Department store retailer Macy’s (click ticker for report: ) reported stronger than anticipated second-quarter earnings Wednesday. Revenue grew 3% year-over-year to $6.1 billion, which was in-line with consensus estimates. Earnings per share grew 22% to $0.67, which was slightly better than what the Street expected. Year-over-year gross margins were flat at 41.9%. Still, the firm upped its full-year earnings guidance to $3.30-$3.35 per share from $3.25-$3.30 per share. Same-store sales guidance remained unchanged at 3.7%.
Same-store sales grew 3% during the second quarter, driven primarily by strong online sales growth, which was up 36.1%. Macy’s touched on this in its July sales report, and, in our opinion, the trend will continue. We think the firm’s excellent online business is taking share from its brick-and-mortar business, though that isn’t necessarily a negative. If customer satisfaction is high, we are fine with customers using Macy’s as a showroom for Macys.com—it’s certainly better than the business moving to Amazon (click ticker for report: ).
Although 3% same-store sales growth is not robust, we think the results are positive in an economy where overall US retail spending is relatively flat. Based on Kohl’s (click ticker for report: ) mediocre results and what we expect to be a weak quarter from JC Penney (click ticker for report: ), it appears that Macy’s is stealing share from its weaker competitors. If the US economy can accelerate, we think this market share take could become even more pronounced.
Ultimately, we’re fans of Macy’s, but think shares are fairly valued at this time. Scoring just a 3 on our Valuentum Buying Index (our stock-selection methodology), we do not think now is not a very attractive time to establish a position in our Best Ideas Portfolio. However, we think Macy’s will continue to steal business from its department store peers.