stock has outperformed the S&P 500 by a wide margin so far this year. Here’s a look at what might be expected from its quarterly results.

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Macy’s (M) is scheduled to report earnings before market open on Wednesday, August 15. After several years of underperformance, M has been making a comeback in 2018 and is up 52% ahead of tomorrow’s results.

For Q2, M is expected to report adjusted EPS of $0.49, up a penny from last year, on revenue of $5.55 billion, according to third-party consensus analyst estimates. Although earnings and revenue are expected to be pretty much flat to last year, the company has been consistently closing stores over the past year. 

There are a few different items contributing to analysts’ expectations for the quarter. M’s friends and family sale took place in Q1 this year when it typically fell in Q2 in the past. On last quarter’s earnings call, CFO Karen Hoguet estimated this shift added 2.5% to comp sales growth in the first quarter. Since those sales got pulled forward, management said they’re expecting comp sales to be down slightly in Q2.  

Bon-Ton Stores also filed for bankruptcy in the first quarter and started liquidating and closing stores in April. While this can sometimes negatively impact other retailers since a flood of discounted merchandise enters the market, some analysts think M might’ve been able to capture additional sales from customers that used to shop at the closed locations. 

Update on Stores and Properties

CEO Jeff Gennette previously said the company plans to open about 40 additional Macy’s Backstage locations in Q2, so he might provide an update on how the rollout of those stores is progressing on tomorrow’s earnings call. In addition, Gennette said M plans on continuing to expand its Bluemercury beauty retail stores and that it will open approximately 25 more freestanding locations this year. 

With the company’s properties, one of the main areas analysts have been interested in is M’s sale of its I. Magnin building in San Francisco. The latest update from management is that the sale will go through sometime in the fourth quarter. Analysts expect the property to sell for a bit more than $250 million. 

Management Guidance 

After M reported better-than-expected results in Q1, management upped their 2018 guidance for both revenue and earnings. The new guidance projects adjusted EPS of $3.75 to $3.95, 20 cents higher than before. 

On the top-line, management is expecting revenue to range from a 1% decline to a 0.5% increase. Comp sales including licensed locations are expected to grow between 1% and 2%, and comp sales excluding licensed locations are expected to come in slightly below that range. 

2018 Rally. After several years of underperformance, M has substantially rallied this year and is up 52.43%, compared to an 11.91% increase in the S&P Consumer Discretionary Select Sector Index (IXY, teal line) and a 4.68% increase in the S&P 500 (SPX).Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Macy’s Options Trading Activity

Options traders have priced in an 8.7% stock move in either direction around the upcoming earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was on the higher end this morning, sitting at the 73rd percentile. 

In short-term trading at the August 17 monthly expiration, activity on the call side has been concentrated at the 40 and 40.5 strike prices. On the put side, both the 36 and 39.5 strike prices have been active. The volume at the 36 strike was largely comprised of a few bigger trades. During yesterday’s session, there was one trade for 4,000 contracts and one for 1,250 contracts at the 36 strike put.    

Otherwise, there hasn’t been a lot of activity over the next several weekly expirations. Looking at the September 21 monthly expiration, the 40 strike call has been the most active, with volume of 2,710 contracts yesterday and open interest of 6,912 contracts as of this morning. To put that into perspective, the next highest open interest is 850 contracts at the 27 strike put. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

What’s Coming Up

Following M, there are several other retailers on the docket this week and next: 

  • Walmart (WMT), J.C. Penney (JCP) and China e-commerce giant JD.com (JD) all report before market open on Thursday, August 16. Nordstrom’s (JWN) reports after the close the same day. 
  • Lowe’s (LOW) and Target (TGT) both report before the open on Wednesday, August 22.
  • Alibaba (BABA) is set to release results before market open on Thursday, August 23.

If you have time, check out today’s Market Update for a look at what else is going on.

Good Trading,
JJ

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