Why Macy's Inc. Stock Popped Today

By Markets Fool.com

Image source: The Motley Fool.

Continue Reading Below

What: Shares of Macy's Inc. (NYSE: M) jumped 17.1% Thursday after the company announced stronger-than-expected second-quarter 2016 results, as well as plans to close around 100 additional locations.

So what: Quarterly revenue declined 3.9% year over year, to $5.866 billion, including a 2% decline in comparable sales on an owned-plus-licensed basis. On an owned basis, comps fell 2.6%, with the difference primarily resulting from the closing of 41 underperforming Macy's locations last fiscal year. Based on generally accepted accounting principles (GAAP), that translated to net income (attributable to Macy's shareholders) of $127 million, or $0.41 per share, down from $410 million, or $1.21 per share in the same year-ago period. On an adjusted (non-GAAP) basis, Macy's earnings declined 15.6%, to $0.54 per share

These results might not sound particularly encouraging, but for perspective, analysts' consensus estimates predicted lower revenue of $5.74 billion, and adjusted earnings of just $0.45 per share.Macy's CEO Terry Lundgren elaborated,

We are encouraged by the distinct improvement in our sales and earnings trend in the second quarter. Over the past few months, we have been saying that a setback is a setup for a comeback, and we now believe we are set up well to proceed to a comeback. Our sales strengthened month-by-month throughout the second quarter. This trend improvement gives us confidence in our plans for the back half of the year, and in our strategic planning for improvements to our business model going forward.

Contributing to Macy's relative success, Lundgren noted, was a combination of normalized weather patterns (which helped apparel sales), a smaller decrease in tourist spending during the lucrative summer months, and consumers' positive response to promotionalevents designed to boost traffic and conversion.

Continue Reading Below

In addition, Macy's revealed plans to close approximately 100 full-line Macy's locations, with most to be closed early next year. Macy's president Jeff Gennette, who is slated to succeed Lundgren as CEO in the first quarter of 2017, explained that, while most of the 100 locations are cash-flow positive today, their volume and profitability have been on the decline in recent years. As such, Gennette states, Macy's is closing such a large number of stores "proactively" to invest in its "most productive and highest-potential locations."

Now what: Finally, Macy's reiterated its previous guidance for the full-year 2016. That guidance calls for adjusted earnings per diluted share in the range of $3.15 to $3.40, comparable sales on an owned-plus-licensed basis to decrease in the range of 3% to 4%, and owned comparable sales falling around 50 basis points year over year.

All things considered, I agree this was a great quarter for Macy's -- at least relative to expectations -- and could mark a pivotal moment in the company's turnaround. If Macy's is able to sustain its momentum and further improve results as it closes more underperforming locations, I see no reason the stock won't also continue its upward march from here.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.