Macy's Comparable Store Sales Slide Puts Plans in Doubt

Earnings for Macy's latest quarter came in well ahead of analyst predictions though early today investors beat up on the stock before changing their minds after some happy appraisals, and they may just have been onto something

Ostensibly, Macy's early day problems arose because it unleashed a 70 to 80 cents per share profit estimate on the year, which barely bumped up against analyst predictions of about 80 cents. Earnings per share in the most recent quarter certainly didn't disappoint. Macy's originally predicted it would do 15 to 17 cents per share in the quarter, and analysts came in at 15 or 17 cents, depending upon whose average estimate was referenced. The company actually posted 20 cents a share, excluding one-time charges. Citigroup analyst Deborah Weinswig asserted in a research note, "We were impressed by Macy's second quarter 2009 earnings per share of 20 cents per diluted share, which exceeded our estimate of 17 cents." Yet, she noticed the other thing, too. Comps came in worse than Macy's predicted, down nine-and-a-half percent versus the nine percent of the retailer's guidance. Comparable store sales declined nine percent in the first quarter.

The soft comps figure is interesting at least in the tracking sense. Macy's has a couple of challenges that concern observers and investors. First, it's carrying a fair about of debt from all the acquisitions it has made. Second, it has converted the overwhelming majority of its stores to the Macy's nameplate and standardized their practices, which is something that partisan fans of the local operators acquired have frowned upon, including those of Burdines and Marshall Field's.

To improve revenues and the sales to debt ratio, as well as address local tastes, Macy's developed and tested a new program, named My Macy's, designed to improve the performance of its stores by ensuring merchandise and how it's presented suit regional tastes. While it centralized purchasing, it moved people into the field to monitor preferences in small designated regions and report back to the buying staff, while at the same time, fixing store displays to local standards.

The company took the program from test to implementation earlier in the year, maintaining that comparable store sales where higher in locations under the My Macy's plan than elsewhere.

Trouble is, the impact hasn't shown up in the quarterly reports yet. To be fair, it's still very early in the program. The drop in share price may, however, indicate an understandable concern among some investors, who may want to see dollars and cents results from My Macy's before pouring in more of their money. The soft comp and the conservative estimate from Macy's management may suggest that My Macy's isn't making as much headway as the company hoped. Conversely, it could be Macy's management playing coy, covering itself in case of a blip in the economy, which it might reasonably do, but really hoping for a big share price surge if the company busts the 80 cents per share estimate.

For Macy's immediate future, the earning may get the bigger hearing, but the comps will tell. If Macy's doesn't deliver on its comparable store sales predictions -- the company is guiding for a lessening comp slide in the second half of the year -- it will fair to question the robustness of the My Macy's program.