After navigating unprecedented challenges for the consumer economy, iconic department store Macy’s (NYSE:M) surged in Thursday trading. Not only did the company post a strong beat for the third quarter, but it also raised its earnings outlook for the full year, sending M stock up 11% before it extended gains in the afternoon hours. Fresh inventory and demand for luxury goods lifted sentiment, though the timing may become an issue.
Heading into the Q3 disclosure, analysts polled by FactSet targeted Macy’s to post earnings per share of 18 cents from revenue of $5.2 billion. Instead, the department store posted EPS of 52 cents on top-line sales of $5.23 billion. However, in the year-ago quarter, Macy’s saw EPS rise to $1.23 on $5.44 billion worth of sales.
Still, the overall sentiment for M stock struck an encouraging tone. According to Barron’s, the “department store chain now expects full-year adjusted earnings to be between $4.07 and $4.27 a share, up from previous expectations of between $4 and $4.20. Macy’s maintained its sales outlook of between $24.3 billion to $24.5 billion.”
Fundamentally, M stock benefitted from a strong showing in the luxury segment, including dressy clothing and women’s shoes. As well, Macy’s saw boosted inventory relative to its competitors, putting it in a prime position for the holidays.
“We know the consumer is under increasing pressure and has choices on where to spend. As a leading gifting destination with fresh inventory across the value spectrum, we are ready to meet our customers’ needs this holiday season,” CEO Jeff Gennette stated in the earnings report.
M Stock and the Timing Issue
Despite the myriad positives associated with the aforementioned earnings report, M stock uncomfortably distinguishes itself from the broader narrative. Specifically, while luxury demand saw a positive bump, this dynamic contrasts with consumer sentiment. Its benchmark index has been generally poor throughout the new normal.
In addition, some skepticism exists regarding M stock due to the underlying contradiction with other retailers. For instance, CNBC mentioned that big-box retailers Walmart (NYSE:WMT) and Target (NYSE:TGT) reported a noticeable pullback in discretionary sectors like apparel, electronics and home goods.
To be fair, Macy’s serves a more narrowly defined consumer segment while Walmart and Target — with their one-stop-shop approach — cater to a broader audience. However, investors should note that M stock may be benefitting from a timing issue.
During Q3, the Federal Reserve’s aggressive rate hikes conspicuously arrested the decline in purchasing power. In the first half of this year, the currency eroded by 5.34%. From July through October, the greenback gave up only 0.6% of purchasing power. Relatively speaking, then, consumers received a discount of sorts.
At the same time, layoffs — particularly in the tech sector — only recently accelerated to a massive degree among the big players. Therefore, consumers enjoyed a “sweet spot” of (relatively) lower prices and job market stability.
However, with companies like Amazon (NASDAQ:AMZN) potentially announcing pink slips for white-collar corporate jobs, M stock faces a deceptively challenging environment ahead. Therefore, investors should still maintain a cautious, prudent approach.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.