Macy's: Holiday Sales Disappoint, but Turnaround Plan Continues; Shares Undervalued

About a month after its third-quarter report, Macy’s reduced its outlook for fourth-quarter sales due to weak holiday results at its lowest-performing stores, many of which are set to be closed. With comparable sales roughly flat in the fourth quarter so far, the company is likely to miss our 1.4% same-store sales growth estimate for the full period ending January. More positively, Macy’s continues to post positive comparable sales trends at its “First 50” stores and at its Bloomingdale’s and Bluemercury subsidiaries. More consistency in terms of profitable growth in these segments is core to the company's Bold New Chapter strategy. Macy’s maintained its fourth-quarter adjusted earnings per share guidance of $1.40-$1.65, so we anticipate only a small reduction in our $1.53 forecast and do not expect to make any material change to our $25 fair value estimate.