Analyst Note| David Swartz |
Despite a steep year-over-year decline in sales, no-moat Macy’s results for the third quarter of 2020 were slightly better than we had anticipated. The retailer reported a same-store sales decline of 21% on owned sales, 2 percentage points better than our negative 23% forecast. But Macy’s faces considerable uncertainty as it enters the critical final weeks of the holiday selling season due to the rising number of COVID-19 cases and the possibility of new restrictions on stores and malls. The firm did not provide specific guidance for the fourth quarter and does not intend to report holiday sales until it reports its year-end results. We do not expect to make any significant change to our per share fair value estimate of $16.30 and continue to view Macy’s as undervalued. While it has significant problems, we do not think Macy’s will fall into financial distress and believe it can return to profitability next year.