Friday, November 20, 2020

Investors Shop for Macy's Shares, After Q3 Print

Tags

News shaping
the markets today

     

What’s happening: Shares of Macy's Inc. moved higher on Thursday after the retailer reported better-than-expected results for the third quarter.

What happened: The pandemic has shaken the retail industry, with Macy’s being among the hardest hit names in the segment.

Although Macy's managed to surpass earnings and sales expectations for the latest quarter, the retailer continued to struggle to bring consumers back to its stores. The company also reported a decline in its comp sales, with the downturn being more severe than its closest rivals.

How were the results: The department store chain suffered a contraction in sales in the third quarter and swung to a loss.

  • Sales declined to $3.99 billion, from $5.17 billion in the same quarter last year. However, the figure still managed to beat the consensus estimate of $3.91 billion.
  • Net loss stood at $91 million, or 29 cents per share, versus a net income of $2 million, or a penny a share, in the year-ago quarter.
  • Adjusted loss came in at 19 cents per share, much better than the consensus view of an 83 cents per share loss.

Why it matters: Macy’s shares have tumbled this year, while the company was forced to cut thousands of jobs in the face of a massive contraction in sales due to store closures.

Even after reopening stores, the retailer has been unable to revive sales. This is because a major part of its sales comprises of clothing, which has been hit by people staying home and the sharp decline in tourism.

Some big-box retailers, including Target and Walmart, have triggered sales by offering facilities like curb-side pickups and focusing on online sales. These initiatives have not worked well for Macy’s, which reported a steep 21% decline in comp store sales in the latest quarter. In fact, the decline was significantly worse than its closest rivals, with Kohl’s Corp posting a 13% downturn and TJX Cos reporting a 5% contraction. These companies have been more successful in attracting customers back to their physical outlets. 

Although Macy’s reported growth in its digital sales, markets were concerned about the deceleration versus the previous quarter.

Management guided to full-year digital sales growth in the low- to mid-teens, while the overall ecommerce market in the US is projected to grow 32.4%. 

How shares responded: Macy's shares gained 2.2% to settle at $9.18 on Thursday following the release of quarterly results. The stock has tumbled 46% this year, performing significantly worse that the S&P 500 index, which has added more than 10% year to date.

What to watch: Investors fear that the rise in daily covid-19 cases in the US over the past two weeks may keep shoppers away from stores even during the busy holiday season. Markets will keep an eye on Macy’s home-goods vertical, hoping this lends some support to the retailer in the stay-home environment.

The Markets Today

     

European stocks will be in focus today ahead of the release of consumer confidence data from the region.

Context: European stocks closed lower on Thursday, as the rally driven by encouraging covid-19 vaccine news started to fade amid heightened fears of lockdowns to curb the resurgence in coronavirus cases.

Details: AstraZeneca joined Pfizer and Moderna on Thursday to make a positive announcement on its covid-19 vaccine candidate being developed by in collaboration with the University of Oxford. The trial results showed the vaccine to be safe and effective in triggering an immune response in older adults as well. However, the news failed to lift market sentiment, amid rising coronavirus cases.

Investor concern grew as New York announced plans to shut down schools due to an increase in covid-19 cases. Various other state authorities are also looking to reinforce measures including stay-at-home orders or curfews to contain the virus. Markets remain on tenterhooks about the continuous rise in infections resulting in another widespread lockdown.

Adding to investor concern came ECB (European Central Bank) President Christine Lagarde’s comments on Eurozone inflation likely remaining negative into early 2021, with shutdowns being reinforced in the region.

Earnings reports continued to move shares. Royal Mail’s shares gained more than 3% following a strong earnings report, while Thyssenkrupp’s stock lost 3% after the release of third-quarter results.

The pan-European Stoxx 600 fell 0.7% on Thursday, with almost all sectors closing in negative territory. Travel-related stocks were the biggest losers, declining around 1.7% in the session.

London’s FTSE 100 fell 0.8%, while German DAX 30 index lost 0.88% on Thursday. The French 40 also declined 0.67%.

What to watch: Investors await consumer confidence data from the Eurozone, which is expected to worsen to -17.7 in November, from -15.5 in October.

The rising covid-19 cases may also remain in focus, with total infections reaching almost 57 million globally.

Other Markets: US indices closed higher on Thursday, with the Dow Jones invest, S&P 500 and Nasdaq 100 up by 0.15%, 0.39% and 0.87%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s producer prices, Turkey's consumer confidence and government debt, UK’s retail sales, Italy’s industrial new orders and manufacturing sales, Canada’s new housing price index and retail sales, Russia's gross domestic product, unemployment rate and retail trade, Brazil’s Federal tax revenues as well as the US Baker Hughes crude oil rigs.