Macy's Stock Slides After Delayed Earnings Disappoint Investors

Macy's, a leading American department store chain, has seen its stock price decline following the delayed release of its earnings report. The company's financial statements contained erroneous entries, which, although immaterial to the overall results, contributed to investor disappointment. This article explores the factors behind Macy's earnings miss and the potential impact on future sales.

Macy's earnings report, released on November 15, 2022, revealed a 2.4% year-over-year decline in net sales, driven by a 3.1% decrease in nameplate net sales and a 2.2% drop in total enterprise comps. The company's owned average unit retail (AUR) rose by 3.7%, but this was not enough to offset the decline in sales. The Trump trade, which refers to the market perception that Donald Trump may win the upcoming election, has been a significant factor in the decline.

The erroneous entries in Macy's financial statements totaled $151 million, which had an immaterial impact on the financial results over the cumulative period from the fourth quarter of 2021 to the fiscal quarter ended November 2, 2022. The largest quarterly delivery expense impact tended to occur in the fourth quarter due to elevated holiday volumes. Macy's has taken measures to address this issue, including revising its financial statements and providing revised historical financial information in its press release and 8-K filing.

Unseasonably mild temperatures during the third quarter negatively impacted Macy's sales, particularly for fall transitional and colder weather products. This factor accounted for roughly 1 point of comp sales decline. As temperatures normalize, we expect demand for these products to rebound, potentially driving future sales growth. However, continued monitoring of weather patterns and their impact on customer purchasing behavior will be crucial for Macy's to adapt its inventory and promotional strategies accordingly.

Macy's competitors have responded to similar earnings disappointments in various ways. In 2017, JCPenney reported a wider-than-expected loss, leading to a 15% drop in its stock price. However, the company's shares recovered within a month, driven by a turnaround plan and improved sales. In contrast, Sears Holdings, which faced multiple earnings misses, saw its stock price plummet by over 50% in 2017, reflecting investors' lack of confidence in its long-term prospects. Macy's stock price reaction appears more aligned with JCPenney's, suggesting investors may be willing to give the company time to execute its turnaround strategy. However, sustained underperformance could lead to a more significant decline, similar to Sears Holdings. Investors should monitor Macy's progress and compare it to its competitors' responses to earnings disappointments to make informed decisions.

In conclusion, Macy's earnings disappointment was primarily driven by erroneous entries in its financial statements and unseasonably mild temperatures. The company has taken steps to address the financial errors, and investors should monitor its progress and the impact of weather patterns on future sales. Macy's competitors have responded to similar earnings disappointments in different ways, and investors should consider these responses when evaluating Macy's prospects.