Macy’s Inc. (NYSE: M) reported third-quarter 2020 results before markets opened Thursday. The struggling department store giant posted a quarterly adjusted diluted loss per share of $0.19 on revenues of $3.99 billion. In the same period a year ago, Macy’s reported earnings per share (EPS) of $0.07 on revenues of $5.17 billion. Third-quarter results also compare to consensus estimates for a loss per share of $0.79 and $3.86 billion in revenue.
On a GAAP basis, the company posted a loss per share of $0.29, including a CARES Act tax benefit.
CEO Jeff Gennette said that quarterly performance was driven by disciplined cost management, strong execution and “an early start to the holiday season.” Same-store sales dropped 21% year over year for owned stores and 20.2% for owned plus licensed stores. Digital sales rose 27% year over year in the quarter and “penetrated” at 38% of total owned comparable store sales.
Gross margin improved by approximately 1,200 basis points sequentially to 35.6%, and inventory was down 29% year over year at the end of the quarter. Macy’s noted that it exited the third quarter with a “clean” inventory position. That means that the company can bring in new, current inventory without first having to blow out older merchandise to make room for the new stuff. That means better margins for goods that are likely to be better sellers, like gloves and scarves in the winter instead of piles of fall-season sweaters.
Macy’s closed the quarter with about $1.55 billion in cash and equivalents. The company has issued $2.78 billion in debt during the quarter, presumably on $3 billion in available credit on an asset-backed facility the company originated in the second quarter.
The retailer has withdrawn 2020 guidance, but in a presentation accompanying the earnings report Macy’s outlined its “expectations for the 2020 fiscal year. The key point may be that the company expects adjusted earnings before interest, taxes, depreciation and amortization “improvement” in the fourth quarter, compared with the third-quarter level of $159 million.
Analysts have estimated that the company’s fourth-quarter loss will be $0.05 per share on sales of $6.42 billion. For the full year, analysts are looking for a net loss per share of $3.61 and revenue totaling $16.83 billion.
Gennette’s comment that the holiday season started early could be good news or bad. Strong early sales could be a harbinger of a solid sales pickup or it could mean that consumers did their holiday shopping early and that’s that. Investors are taking the gloomier view that is supported by a resurgence of COVID-19 infections and stronger measures in some areas to combat the spread of the virus.
Shares traded down about 4% at $8.63 in Thursday’s premarket session. The stock’s 52-week range is $4.38 to $18.57, and the consensus 12-month price target is $6.58. Thursday’s report is not strong enough to support a share price that is around 35% higher than the target.