The nice beat for the quarter was driven by sales and SG&A discipline, while gross margin was in-line with expectations, noted the analyst.
The merchandise margin declined for the quarter, driven by increased promotions and markdowns as M worked through excess inventory and remained competitive during the holiday season.
Following a strong finish to FY22, M detailed better-than-expected guidance for FY23, the analyst specified. Reflecting gross margin expansion and SG&A deleverage, the FY23 operating margin is planned in the range of 10.3%-10.8% versus 10.8% last year.
At the end of the fourth quarter, inventory was down 2.6% year over year (and down 18% vs. 4Q19), as the company manages carefully through supply chain disruptions and macro volatility. M expects inventories to be down MSD YoY at the end of 1Q23, remarked the analyst.
Overall, the analyst believes that management deserves credit for operational discipline in a volatile macro environment.
While concerns over structural traffic headwinds in the on-mall department store channel remain, the analyst sees M as emerging on solid financial footing with the ability to compete for market share in its categories through elevated marketing and merchandising efforts.
Price Action: M shares are trading higher by 10.8% at $22.64 on the last check Thursday.
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