On Wednesday, Citi reaffirmed its Neutral rating on Macy's (NYSE:M) shares, maintaining the $22.00 price target. The decision comes after assessing the potential impact of the Consumer Financial Protection Bureau's (CFPB) proposed cap on late fees on the retailer's credit income.
Macy's had previously reported its fourth-quarter earnings before the CFPB's late fee proposal was announced on March 5. At that time, management's guidance did not consider the effects of the late fee cap. However, with more details now available on the proposal's implications, Citi has adjusted its estimates for Macy's, anticipating a decrease in credit revenues.
The analysis was partly based on comments from Kohl's (NYSE:KSS), which indicated that its credit revenue could drop by approximately 30% for fiscal 2023 due to the CFPB's late fee limitations. Applying a similar impact to Macy's could result in an estimated $180 million annual reduction, which is about 30% of its reported $619 million credit income for fiscal 2023.
If the late fee cap is implemented at the beginning of the third quarter of 2024, Macy's could see a roughly $90 million reduction in credit income in the second half of fiscal 2024. This is projected to decrease earnings per share (EPS) by $0.25, compared to the guidance of $2.45 to $2.85, and could lead to a further $0.25 reduction in fiscal 2025.
Citi has consequently lowered its earnings estimates for Macy's from $2.64/$2.15 to $2.39/$1.94 for fiscal 2024 and 2025, respectively. These revised figures account for a reduction in credit income estimates. The price target remains unchanged as Citi expects Macy's to cut capital expenditures in fiscal 2024 and beyond to preserve cash and mitigate the pressure on income.
InvestingPro Insights
As the retail sector braces for potential impacts from regulatory changes, Kohl's (NYSE:KSS) provides a glimpse into the financial health and future prospects of department store chains. With a market capitalization of $2.87 billion, Kohl's stands as a significant player whose strategies and performance offer insights relevant to peers like Macy's.
One of the key InvestingPro Tips highlights Kohl's high shareholder yield, which is a testament to its commitment to returning value to its investors. This is particularly noteworthy as the company has maintained dividend payments for 14 consecutive years, showcasing a reliable income stream for shareholders. The current dividend yield stands at an attractive 7.89%, reflecting the company's substantial dividend payouts relative to its share price.
Despite a challenging retail environment, analysts expect net income to grow this year for Kohl's. This projected profitability contrasts with the negative price-to-earnings (P/E) ratios seen over the last twelve months, with the most recent adjusted P/E ratio at -23.08. This suggests that investors are anticipating a turnaround in earnings, which could influence the company's valuation and stock performance moving forward.
However, it's important to note that analysts also anticipate a sales decline in the current year, with revenue growth down by 5.59% over the last twelve months. This aligns with the broader concerns in the retail sector, including those affecting Macy's, as companies navigate shifting consumer behaviors and regulatory changes.
To gain deeper insights into Kohl's financial metrics and strategic outlook, including additional InvestingPro Tips such as stock price volatility and EBIT valuation multiples, interested readers can explore more at Investing.com. Plus, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a total of 9 InvestingPro Tips that could inform investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.