Why Macy's Stock Popped Today

What happened

Shares ofMacy’s(NYSE:M) were moving higher today after the department store chain posted strong results in its first-quarter earnings report. Macy’s delivered solid comparable sales growth and beat analyst estimates on all accounts. As of 11:32 a.m. EDT, the stock was up 9%.

The Macy's flagship in New York's Herald Square

Image source: Macy’s.

So what

With Macy’s kicking off the retail earnings season, investors didn’t know what to expect from the report, but the company showed further signs that its turnaround strategy was gaining traction. Comparable sales were up 3.9% on an owned basis and 4.2% on an owned-plus-licensed basis, marking its best quarterly growth in more than three years. That performance benefited in part from the shift in its annual “Friends & Family” sale to the first quarter. Adjusted for that, comparable sales on an owned-plus-licensed basis would have been up 1.7%

Overall revenue increased 3.6% to $5.54 billion, easily beating estimates at $5.39 billion. Meanwhile, gross margin improved 70 basis points to 39%, and selling, general, and administrative expenses fell 90 basis points as a percentage of revenue. As a result, adjusted earnings per share increased from $0.26 a year ago to $0.48, topping expectations at $0.35. Excluding the impact of asset sales, earnings per share would have increased from $0.12 to $0.42.

In a press release, CEO Jeff Gennette said, “We exceeded our expectations and saw strong performance across all three brandsMacy’s, Bloomingdale’s, and Bluemercuryas well as across all geographic regions and families of business.The winning formula for Macy’s, Inc. is a healthy brick & mortar business, robust e-commerce and a great mobile experience.”

Now what

To top off the strong quarter, Macy’s also raised guidance for the full year. The company now sees adjusted earnings per share of $3.75 to $3.95, up from $3.55 to $3.75, and hiked comparable sales guidance on an owned-plus-licensed basis up a percentage point to 1%-2%.

Macy’s initiatives like improved merchandising, having vendors ship online orders directly, and the expansion of platforms like Bluemercury and Backstage appear to be paying off. The results show that department stores can succeed even in an era in which Amazon is dominant.

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