Why Macy's Stock Was Falling Today

Shares of Macy's (NYSE: M) were pulling back today after the department-store operator issued a weak sales result in its second quarter, even though profits were strong. As a result, the stock was down 12% as of 11:24 a.m. ET.

Macy's is still shrinking

The retailer reported a revenue decline of 3.8% to $4.9 billion, which was well below estimates at $5.12 billion. Comparable sales were down 3.3%, showing that the business is continuing to lose customers in what's been a challenging environment for discretionary retailers .

Comparable sales were down 4.5% at the Macy's brand on an owned basis. Bloomingdale's was down 1.1%, but BlueMercury, its beauty brand, rose 2%.

Image source: Getty Images.

The weak top-line result comes after Macy's turned down yet another buyout offer last month. The company still seems to be struggling to put together a long-term turnaround strategy.

However, Macy's did make improvements on the cost side, as gross margin increased 240 basis points to 40.5% due to lower discounting from a year ago. Selling, general, and administrative (SG&A) expenses fell by $7 million to $2 billion but were up 120 basis points on a percentage basis to 38.7%, due to the sales decline. Nonetheless, that was enough for generally accepted accounting principles ( GAAP ) operating income to double from $124 million to $222 million.

On the bottom line, adjusted earnings per share jumped from $0.26 to $0.53, ahead of the consensus estimate of $0.30. CEO Tony Spring called the results a "strong earnings performance in a challenging consumer environment."

What's next for Macy's

Investors also seemed disappointed by the guidance, as Macy's cut its full-year revenue forecast from $22.3 billion-$22.9 billion to $22.1-$22.4 billion. It also lowered comparable-sales guidance to between negative 2% and negative 0.5%, though it maintained its adjusted earnings-per-share guidance of $2.55-$2.90.

The stock is cheap based on that forecast at a price-to-earnings ratio of around 6, but it's unlikely to move higher until the business returns to sales growth.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .