Macy's (M) reported third-quarter numbers on Wednesday, and although the bottom line beat estimates, shares of the retailer plunged over 8% on high volume. And I don't blame the market whatsoever for deciding to sell the company down.
Macy's said it lost, on an adjusted basis, 3 cents per share. The call was for a loss of 7 cents per share, according to Earnings.com. Okay, I guess we can say losing less money than expected is a good thing. However, looking at the sales numbers really makes me pause. Total sales declined 3.9%, and same-store sales contracted 3.6%.
Granted, cash flow improved over the last nine months, as did the Q3 gross margin, but we have to remember that shoppers are still in frugal mode, and that the holiday season is not guaranteed to be an overwhelming success. The economy is still hurting a lot of consumers, and Macy's simply isn't the brand most people think of when they think cheap.
However, is it possible that yesterday's sell-off might end up be a buying opportunity? Shares of Macy's have risen quite high this year, and they are well off the 52-week low. Investors clearly expect the stores to thrive at some point. And even though there are news reports stating that the outlook is what drove the stock down, I'm tempted to think it was mere profit-taking.
That doesn't mean I'm bullish on the company. Even though I feel money might be made with a Macy's trade, I also believe that you'd be taking on a lot of risk at this stage of the rally in the markets.
Macy's is engaging an interesting advertising holiday campaign (in my opinion, those festive TV spots are effective), but I am worried that the stock may be too high to comfortably buy. I'd want to see a better pullback before even considering the retailer. When it comes to this sector, I'm still more likely to go with a Wal-Mart (WMT) or a Target (TGT).
Disclosure: I don't own any company mentioned; positions can change without notice.
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