Institutions Shed Macy’s … Too Soon

February 22, 2022 by Thomas Hughes

Macy’s Is A Deep-Value For Retail Investors

The institutions started to shed Macy’s (NYSE: M) in Q1 2022 and we aren’t blaming them. The retail picture isn’t robust, it’s hampered by the supply-chain crisis, and Macy’s is particularly vulnerable as a mall-based retailer. Regardless, net institutional selling in the first 7 weeks of 2022 reversed the buying trend that held steady for the previous three quarters. Selling is worth about 2.1% of the market cap, no small amount, but total holdings are still running near 90% which think is more significant. Based on the Q4 results and the outlook for the year, we think buying will pick back up and help drive the stock up off the bottom where it has been lingering the last few quarters.

Macy’s Has Robust Quarter, The Turnaround Is Working

Macy’s began a turnaround and refocusing effort two years that is clearly paying off. The company’s revenue of $8.67 billion is up 27.9% versus last year with comps up in the 2-year comparison as well. On a comp basis, sales are up 28.3% at company-owned stores and 27.8% across the network with a 6.6% and 6.1% gain in the two-year stack. Revenue was underpinned by digital which is up 12% YOY and 36% versus two years ago and accounts for 34% of the net. Bloomingdale's revenue is up 37% with margin expansion across the network.

Margins were mixed in the two-year comparison but only positive versus last year. The gross margin improved 280 basis points over last year with a 220 basis point improvement in SG&A as a percent of revenue. The gross margin is down slightly, however, in the two-year stack but offset by expansion at the operating level. The takeaway is that GAAP EPS of $2.44 is up $0.80 from last while the adjusted EPS is up $0.50 and beat the consensus by $0.46 or 2300 basis points.

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Turning to the guidance, it is positive as well and should help put a bid into the market. The company is expecting revenue of $24.46 at the low end of the range compared to the consensus of $24.37 and for similar strength in the earnings figures.

Macy’s Boosts Its Capital Return Program

Macy’s had a solid year producing more than $2.3 billion in free cash flow, cash flow that it is using to pay dividends and buy back shares. The company raised its dividend by 5% along with the Q4 release bringing the yield to about 2.35% with shares trading at $28. This is accompanied by a $2 billion increase to the buyback program set to begin when the current $500 million allotment is used up. The balance sheet could be better with a leverage ratio near 10X and coverage closer to 5X but it is on the mend and the outlook for FCF growth is positive.

The Technical Outlook: Macy’s Is Ready To Exit The Bargain Basement

Trading at only 5.25X its earnings Macy’s is a value and one in healthy condition, with an improving balance sheet, and an outlook for growth. This is no doubt aiding the near 10% move posted in the wake of the 2022 guidance and will help fuel a rally once the stock breaks to new highs. As it is, there is resistance at the top of the trading range near $28.25, if that level can be broken we see this stock moving up to the $32 and possibly $36 level.

Institutions Shed Macy’s … Too Soon

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Companies in This Article:

Company	Current Price	Price Change	Dividend Yield	P/E Ratio	Consensus Rating	Consensus Price Target
Macy's (M)	$16.48	+1.5%	4.19%	27.93	Hold	$18.56

About Thomas Hughes

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Experience

Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.

Areas of Expertise

Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies

Education

Associate of Arts in Culinary Technology

Past Experience

Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.