Macy’s Earnings: Signs of Progress Despite Disappointing Near-Term Outlook; Shares Undervalued

After postponing its report due to the discovery of underreported expenses (see our Nov. 25 note), no-moat Macy's released full third-quarter sales and earnings that aligned with our expectations and the preliminary release. Providing confidence in its "Bold New Chapter" plan, the company reported positive comparable sales growth in its "First 50" stores and at its Bloomingdale's and Bluemercury subsidiaries. Although Macy's shares fell by a mid-single-digit percentage on Dec. 11 as its fourth-quarter profit guidance was disappointing due to a promotional holiday environment and weather issues, the effect on our valuation from this shortfall is immaterial. Thus, we do not expect to make any material change to our $25 per share fair value estimate, leaving shares as attractive.