Macy's Strong Third-Quarter Results Tempered by Soft Holiday Start; Shares Slightly Undervalued

Macy’s exceeded our third-quarter expectations as its Polaris plan progresses. However, the firm experienced a slowdown in sales at the end of October and the beginning of November, partly due to unseasonably warm weather, and its fourth-quarter guidance is below our forecast. Macy's expects $1.47-$1.67 in adjusted EPS on $8.16 billion-$8.4 billion in sales, suggesting a comparable sales decline of about 4%, versus our $1.81 EPS and $8.32 billion sales estimates. On a brighter note, outperforming many peers, quarter-end inventory was up only 4%. Still, significant markdowns are likely in apparel retail this holiday season as inflation slows consumer spending and industry inventories are elevated.