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CEO Explains How Macy’s Plans to ‘Take Market Share’

Macy’s Inc. has a long-term view to reverse declines of 2022 and 2023 into gains in 2024.

“Our five vectors for growth will reach a rate of maturation that can start to give us growth, help us take market share and surmount macroeconomic factors,” chairman and chief executive officer Jeff Gennette told WWD, referring to Macy’s private brands “reimagination,” off-mall and online marketplace expansion, a luxury acceleration and personalization initiatives in offerings and communications with customers.

Interviewed Thursday, just after Macy’s Inc. reported top- and bottom-line declines for the fourth-quarter and projected declines for 2023, Gennette told WWD: “The luxury consumer is healthy. Luxury is a growing pie and we can get a greater share of the luxury pie.”

The play for greater luxury business is happening at Bloomingdale’s, in all categories where luxury is sold at the store, as well as at Bluemercury and within Macy’s fragrance floors.

Gennette disclosed to WWD that for the upcoming Macy’s Herald Square Flower Show, launching late March, Dior will take more than 10,000 square feet on the mezzanine level for “an immersive” fragrance experience being designed by Dior and called “Made With Love.” “Dior is such a hot brand,” Gennette said, and important for Macy’s Inc.’s luxury plans.

Macy’s Inc. was able to navigate through a “volatile” 2022, reporting fourth-quarter top- and bottom-line declines compared to last year, though the figures beat Wall Street estimates, sparking an 11 percent spike in the stock price to $22.68 by midday. In addition, Macy’s most recent top- and bottom-line figures compared more favorably to the 2019 pre-pandemic period. 

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Net income in the quarter dropped to $508 million, or $1.83 a diluted share, from $742 million, or $2.44 a share in the 2021 quarter. Diluted earnings per share were $1.09 in the fourth quarter of 2019.

Net sales were down 4.6 percent to $8.3 billion versus $8.67 billion in the fourth quarter of 2021, and were down 0.9 percent from the fourth quarter of 2019. Comparable sales were down 2.7 percent compared to last year’s quarter, but up 3.3 percent compared to the fourth quarter of 2019.

It should be noted that Walmart and Target, which unlike Macy’s sell groceries and lower-priced merchandise and groceries, reported sales gains for the fourth quarter, as consumers shift some dollars more to non-discretionary items.

Gennette said during the last holiday season consumers pulled back on self-purchasing but there were spikes in the business during key days, such as Black Friday and Cyber Monday, as well as during the week before Christmas.

Macy’s forecasts that in 2023, net sales will be down 1 to 3 percent from 2022, to $23.7 billion to $24.2 billion, but are expected to turn positive in 2024, as Gennette said. Easier comparisons to 2023 should help paint a brighter picture in 2024.

Earnings per share this year are seen at $3.67 to $4.11.

Part of Gennette’s upbeat outlook stems from what’s been a cultural shift in Macy’s buying to a “net cost model” that began three years ago. It involves purchasing merchandise upfront at lower costs and reducing markdown allowances. “The buying is more conservative and there’s built-in liquidity to respond quicker” to trends, categories and brands that consumers are shopping. “We can respond to what’s trending within a week,” Gennette said.

“It was an adjustment and I’m not saying it hasn’t happened without some pain. But we have deep relationships with vendors. We want to build [our business] along with them. Markdown allowances have been dramatically reduced as we get reductions on the upfront costs. There are still some end-of-season reconciliations.”

On the brick-and-mortar front, Gennette said five more department store closings are planned for this year. Macy’s previously disclosed a plan to close 125 department stores, of which 80 already closed. Timing on the remaining 40 locations, which Gennette said were all cash positive, is to be determined and to a large extent will be based on where additional offmall formats — Bloomie’s and Market by Macy’s specialty stores — can fill in.

“The department store portfolio is in pretty good shape,” Gennette said, while adding, “We have big ambitions to have an off-mall fleet.”

