Earnings Preview: Macy’s & JCPenney

Holiday shoppers 2014
Holiday shoppers inside Macy's in New York.
Getty Images.

Macy’s Inc.

The past few quarters have been a challenge for the department store chain, which has battled FX headwinds, slowing tourism, unseasonable weather and weaker demand.

“We remain encouraged by a number of Macy’s initiatives for 2H15; however, we believe that Macy’s continues to feel the effects of decreased tourism and heightened inventory across the sector,” wrote Nomura Securities Inc. analyst Robert Drbul.

Now that Q3 is well under way, analysts say continued industrywide sluggishness in traffic and sales does not bode well for Macy’s. Still, lower gas prices and other factors are a source of upside looking ahead.

While we are generally encouraged by macro trends, we believe retailers continue to battle fickle consumer spending, a promotional environment and weak tourist traffic,” said Drbul. “We are cautious heading into 3Q, as we believe that inventory levels are elevated and that warmer weather may have cut into the early fall/cold weather selling season. Still, we believe that the macro environment (including benefits from lower gas prices, home heating oil and natural gas) sets up the consumer nicely heading into [the] holidays.”

When Macy’s last reported, its profit totaled $217 million, a 26 percent decline from the comparable quarter. Net sales also declined, shedding 3.1 percent, to $6.1 billion.

Wall Street’s average bets for Macy’s in Q3 include revenues of $6.12 billion and earnings per diluted share of 54 cents.

Macy’s is scheduled to report Q3 on Nov. 11.

J.C. Penney Co. Inc.

Weak trends across department stores in Q2 bypassed JCPenney last quarter — the firm pulled off a better-than-expected performance, with gains in comparable-store sales and revenues.

JCP said its top merchandise divisions in the quarter were men’s, home, Sephora and fine jewelry.

Going into the third quarter, UBS Investment Bank analyst Michael Binetti listed JCPenney among the stocks he is most cautious about due to “accelerating structural pressures.” (Kohl’s Corp. and Macy’s were also listed).

When it last reported, in August, JCPenney’s revenues increased 3 percent, while losses narrowed by 20 percent.

CEO Marvin Ellison said he was pleased with the firm’s improved performance but acknowledged there was still significant work to be done.

During the company’s Q2 conference call, Ellison said JCPenney is “admittedly behind the retail industry” when it comes to omnichannel, but it had recently hired Mike Amend, former VP of online, mobile and omnichannel for Home Depot, as VP of omnichannel, and Mike Robbins, former SVP of global supply chain for Target Corp.’s U.S. stores, as SVP of supply chain.

Wall Street’s average bets for JCPenney in Q3 include revenues of $2.88 billion and losses per diluted share of 56 cents.

J.C. Penney Co. is slated to report Q3 on Nov. 13.