Investors enjoyed strong returns on Thursday thanks to strength in the retailing sector and a rebound in oil prices. The Dow Jones Industrial Average(DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) indexes both opened in solidly positive territory and added to those gains through the trading session to close at all-time highs.
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Macy's (NYSE: M) and Shake Shack (NYSE: SHAK) were among the market's biggest movers on Thursday as investors digested the company's latest operating trends.
Macy's calls it a comeback
Macy's shares soared 18% higher and pulled retailing peers up in sympathy after the department store announced improving (yet still negative) quarterly operating trends. Comparable-store sales ticked down by 2%, compared to a 6% decline in the prior quarter. Profits dove by 20% -- but that marked an improvement over the prior quarter's 40% earnings decline.
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Warmer weather played a factor in the recovery as it helped push apparel sales higher. A softer decline in tourist spending, which has been hurt by a strong U.S. dollar, also contributed. Macy's executives were most encouraged by the fact that sales growth trends improved throughout the quarter, implying that outright growth isn't far off.
"We have been saying that a setback is a setup for a comeback," CEO Terry Lundgren said in a press release, "and we now believe we are set up well to proceed to a comeback."
In addition to the better operating trends, Wall Street cheered Macy's plan to cut costs by dramatically reshaping its store base. Ludgren and his team expect to shutter a whopping 100 locations that are responsible for a collective $1 billion of net sales. While the company sees physical stores as important to its strategy, it is placing most of its long-term growth bets on internet selling. With the stock at a multiyear low heading into the release, the combination of improving results and aggressive cost-cutting set the stage for a big price jump for shareholders.
Shake Shack sizzles in Q2
Burger chain Shake Shack fell 6% to slip back into negative territory on the year after solid second-quarter results failed to impress Wall Street. Comps growth slowed to 4.5% from 10% in the prior quarter, which is usually a red flag, especially for a premium-priced stock like Shake Shack's.
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However, the comps metric was right within management's guidance for the year. It could also be considered a win given that many restaurant peers, including McDonald's, Starbucks, and Chipotle, are seeing a growth slowdown at the moment.
Meanwhile, Shake Shack's profitability ticked up to a new record, with restaurant-level margins climbing to 31%. Executives credited fresh food items like a chicken sandwich and a bacon cheddar burger for the gains. "Innovating around our core menu continues to be a key driver of our success," CEO Randy Garutti said in a press release.
Shake Shack left its full-year comps growth target unchanged at between 4% and 5%. It boosted its overall revenue projection, though, because Garutti and his team now expect to open 18 new locations rather than the 16 they had originally pegged for launch. The chain's operations are improving, albeit at a slower pace, and its growth outlook is better than most rivals. Investors waiting for a better price for this casual-dining prospect might want to consider Thursday's drop as an attractive markdown.
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Demitrios Kalogeropoulos owns shares of Chipotle Mexican Grill, McDonald's, and Starbucks. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. 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.