Macy's Mixed Bag Trumped by Buybacks: StockTwits

NEW YORK (TheStreet) -- Macy's  (M) first-quarter earnings report justified both the bulls' and bears' cases for the stock Wednesday morning, which explains why the stock waffled between green and red for much of the morning. But news of a share buyback helped push the stock solidly into the green by 10:30 a.m., during the earnings call.

By 11:45 a.m., Macy's stock was flirting with $58, up 0.2% after a choppy up-and-down morning.

The bulls pointed to the retail giant's earnings beat, margins and capital actions. Macy's reported earnings of 60 cents per share, topping consensus estimates by a penny, according to stats on the Analyst Ratings Network. It hit that number despite sales declining from the first quarter of 2013, due to slight margin expansion of 38.9%, compared to 38.8% in the same period a year ago. It also enjoyed a favorable tax rate.

Sales miss canceled out by better margin control as Macys; lower-than-usual tax rate helped $M beat by a penny

? Rahul Sharma (@retail_guru) May. 14 at 08:10 AM

Most bullishly for Macy's, management announced a 25% dividend increase and authorized a $1.5 billion share repurchase plan. In a statement, CEO Terry Lundgren said that management is sufficiently positive about the company's prospects to warrant the capital action.

"The fundamentals of our business and our ongoing strategies remain strong," said Lundgren in a statement. "This, combined with the momentum we have built over the past five years, leads us to feel confident about the company's prospects."

Not all investors were convinced.

Bears highlighted disappointing sales and tepid guidance. Macy's first-quarter revenues of $6.28 billion missed consensus expectations by about $180 million. They also fell 1.7% from the same period a year ago. Comparable store sales fell 1.6% from the first quarter of 2013.

Macy's management said winter weather impacted sales in the beginning of the first quarter. They saw the trend improving in April when warmer temperatures returned. "We see this as a good sign moving into the second quarter," said Lundgren. However, earnings guidance also fell short of expectations. Management guided to EPS of between $4.40 and $4.50 for fiscal 2014. The midpoint of that guidance fell below the expected EPS of $4.48.

That, however, didn't bother the bulls. They saw Macy's reaffirmation of previous guidance -- despite the sales miss -- as a sign that shopping activity had gotten much stronger once the weather improved. And the dividend increase and share buyback only underscored management's positive feelings about future sales.

Despite warts in Q (sales, inventory) Macys reiterates full year sales outlook & lifts dividend 25%. Feeling good about current trading $M

? Rahul Sharma (@retail_guru) May. 14 at 08:14 AM

@1nvestor Solid ongoing indicator - great at returning cash to shareholders - so divi raise + bb suggest confidence despite Q1 sales miss

? Rahul Sharma (@retail_guru) May. 14 at 08:19 AM

At the time of publication the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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