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Macy’s shares soar on earnings beat, strong sales growth

Macy’s shares soar on earnings beat, strong sales growth

Coming out of a strong holiday season, Macy’s reaped the benefits of healthy consumer spending.

The department store has kept its clearance racks in check and has less stale inventory on the floor. The result: Macy’s managed to outpace analysts’ first-quarter earnings and sales expectations and raised its full-year outlook.

Its shares soared more than 13 percent in premarket trading Wednesday on the news. The stock was last up about 7 percent.

Here’s what Macy’s reported compared with what analysts were expecting, based on a survey by Thomson Reuters:

  • Earnings per share: 48 cents, adjusted, vs. 37 cents expected
  • Revenue: $5.5 billion vs. $5.4 billion expected
  • Same-store sales: an increased of 4.2 percent vs. an increase of 1.4 percent expected

The company said all three of its divisions — Macy’s, Bloomingdale’s and Bluemercury — exceeded expectations during the first quarter of fiscal 2018.

The company also saw a boost from international tourism but said it would be ending its joint venture with Fung Retailing Limited in China. Instead, Macy’s will remain on Alibaba‘s TMall platform and focus its efforts there.

Net income climbed to $139 million, or 45 cents per share, in the period ended May 5, from $78 million, or 26 cents a share, a year ago.

Excluding one-time items, Macy’s earned 48 cents a share, 11 cents better than what analysts had expected.

Revenues rose roughly 3.6 percent to $5.5 billion, again surpassing analysts’ expectations. Same-store sales on an owned plus licensed basis were up 4.2 percent, nearly 3 percentage points higher than the Street’s forecast.

Macy’s now expects full-year earnings per share to fall within a range of $3.75 to $3.95, 20 cents higher than a prior forecast. Analysts were calling for earnings of $3.61 a share, according to a Thomson Reuters survey.

Total sales in 2018 are predicted by Macy’s to climb as much as half a percent. Same-store sales on an owned plus licensed basis could rise as much as 2 percent, Macy’s said on Wednesday.

Just last week, Morgan Stanley downgraded Macy’s shares, citing declining sales and profit “pressure” from online players for the ratings change. Just a few days prior, Deutsche Bank put out a new note saying there’s “limited upside” for investors in the department store space.

But the results from Macy’s on Wednesday paint a better picture, and the company is expecting the momentum to continue into the latter half of the year. Macy’s said its online sales increased by a double-digit percentage during the first quarter.

Still, many retailers, including Macy’s, face the threat of Amazon becoming the No. 1 apparel retailer in the U.S. by the end of 2018.

To combat rivals, the department store chain has been focused on rolling out new concepts in stores, like pop-up shops, and expanding its off-price business, Macy’s Backstage. It just recently announced its acquisition of Story, a New York-based concept shop, and will be bringing on Story’s founder, Rachel Shechtman, as “brand experience officer” to steer the company’s creative strategy.

Just last week, Macy’s opened up its loyalty program to all customers, which used to be limited to the chain’s credit card holders. It allows shoppers to rack up points on purchases that can them be redeemed at Macy’s stores or online.

“Our best customer is responding well to the improvements we’ve made to her experience in our stores, on .com and through the Macy’s app,” CEO Jeff Gennette said Wednesday in a statement.

As of Tuesday’s market close, Macy’s shares are up about 18 percent so far this year.

— CNBC’s Courtney Reagan contributed to this reporting.

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