Macy's, Inc. (NYSE:M) earnings are likely to face pressure from consumers shifting to online pureplay channels, analysts at UBS believe.
That could lead the US retailer to disappoint when it comes to its earnings in 2023 and longer-term, according to the analysts.
With US consumer spending expected to decline, Macy’s could feel the hit more than its peers.
“Over the long-term, we think the Street underestimates the pressure on Macy’s earnings from share loss as consumers migrate to online pureplay channels, retailers with better value-for-money propositions such as TJX, and brands' own stores and websites,” analysts wrote.
The UBS Evidence Lab's sixth annual US Off-Price and Department Store Retailers Consumer Survey highlights several key insights. Firstly, Macy's shoppers' near-term purchase intentions have consistently been lower than the survey average for six consecutive years. The gap between Macy's shoppers and the survey average has widened significantly, indicating weak demand for the company's products. Additionally, Macy's has been losing customers as the percentage of those who stopped shopping at the retailer is higher than those who started shopping there.
One of the primary reasons cited for consumers not shopping at Macy's is high prices, a factor that drives customers towards Off-Price retailers instead. The data reveals that consumers are highly price-sensitive, and they also find inconvenient store locations as a deterrent.
Macy's small store initiative aims to address this concern, but its effectiveness remains uncertain.
According to UBS, Macy’s estimated diluted earnings per share (EPS) for the first quarter of the fiscal year 2024 is projected to be $0.56; however, for the second quarter of 2024, the estimated EPS is $0.11.
Looking at the overall annual picture, the estimated diluted EPS for the fiscal year 2024 is projected to be $2.36, with the actual earnings expected to reach $2.94. For the subsequent fiscal year 2025, the estimated EPS is predicted to be $2.30, and the actual earnings are anticipated to rise slightly to $3.08. The trend continues into fiscal year 2026, with an estimated EPS of $2.30 and an expected increase to $3.18 for the actual earnings.
UBS has a Sell rating and a $12 price target on Macy’s stock, which was trading around $16.34 on Wednesday.