Macy’s Staged a Magic Comeback on Return of Shoppers and Profound Digital Sales Growth

August 23, 2021

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Macy’s Staged a Magic Comeback on Return of Shoppers and Profound Digital Sales Growth

Macy's (M) is the latest phenomenal success story for those with emotional attachment to old good names on the stock market. Macy’s reported its Q2 2021 earnings results last Thursday. Shares of Macy’s (M) soared almost 20% after the Q2 earnings and sales report release, and as it raised its full-year guidance for both.

The world’s biggest department store surprised by its Q2 Non-GAAP EPS of $1.29 beating estimates by $1.11, while GAAP EPS of $1.08 also exceeded them by $0.94. Revenue of $5.65B (a whopping +58.7% YoY) beat by $650 million.

Macy’s has staged an impressive recovery after falling as much as 70% due to store closures and widening losses. In this context, shares have recovered by nearly 300% since all-time lows and are now trading above pre-Covid levels. Macy’s said it added 5 million new customers in the quarter, while 41% of those came through its website. Total digital sales penetration, which continues to outperform expectations, was 32%. Is Macy’s magic comeback justified and what are the realistic further scenarios?

In its latest affirmative action JPMorgan upgraded Macy's to Neutral from Underweight with a price target of $25, up from $19, following the company's Q2 upbeat earnings. Indeed, Macy's is recovering rapidly thanks to the government stimulus program coupled with the accelerated execution of the Polaris strategy. The most recent quarter saw better store-count comparable earnings per share than all-good Q1 of 2019. With earnings expectations for 2021 close to 2019, a P/E ratio of slightly over 10, and no significant rise in debt, Macy's looks intriguing in terms of both value and potential dividend payout story a few quarters down the road.

The current expectations for earnings per share are not far away from the $2.20-$2.40 guidance given in Q4 2019 for the year 2020, before the COVID-19 hammered the entire performance of the retail sector. Despite the one-off emergency that took place, debt has not increased. In other words, we could say that the company is back from where it was and it would be just a matter of time before management gives its assessment on the business and the sources of application of all the cash proceeds.