In a Nutshell: Macy’s is now “quicker and more agile and more prepared for the challenges in the current environment,” CEO Jeff Gennette told investors during a second quarter earnings call Tuesday, crediting the company’s adjusted Polaris plan. “Over the past two years, as consumer demand rapidly switched between categories and channels, and macro economic pressures intensified, our teams have taken disciplined actions and made tough decisions in order to ensure stability and health of our enterprise.”
The Bloomingdale’s and BlueMercury parent is better leveraging data analytics to rapidly adjust inventory flow, a big part of why it ended the quarter with inventory up just 7 percent instead of the bigger bloat burdening rivals.
Macy’s earned accolades for the quarterly results, with Fitch Ratings’ David Silverman saying the department store company “appears to be better positioned than other retailers.”
He went on to point out that the company’s full-year operating income is projected “well above” where it was in 2019. Plus, inventory discipline resulted in a “smaller increase than many of its peers,” he added.
Gennette said rebounded into July after slumping around Fathers’ Day. “Our teams were prepared to tackle this slowdown quickly through the inventory management competencies we gained through Polaris,” he added.
In addition to competing with other retailers slashing prices to get rid of oversupply, Macy’s is now getting receipts “sooner than we experienced in the first quarter” as supply chain congestion eases, Gennette said.
“We slowed receipts in market brands where we have more flexibility than our private brands,” he went on to say. “We effectively pulled the appropriate levers to manage inventory productivity, while flowing fresh inventory to meet our customer needs.” In a statement, Macy’s said it “cut receipts to manage inventory levels in line with consumer demand.”
Gennette said Macy’s will do what’s necessary to end the year with “appropriate inventory levels” while bringing in holiday and gift-giving goods. “More than 55 percent of our offerings during Holiday 2022 will be new, an increase of over 30 percentage points from Holiday 2019, and we believe this will position us well to meet customer expectations,” he said.
Macy’s understands what the sector’s up against. “We see risk in the continued deterioration of the consumers’ discretionary spending in some of our categories, and the industry-wide glut of pandemic-related category inventory,” Gennette said, adding, “our lower outlook accounts for the pressures we see in the back half [and] the excess inventory that remains in the industry.”
Backstage, its newer off-price concept, has been putting up strong numbers at locations inside Macy’s stores, with men’s, women’s and kids’ apparel, beauty and luggage performing well. Both Bloomingdale’s and Blue Mercury outperformed the prior-year period, a good sign for high-end spending. And by Oct. 15, customers will be able to browse a Toys “R” Us shop in shop inside every Macy’s location, if the company stays on schedule.
Chief financial officer Adrian Mitchell told investors that Macy’s is investing in fulfillment centers in select stores, a new North Carolina distribution center, and data analytics capabilities to accelerate intelligent decision-making.
Net Sales: For the second quarter ended July 30, net sales slipped 1 percent to $5.60 billion from $5.65 billion. Comparable sales for company-owned stores were down 1.5 percent and for company-owned plus licensed stores, comps were down 1.6 percent. Gennette said digital sales dipped 5 percent as consumers returned to shopping at the stores.
Career and tailored sportswear, shoes, dresses and luggage performed well while sales slowed in active, casual sportswear, sleepwear and soft home goods.
Gennette said Ralph Lauren is attracting significantly higher AURs after the apparel supplier “improved their quality.”
Earnings: Net income fell 20 percent to $275 million, or 99 cents a diluted share, from $345 million, or $1.08, in the year-ago quarter. Adjusted diluted earnings per share (EPS) was $1.00.
Wall Street was expecting adjusted EPS of 85 cents on revenue of $5.49 billion.
For the third quarter, Gennette said back-to-school sales so far are trending in line with revised guidance. There’s no sign yet that consumers are settling for cheaper products.
For the full year, Macy’s lowered its guidance. It now expects adjusted diluted EPS for the year at between $4.00 and $4.20 on a revenue estimate between $24.34 billion to $24.58 billion. That compares with its prior forecast when it posted first-quarter results in May of $4.53 to $4.95 on revenue estimates at between $24.46 billion to $24.70 billion.
CEO’s Take: “While there is uncertainty ahead, our financial health and operational efficiencies bolster our confidence that we can effectively manage these difficult short term pressures. At the same time, we feel confident that we can deliver on our long-term initiatives as part of our Polaris strategy,” Gennette said.