I'm Looking at Macy's Dividend After Strong Earnings

The shares of iconic New York City retailer Macy's M do not trade under $10 but traded on Thursday morning with a $12 handle and are closer than they have been since 2023. 

Macy's is not really a small-cap stock, but with a market capitalization value of little more than $3.5 billion, the firm is a smaller mid-cap. All that said, I think the shares, after Wednesday night's earnings release, are at least worthy of some analysis for our "stocks under $10/small cap" crowd. 

Let's take a look, shall we?

Macy's Operations

For the firm's fiscal fourth quarter, which ended February 1, Macy's posted an adjusted EPS of $1.80 (GAAP EPS: $1.21) on revenue of $8.007 billion. This top line and adjusted bottom line numbers both beat Wall Street, though that revenue print was reflective of a 4.5% year-over-year contraction. 

The firm reported comp sales of -1.1% on an owned basis. The firm's highly focused upon "Fist 50" locations delivered comparable sales growth of 0.8%, which was a fourth consecutive positive quarter for that metric. Additionally, Bloomingdales reported comparable sales growth of 4.8%, while Bluemercury reported comp sales growth of 6.5%. That was the sixteenth-consecutive quarter of positive comp sales growth for Bluemercury.

Cost of sales decreased 3.1% to $4.991 billion as gross margin dropped from 36.5% to 35.7%. After factoring in operating expenses and impairments, GAAP operating income/loss came to $500 million, up from -$149 million for the year-ago period.

Accounting for interest, other income and expenses and taxes, GAAP net income/loss improved to $342 million from -$128 million. That worked out to a GAAP EPS of $1.21, up from the year-ago comparison of -$0.47 per fully-diluted share. Adjustments were made for restructuring costs and settlement charges, partially offset by tax impacts of certain identified items that bring the adjusted EPS up to $1.80.

Macy's Stock Fundamentals

For the full year, Macy's was able to generate operating cash flow of $1.278 billion. Out of that number came capex spending of $518 million and spending of $364 million on capitalized software. Then added to that number was $283 million as net proceeds from the disposition of various assets. This placed the firm's free cash flow at $679 million. Out of this figure, Macy's paid $192 million in cash dividends to shareholders and paid off some debt.

Turning to the balance sheet, Macy's ended the period with a cash position of $1.306 billion and inventories of $4.468 billion. That put current assets at $6.479 billion. Current liabilities add up to $4.524 billion, which includes very close to nothing in short-term debt. The firm's current ratio stands at 1.43, which is pretty darned decent for a large retailer. We don't harp on quick ratios for retailers given the nature of the business.

Total assets amount to $16.402 billion, which includes just $1.253 billion in goodwill and other intangibles. That's not really very significant. Total liabilities less equity comes to $11.85 billion, which does include long-term debt of $2.773 billion. This is down 7.5% over 12 months. Macy's balance sheet is in much better shape than many investors probably think it is and in better shape than many high-profile retailers.

Macy's Stock Guidance

For the current quarter, Macy's sees net sales of $4.4 billion to $4.5 billion, which is just a hair better at the midpoint than Wall Street expected. However, the firm is projecting an adjusted EPS of $0.12 to $0.15. Wall Street was looking for something like $0.29. That's one reason why the stock was hit hard on Thursday morning.

For the full year, Macy's sees net sales of $21 billion to $21.4 billion, which at the midpoint is below the consensus view of $21.34 billion. The firm also sees an adjusted EPS of $2.05 to $2.25. That's well below the $2.32 that Wall Street had in mind.

My Thoughts on Macy's Stock

These earnings aren't bad at all. The guidance is a little wonky, but the cash flows are positive, and the balance sheet is in above decent shape. Additionally, the stock pays a nice, and probably sustainable, dividend yielding almost 5.5%.

Readers will see what looks like a falling-wedge pattern of bullish reversal in progress on this chart of Macy's stock. The lower bound of the wedge is being tested on Thursday. If it holds, I think Macy's may have a ballgame. If it fails, we could be talking prices between $10 and $11. 

The upside pivot for now is the 50-day SMA. The area of interest would be the unfilled gap from last July that would require a tick at $19.10 or above to fill. If this stock sneaks back below $13 on Thursday afternoon's broad market weakness, I may take on a starter position. I really, really like that dividend.

At the time of publication, Guilfoyle had no positions in any securities mentioned.