Macy’s Posts ‘Solid’ Quarter, Raises Earnings Guidance – WWD

Macy’s Inc. is among retail’s winning tier.

As retailers report quarterly results, a clear dividing line is developing between those that are clearly being impacted by inflation and supply chain problems and those still riding the pandemic-fueled shopping boom. Macy’s falls in the latter camp — as do all the global luxury groups and Nordstrom — while companies such as Walmart, Target, Kohl’s, Abercrombie & Fitch and American Eagle Outfitters are in the former.

Macy’s on Thursday saw its shares leap 19.4 percent as the company, seeing strong sales across all of its divisions, reported a net profit of $286 million, or $1.08 a diluted share in the first quarter, up from $103 million, or $0.39 a share in the year-ago period.

Adjusted net income came to $315 million compared to $126 million in the year-ago period.

The earnings exceeded Wall Street expectations, contributing to a $3.70 spike in Macy’s stock price to $22.92 at the close of trading Thursday.

For the quarter ended April 30, comparable sales rose 12.8 percent on an owned basis and 12.4. percent on an owned-plus-licensed basis.

“The second quarter is going well,” Jeff Gennette, Macy’s chairman and chief executive officer, told WWD. “We had a good Mother’s Day, a good one-day sale in a week two of May and our ‘Own Your Style’ platform has really helped us. We’re selling full outfits in men’s, women’s and kids, helping us build sales.” Macy’s introduced the Own Your Style branding tagline last March, to project more of a “fashion authority” image. In advance of the rebranding, Macy’s stepped up personalization efforts, revamped its website, formed a style crew for fashion tips and started creating in-store areas filled with apparel and accessories designated as “must haves.”

Asked if the first-quarter momentum can be sustained, Gennette suggested it would be. “The back-to-office, special occasion and travel businesses, and our focus on great gifting, is here to stay through the balance of the year. We are chasing business which is a great place to be for a retailer. The back-to-office trend came on faster than expected, and in terms of what it’s done for downtown, our Herald Square flagship is up over 30 percent. We’re also seeing that in our San Francisco Union Square, downtown Boston, Washington, DC, and downtown LA stores. A lot of that is based on the return to offices and some increase in tourism from Latin and Central America and Europe.”

Gennette observed that the second quarter, while trending up in wear-to-work, dresses and occasion fashion, will see a significant amount of clearance of categories that spiked during the pandemic, namely casual, active and soft home including textiles, housewares and tablet .

“Everybody has a lot of that supply right now. We’ve got a narrow window to liquidate that fashion and those commodities. There’s too much supply and not enough demand,” Gennette said. But he added that Macy’s has “good pricing muscle now” to facilitate the second-quarter liquidating, and greater ability to localize the pricing and offer deals on a more personalized basis.

While Macy’s raised its earnings, it affirmed its sales guidance. “First-quarter sales came in as expected, but there are so many economic headwinds that it’s prudent for us to take a more conservative stance on the sales side,” Gennette said, citing the volatile stock market, inflation, rising interest rates, declining Consumer confidence and the war in Ukraine, though consumers are generally still financially in good shape, particularly those in higher income brackets and shopping for upscale and luxury merchandise.

Macy’s is forecasting that sales will be flat to up 1 percent for the full year. “We are not moving off that until I see some change I didn’t expect,” Gennette said.

While this year the global supply chain loosened up somewhat, “the supply chain looks like it’s going to stiffen up again,” Gennette said.

The CEO, as he has done in the past, touted Macy’s ability to quickly pivot its buying and merchandising to meet changing consumer shopping behavior. “We’ve put a premium on getting more consumer data in real time than we can react to, and we have made our marketing messages personalized. We can be more discreet about values ​​we put out there at a customer level.”

Macy’s, he added, is more agile, having fewer layers of management than it had years ago. “Spans of control are better. We are just reacting faster.

“You can argue that when you look at pandemic categories, we were not well-penetrated or well-known, but with post-pandemic categories (dresses, occasion, wear-to-work and men’s tailored) we have a dominant share.”

