Thursday, July 2, 2020

Macy's Posts Staggering Losses, But Sees Hope Ahead

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News shaping
the markets today

     

What’s happening: Shares of Macy's Inc. fell by more than 4% on Wednesday after the department store giant reported a steep decline in sales and massive losses for the first quarter.

What happened: The retail industry has been severely hit by the coronavirus crisis with widespread store closures and low footfall at those that are open. Retailers have been trying to battle the impact of the pandemic with employee layoffs and by suspending dividend payments and share repurchase programs to maintain liquidity.

Against this backdrop, Macy’s being able to meet the estimates and continue to operate while industry behemoths like J.C. Penny and J. Crew file for bankruptcy seem impressive. Moreover, Macy’s management made some positive comments during the earnings call.

How were the results: The New York-based department store chain swung to a loss in the first quarter, while sales almost halved from the year-ago levels.

  • Macy's sales plummeted 45.2% to $3.02 billion in the first quarter, in-line with expectations.
  • The company posted a quarterly net loss of $3.58 billion, or $11.53 per share, versus earnings of $136 million, or 44 cents per share, in the same quarter last year.
  • Excluding onetime items, the company lost $2.03 per share, meeting the consensus view.

Why it matters: Macy's reported a staggering loss for the recent quarter, amid store closures and $3 billion in impairment charges.

Macy's has been taking initiatives to cope with the pandemic-related challenges. After witnessing a steep decline in traffic at its stores, the company is investing heavily in its digital business and providing curb-side pickup services to its customers.

The retail giant has also announced plans to lay off around 3,900 employees to remain afloat during the crisis.

During the earnings call, CEO Jeff Gennette said that nearly all the company’s stores have now reopened. Without providing details, the CEO mentioned that Macy’s stored had performed better than expected in June.

“We do not anticipate another full shutdown, but we are staying flexible and are prepared to address increases in cases on a regional level,” Gennette said.

Macy's refrained from providing a forecast for the year but projected 6%-7% growth in comparable store sales in the second quarter, versus the 35% slump in the first quarter.

How shares performed so far: Macy's shares fell 4.4% to $6.58 in regular trading on Wednesday following the release of quarterly results. The stock recovered slightly by 0.2% in after-hours trading. Although the retailer’s stock has staged a rebound in the past three months, it is still down nearly 60% year to date.

What to watch: There could be upside to Macy’s stock today, as investors get past the losses and focus on the initiatives announced and the path to recovery. Investors will look out for any news of a recovery in Macy’s performance, with the company increasing its online presence and reopening almost all stores.

The Markets Today

     

European stocks will be in focus today, as investors await economic reports scheduled for release later in the day.

Context: European stocks started the third quarter on a mixed note with positive news of a covid-19 vaccine trial in the US and some positive economic data from the region.

Details: After recording a 12.5% rise for the second quarter, the pan-European Stoxx 600 index closed higher by 0.24% on its first trading day of the third quarter.

German shares came under pressure at the start of the day due to technical issues at the Xetra platform, which operates the country’s Dax 30 index. Trading in the index resumed at around 11:30 am GMT.

Investors cheered news of progress on the covid-19 vaccine front. Pfizer, which is working with BioNTech to develop the vaccine, reported positive results from its human trial.

Investor sentiment was also supported by strong economic data from China, with a private survey indicating that the country’s manufacturing activity had risen better than expected in June.

Germany’s manufacturing index rose to 45.2 in June, versus a flash reading of 44.6. Although the country’s jobless numbers rose 69,000 in June, the figure is below the 237,000 reported in May.

The final eurozone manufacturing PMI jumped to 47.4 in June, versus May’s reading of 39.4.

The German Dax 30 index fell 0.4%, while the French CAC 40 closed down 0.2% on Wednesday.

What to watch: Investors await data on Eurozone’s unemployment rate and producer prices. The unemployment rate is expected to increase to 7.7% in May, from 7.3% in April. Industrial producer prices, which declined 2.0% in April, are projected to drop 0.5% in May.

Markets will continue to monitor the daily covid-19 numbers, with total cases surging to 10,667,210 globally, with a death toll of 515,640.

Other Markets: US indices trading closed mostly higher on Wednesday, with the S&P 500 and Nasdaq 100 up 0.50% and 0.95%, respectively. However, the Dow Jones index fell 0.3% in the previous session.

Support & Resistances
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Futures at 0400 (GMT)

What else to watch today

     

Switzerland’s inflation rate, Spain’s unemployment change and tourist arrivals, Italy's unemployment rate, UAE’s loan growth, Canada’s balance of trade and manufacturing PMI as well as the US non-farm payrolls, unemployment rate, balance of trade, initial jobless claims, ISM New York current business conditions index, factory orders, EIA’s natural gas stocks and Baker Hughes crude oil rigs.