Macy’s: do not bet on revenge spending boost to last

Who is afraid of inflation? Not the average buyers of America.

Retailers who cater to this customer base are going through a good profit season. Macy’s, Nordstrom and Ralph Lauren are among those who have faced the slowdown in consumer spending to report better-than-expected results this week.

On Thursday, Macy’s Raised the full-year earnings forecast After more than doubling its net profit during the first fiscal quarter. The American department store operator, who also owns Bloomingdale’s, said formal attire is returning to demand. Buyers were “spending revenge” in response to the plague’s misery. This allowed Macy’s to sell more products at full price.

Macy’s ability to deliver higher prices is reflected in its gross profitability. These rose by 100 basis points to 39.6% during the quarter. It was a similar story for Nordstrom, Ralph Lauren and Canada Goose.

This is in contrast to Walmart and Target. The two retailers, which have lower price points, were among the biggest winners during the epidemic. Both cut their forecast last week, prompting a sale in consumer stocks. The duo, having struggled to get enough merchandise on the shelf, are now faced with excess inventory.

Macy’s reported a 17 percent increase in inventory. Sanguine investors offered to raise the stock. But maybe they are ahead of themselves. The company has ongoing challenges. She remains overly dependent on clothing for the bulk of her sales. Macy’s is not LVMH or Gucci. Its stores remain a mediocre offer in the market. This is a place that is hard to be in, especially when many stores are located in malls. Consumers, even those with a lot of savings, will not buy new suits every quarter.

The stocks are trading at only four times future earnings, reflecting poor earnings growth prospects. This made Macy’s a target for activists. Jana Partners pushed the company to turn its e-commerce business around last year.

Macy’s stock jumped 17% this morning. This was an overreaction to a 9 percent upgrade to the earnings per share forecast. The volatile market rewards some surprising candidates, even when it takes an ax for mega covers.

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