Photo Credit: Tinou Bao

The fourth quarter earnings season has been, in a word, underwhelming. Beat rates are at a historical low for companies within the S&P 500, with only 54% able to beat on the bottom-line, and 41% on the top-line. As it usually does, the quarter will wrap up with the retail earnings parade. This week’s 5 Stocks to Watch highlights those retailers that have had the largest downward revisions heading into their reports this week.

Macy’s, Inc. (M) Consumer Discretionary – Multiline Retail  | Reports February 23, before the open.

The Estimize consensus calls for EPS of $2.07, with the Estimize Select consensus* even lower at $1.94. This is still above the Wall Street consensus of $1.86, but well below guidance for $2.21. Revenue expectations of $8.822 billion are less optimistic than the Street’s expectation of $8.843B. Compared to Q4 2014, this represents a projected YoY decrease of 20% and 6% for both EPS and sales. The Estimize community has been bearish on Macy’s profitability in the past three months, revising EPS estimates down 23%. That said, the company has consistently delivered positive earnings surprises, beating Wall Street’s EPS estimates 83% of the time.

What to Watch: Despite beating on the bottom line in the third quarter, Macy’s has missed both the Estimize and Wall Street consensus on the top line for 9 consecutive quarters. Failure to stimulate sales performance during the fiscal year led to share prices falling 46.7% in 2015. Comparable store sales have declined the past three quarters with Macy’s cutting its 2015 full year guidance several times from -2% to -3%. This past month, the company announced comparable store sales had fallen 4.7% during the last two months of the fourth quarter. Holiday sales have been crippled by unusually warm weather and competitive threats from the likes of J.C. Penny. Furthermore, international tourist sales have been hampered due to the stronger dollar . In an effort to weather the ongoing struggles, Macy’s plans on closing dozens of stores and eliminating 2000 jobs. The aggressive cost cutting initiative is expected to save the company more than $400 million by 2018. Macy’s has also embraced its off-price business, Macy’s Backstage, to stimulate growth as Nordstrom Rack has done for Nordstrom. That said, the company’s restructuring plan and new initiatives will take multiple years to scale to a level that is impactful to investors. In the meantime, activist investor Starboard Value has urged Macy’s to spin off its stores into assets to unlock the true value of its real estate. It is estimated that the Herald Square location in NYC is valued at $4 billion alone.