The Zacks Analyst Blog Highlights: Macy's, Dillard's, Saks, Royal Caribbean Cruises and Carnival

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Feb 21, 2012, 09:30 ET

CHICAGO, Feb. 21, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Macy's, Inc. (NYSE: M), Dillard's Inc. (NYSE: DDS), Saks Incorporated (NYSE: SKS), Royal Caribbean Cruises Ltd. (NYSE: RCL) and Carnival Corporation's (NYSE: CCL).

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Here are highlights from Friday's Analyst Blog:

Earnings Preview: Macy's

Macy's, Inc. (NYSE: M), one of the leading department store retailers in the United States, is scheduled to report its fourth quarter and fiscal 2011 financial results before the market opens on Tuesday, February 21, 2012.

The current Zacks Consensus Estimate for the quarter is $1.65 per share, which reflects growth of 3.8% from the prior-year quarter's earnings. Estimates currently range between a low of $1.64 and a high of $1.67 per share. The Zacks Consensus Estimate for revenue is at $8,700 million for the fourth quarter.

The Zacks Consensus Estimate for fiscal 2011 is $2.82 per share. Furthermore, analysts polled by Zacks expect full year revenue to be $26,391 million.

Recap of Third-Quarter 2011

Macy's posted third-quarter 2011 results that outpaced Zacks' expectations on the back of healthy sales, improved operating margin and effective cost management. Consequently, the company raised its full year earnings outlook.

The quarterly earnings of 32 cents per share outperformed the Zacks Consensus Estimate of 16 cents, and increased fourfold from 8 cents earned in the prior-year quarter, buoyed by My Macy's localization initiatives, omnichannel integration and robust online sales.

The Cincinnati, Ohio-based company said that total sales grew 4.1% to $5,853 million in the quarter from $5,623 million in the prior-year period. However, total revenue fell short of the Zacks Consensus Estimate of $5,882 million.

Comparable-store sales for the quarter climbed 4%, which met the lower end of the guidance range of 4% to 4.5%.

Zacks Agreement & Magnitude

Of the 15 analysts following the stock, six revised upward in the last 30 days for the fourth quarter of 2011, which led to an increase of 3 cents in the Zacks Consensus Estimate. For fiscal 2011, eight analysts moved up their estimates, also resulting in a rise of 3 cents in the Zacks Consensus Estimate. None of the analysts have made a downward revision to their estimates.

What Drives Estimate Revisions

Clearly, a positive sentiment is palpable among analysts, who remain optimistic about Macy's performance. Zacks Consensus Estimates have been on the rise with the majority of analysts remaining bullish on the stock.

Macy's said that sales for the fourth quarter rose 5.5% to $8,723 million, whereas for fiscal 2011 it climbed 5.6% to $26,404 million. Comparable-store sales climbed 5.2% and 5.3% for the fourth quarter and fiscal 2011, respectively. Online sales, which include sales from macys.com and bloomingdales.com, continued to show growth momentum in the fourth quarter and fiscal 2011, soaring 40% and 39.6%, respectively.

The company went on to announce an increased earnings guidance, thereby further bolstering analysts' confidence in the stock, who tweaked their estimates to better align with management's projections.

Macy's now projects earnings in the range of $1.63 to $1.65 for the fourth quarter and between $2.81 and $2.83 for fiscal 2011. Management had earlier forecasted earnings between $1.55 and $1.60 for the fourth quarter and between $2.73 and $2.78 for the full year.

Positive Earnings Surprise History

With respect to earnings surprises, Macy's has topped the Zacks Consensus Estimate over the last four quarters in the range of 5.3% to 100%. The average remained at positive 47.3%.

To Conclude

The U.S. economy is still not out of the woods and the European debt-crisis continues to take its toll. Amid such an economic upheaval, Macy's has been moving on and keeping its upbeat note on the back of relentless endeavors to keep itself on a growth trajectory.

The company's sound fundamentals across its Macy's and Bloomingdale's business is mirrored through strong fourth quarter sales results. Management believes that it will sustain the tempo in 2012, as the year presents enormous opportunity to enhance market share.

In an attempt to increase sales, profitability and cash flows, the company has been taking steps such as integration of operations, consolidation of divisions, customer-centric localization initiatives, as well as developing e-commerce and online order fulfillment centers. Moreover, Macy's continues to focus on price optimization, inventory management and merchandise planning to drive traffic.

Macy's department stores sell a wide range of merchandise. Its products include men's, women's, and children's apparel and accessories, cosmetics, home furnishings and other consumer goods.

Macy's, which competes with Dillard's Inc. (NYSE: DDS) and Saks Incorporated (NYSE: SKS), currently operates approximately 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico.

Currently, we have a long-term 'Outperform' rating on the stock. Moreover, Macy's holds a Zacks #1 Rank, which translates into a short-term 'Strong Buy' rating and correlates with our long-term view.

Royal Caribbean Downgraded

We recently downgraded our rating on Miami-based Royal Caribbean Cruises Ltd. (NYSE: RCL) from Neutral to Underperform.

The second largest company in the cruise vacation industry was downgraded mainly based on a decline in bookings after the recent sinking of its peer Carnival Corporation's (NYSE: CCL) ship and the expected increase in the cost structure.

We are a bit doubtful about the cruising sector in the near term after Carnival's ship Costa Concordia ran aground in mid-January on Italy's west coast. The disaster hit the industry in the wake of the wave season between January and March. The recent tragedy resulted in subdued bookings. Royal Caribbean's overall booking volumes in North America came down. In Europe, where the incident took place, the cut in bookings has been steeper. Business in APMEA was also down slightly. The company expects a 20% decline in new bookings during the peak of wave season.

The company made some changes related to the international distribution system and shifted some deployment for strategic purposes. This will have a positive impact on yields, but a negative effect on costs. Moreover, investment related to ship revitalization, international expansion and technology investments will drive yield improvements going forward but put pressure on cost structure at the current level.

While Royal Caribbean's new ships continue to perform well, going forward we expect them to cannibalize existing fleet sales, resulting in pressure on pricing as well as net yields.

Agreement – Estimate Revisions

Based on the above fundamentals, four out of 6 analysts' estimates moved southward over the last 30 days for the upcoming quarter. For fiscal 2012, all 10 analysts slashed their estimates.

Magnitude – Consensus Estimate Trend

Over the last 30 days, we noticed a drastic decline in estimates, which fell 18 cents for the upcoming quarter and 93 cents for fiscal 2012. The current Zacks Consensus Estimate for the third quarter and fiscal 2012 are pegged at 16 cents and $2.08, respectively.

Royal Caribbean currently retains a Zacks #5 Rank, which translates into a short-term 'Strong Sell' rating.

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