The persistently high inflation has led consumers to prudently allocate their disposable income towards essentials. This pinches retailers like Macy’s (NYSE:M) and Best Buy (NYSE:BBY). Both companies witnessed a year-over-year decline in revenues as the weak macro environment led Americans to cut discretionary spending. Given a challenging macro backdrop, the upside in these stocks could remain limited.
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Let’s analyze what’s in store for these retailers.
Is Macy’s a Buy, Sell or Hold?
Macy’s delivered net sales of $8.3 billion in Q4, slightly ahead of the Street’s estimate of $8.23 billion. However, revenues declined by 4.6% compared to the prior-year quarter. Further, markdowns and promotions due to the competitive retail environment dragged its margins lower. Consequently, Macy’s reported an adjusted EPS of $1.88 compared to $2.45 in the prior-year period. However, adjusted EPS surpassed analysts’ expectations of $1.58.
Macy’s management took a cautious stance during the Q4 conference call. The company projected a low single-digit decline in its revenues for 2023. Macy’s expects consumer spending to be more challenged in 2023 compared to 2022.
Given the ongoing headwinds, analysts remain sidelined on Macy’s stock. It has received two Buys, six Holds, and one Sell recommendation for a Hold consensus rating. Analysts’ average price target of $23.88 implies 5.2% upside potential.
What’s the Prediction for Best Buy?
Consumer electronics retailer Best Buy marked a 9.3% decline in its comparable sales in Q4. Its total revenue of $14.74 billion compared unfavorably with the prior-year quarter’s revenue of $16.37 billion. The decline in sales and lower product margins weighed on its bottom line. Its adjusted EPS of $2.61 declined year-over-year but exceeded analysts’ estimate of $2.10.
Like Macy’s, Best Buy expects its sales to remain weak in Fiscal 2024. It expects its comparable sales to decline by 3%-6%. Moreover, it expects total revenue to be in the range of $43.8 billion to $45.2 billion, compared to $46.3 billion in Fiscal 2023.
Owing to the ongoing headwinds, Best Buy stock has received nine Holds and one Sell recommendation for a Hold consensus rating. Moreover, the average price target of $82.89 implies 2.6% upside potential.
Bottom Line
The lower consumer discretionary spending environment is likely to take a toll on the revenues of Macy’s and Best Buy. While these companies are focusing on improving efficiency to cushion margins, the upside in these stocks remains restricted, reflected by the analysts’ average price target.