Gennette told WWD that Macy’s Inc. has about 14 percent more active customers than a year ago, active meaning consumers who shop within a year. Macy’s also has less shopper attrition, he said. “Because of our breadth of categories, we can get that second, third, fourth purchase.”

While Macy’s digital growth slowed last quarter, “I am still very bullish on dramatic digital growth, I do think we will have robust digital growth — not in 2022 — but there will be again,” Gennette said. Charging up the digital side of the business will be personalized messaging, and launch of a marketplace which will happen in the third quarter this year. It will vastly expand Macy’s offering to categories such as pet supplies and electronics.

In other news, Macy’s is embarking on a sweeping overhaul of its private brand business, which accounts for just under 20 percent of the total business. The strategy, Gennette said, is in its early stages. “Frankly some of our private brands, some are super hot, some are tired. This will be a multiyear journey. We want to move the business to north of 20 percent.”

Macy’s strong first-quarter results reflect a return to shopping for occasions and increased traffic at stores, and mirrored those of Nordstrom Inc., a key competitor, which this week also reported strong first-quarter results.

“Our company delivered solid results in the first quarter despite a challenging operating environment,” Gennette said in his statement Thursday morning when Macy’s issued its quarter numbers. “We delivered strong earnings, beating our estimates, and sales that were in line with our expectations.”

By division, Macy’s comparable sales were up 10.7 percent on an owned basis and up 10.1 percent on an owned-plus-licensed basis. A shift in consumer shopping behavior to more occasion-based apparel triggered increased robust sales in dresses, women’s shoes, accessories and men’s tailored clothing.

Bloomingdale’s comparable sales on an owned basis were up 28.1 percent and on an owned-plus-licensed basis were up 26.9 percent. Results were driven by strong performances in luxury, dresses, men’s tailored, men’s and women’s contemporary apparel and luggage.

Bluemercury comparable sales were up 25.2 percent on an owned and owned-plus-licensed basis. There was a better-than-expected growth in private brands and increased demand for color in lip, face and eye categories.

Digital sales increased 2 percent year-over-year, while increasing 34 percent versus the first quarter of 2019. Digital penetration was 33 percent of net sales, a 4-percentage point decline from the first quarter of 2021, but a 9-percentage point improvement over the first quarter of 2019.

“While macroeconomic pressures on consumer spending increased during the quarter, our customers continued to shop,” Gennette added. “We saw a notable shift back to occasion-based apparel and in-store shopping, as well as continued strength in sales of luxury goods. Our omnichannel ecosystem, which spans the value spectrum, has supported our ability to flex our wide assortment of categories, products and brands to capture consumer demand despite the volatile environment. As we look ahead to the rest of 2022, we remain focused on our customers and the successful execution of our Polaris long-term growth strategy. We believe that the efficiencies we built into our business enable us to navigate through the current uncertain macro environment.”

The company reaffirmed its 2022 sales guidance and earnings guidance to $4.53 to $4.95 per adjusted diluted earnings per share, from previous guidance of $4.13 to $4.52. Macy’s said the raised guidance was due to first quarter 2022 share repurchases as well as improved expectations for credit card revenue.

Jeff Gennette.
Photo courtesy of Sunshine Sachs Morgan & Lylis

“We believe that our first-quarter performance reflects the durability of the Polaris strategy. The actions we took in the quarter to boost our liquidity and increase our financial flexibility provides us a long runway to further in our transformation, navigate the macroeconomic environment and return capital to shareholders,” said Adrian Mitchell, chief financial officer of Macy’s Inc. . “As we move into the rest of this year, we have confidence in our ability to flex and pivot quickly in this dynamic environment.”

In other results, the company said gross margin for the quarter was 39.6 percent, up from 38.6 percent in the first quarter of 2021.

Delivery expense as a percent of net sales decreased 50 basis points, due to decreased digital penetration. Net credit card revenue was $191 million, up $32 million.

FOR MORE ON MACY’S FROM WWD.COM, SEE:

How Macy’s Inc. Is Navigating the Unpredictable Retail Climate

Macy’s Inc. Soars in Q4, No Spinoff of Dot-com

At Macy’s Herald Square, Curtains Rise on Backstage

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