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Macy’s Q4 and Full-Year Earnings Satisfy Wall Street

Macy’s Inc., operator of Macy’s and Bloomingdale’s stores, announced fourth-quarter and full-year 2014 financial results Tuesday that met expectations on the bottom line but underwhelmed at the top. Earnings declined from last year, but beat expectations, while revenue fell short.

Sales in the 13 weeks ended Jan. 31, 2015 were $9.364 billion, up 1.8% from the fourth quarter of fiscal 2013. Comparable sales growth on an owned plus licensed basis for the fourth quarter was 2.5%. On an owned basis, fourth quarter comparable sales grew 2 percent. The average unit retail increased by 1.4%. Total transactions rose by 2.5%, while the average number of units per transactions fell by 1.3%.

The strongest categories were coats, active, dresses, handbags, younger Millennial apparel, shoes, cosmetics and mattresses. Weaker businesses included housewares and tabletop. The Southwest and Midwest were the strongest geographic regions, and the tourist business was off due to a stronger dollar.

Although the women’s sportswear has been in the doldrums of late, the more broadly-defined category of women’s apparel, which includes strong performers such as dresses and athleisure, has been decent, according to the company.

Gross margin fell by an expected 30 basis points to 40.3% in the fourth quarter due to an increase in delivery costs to support omnichannel. SG&A increased by $23 million to $2.3 billion, but fell as a percent of sales by 20 basis points to 24.8%.

Fourth quarter 2014 earnings fell by 2.2% to $793 million, or $2.26 per diluted share, from $811 million, or $2.44. This was in line with company and analyst expectations, and excludes charges of $87 million associated with previously announced merchandising and marketing restructuring, store and field adjustments, store closings and asset impairments.

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For the full fiscal year, sales totaled $28.105 billion, up 0.6% from total sales of $27.931 billion in fiscal 2013. Comparable sales growth on an owned plus licensed basis for the full year was 1.4%, failing to achieve the company’s target. On an owned basis, full-year 2014 comparable sales grew by 0.7%. Comparable sales growth on an owned plus licensed basis in the full-year 2014 was 1.4%.

Gross margin edged down negligibly to 40 percent. For the year, SG&A declined by $45 million to $8.4 billion.

Full year net income rose 2.6% to $1.53 billion, or $4.22 per diluted share, compared to $1.49 billion, or $3.86 per share, beating analyst expectations of $4.20. On a per-share basis, because of the reduced number of shares in the year from stock buybacks, earnings increased 9 percent. .

“Macy’s, Inc. reached a milestone in 2014 by achieving a 14 percent Adjusted EBITDA Rate, which positions us among best-in-class retailers,” chairman and CEO Terry J. Lundgren said in a statement. “Our success in progressively increasing sales with double-digit increases in profitability in recent years has been the result of disciplined execution of our M.O.M. [My Macy’s, Omnichannel, Magic Selling] strategies and continuous improvement in every aspect of our business, made possible by the exceptional talent we have at all levels of the organization.”

The company expects total sales to grow by about 1 percent in fiscal 2015. Comparable sales growth on an owned plus licensed basis, as well as on an owned basis, is projected at approximately 2 percent in fiscal 2015. Earnings of $4.70 to $4.80 per share are expected in 2015. Capital expenditures for 2015 are expected to be approximately $1.2 billion, an increase of $100 million from $1.07 billion in 2014, reflecting new investment in growth initiatives.

In fiscal 2015, the company expects to open a new Macy’s store in Ponce, Puerto Rico and a Bloomingdale’s in Honolulu, Hawaii. For fiscal 2016, a new Macy’s store has been announced for opening in Kapolei, Hawaii, along with a replacement Macy’s store in Los Angeles, California. Announced new stores for fiscal 2017 include new Macy’s and Bloomingdale’s in Miami, Florida, and a new Bloomingdale’s in San Jose, California. In addition, new Macy’s and Bloomingdale’s stores are slated to open in Abu Dhabi, United Arab Emirates, in 2018 under license agreements with Al Tayer Group.

On the company’s quarterly earnings conference call, CFO Karen Hoguet told analysts that the West Coast port slowdown has negatively impacted its inventories in apparel and accessories, and affected 12 percent of first-quarter merchandise receipts, which is reflected in the current earnings guidance. She also characterized 2015 as a “transition year” during which the company will begin to implement its next phase of growth, including expanded international and off-price initiatives.