Brick-and-mortar sales decreased 2 percent last quarter versus the fourth quarter of 2021, and were down 11 percent versus the fourth quarter of 2019. The comparison to 2019 is impacted by store closures, including the 80 Macy’s full-line stores. 

Digital sales decreased 9 percent versus the fourth quarter of 2021, but were up 24 percent versus the fourth quarter of 2019.

By division, Macy’s comparable sales were down 3.3 percent from the prior year, reflecting macroeconomic pressures on consumers in conjunction with a lack of government stimulus benefits and a heightened competitive retail environment driven by industrywide inventory surpluses, the company indicated. Sales were strong in gifting and occasion-based categories, including beauty, men’s tailored apparel, dresses and shoes, while sales in active, casual and soft home declined versus the prior year.

Bloomingdale’s comparable sales were up 0.6 percent. Beauty, women’s and men’s apparel in both contemporary and dressy performed well, partially offset by weakness in handbags and textiles.

Bluemercury comparable sales were up 7.2 percent. Results were driven by strength in skin care and makeup, strategic partnerships, and its new initiative The Cache, an incubator platform that curates emerging, cutting-edge brands.

Gross margin for the quarter was 34.1 percent, down from 36.5 percent in the fourth quarter of 2021 largely due to planned markdowns and promotions, which were higher relative to 2021 when inventory constraints in the industry led to low promotional levels and robust full-price sell-throughs. 

“We successfully navigated 2022 from a position of financial and operational strength. Despite an increasingly volatile macroeconomic climate, through the ongoing execution of our Polaris strategy, we remained agile, pivoted to meet customer demand and elevated our approach to inventory management,” Gennette said in his prepared statement.

“In the fourth quarter, we benefited from our disciplined inventory approach and compelling gift-giving strategy, which allowed us to provide fresh fashion and style at great values for all our customers. We were competitive but measured in our promotions, took strategic markdowns and intentionally did not chase unprofitable sales. As we look to 2023 and beyond, we believe our five growth vectors, which include our private brands reimagination, off-mall expansion, online marketplace, luxury brands acceleration and personalized offers and communication will further solidify our modern department store positioning.”

Added Adrian Mitchell, chief financial officer, “We have built a solid foundation for long-term, profitable growth through enterprise-wide investments in our supply chain, data and analytics, pricing science, digital and technology which have enabled our operations and talented teams to become more efficient and flexible. Looking ahead, we will continue to take a balanced approach to expense management and capital allocation. With an ongoing focus on maintaining our financial health and strong balance sheet, we will make disciplined investments to drive growth while returning capital to shareholders.”

“Macy’s [fourth quarter], which was stronger than many mall-based peers, was supported by good execution and inventory control,” said David Silverman, senior director at Fitch Ratings. “Relatively low inventory levels allowed Macy’s to limit unplanned promotions despite some top-line softening. Macy’s inventory position also gave it capacity to lean into popular styles and categories in-season, maximizing trend-informed sales opportunities. Macy’s, like its apparel and home peers, does expect a softer selling environment to continue through 2023, but efforts to constrain inventory and discretionary expenses should help it navigate through a choppy environment.”

A more critical view came from Neil Saunder, managing director of GlobalData, who commented, “Although Macy’s results are far from a disaster, they highlighted the growing pressure on the business as the consumer economy comes off its spending high.”

Saunder added that the sales and net income declines reflect lower productivity and higher costs, which “act as a drag on the bottom line and in some ways to be expected as Macy’s traded well (in 2021) so has some tough benchmarks to best. While Macy’s remains a relatively stable business on a solid financial footing, the main concern is that after a pandemic-induced hurrah, it is now reverting to its previous form of bumping along the bottom.”

For all of 2022, Macy’s Inc.’s net sales of $24.4 billion were down 0.1 percent versus 2021 and down 0.5 percent versus 2019. Digital sales decreased 6 percent versus 2021, and rose 31 percent versus 2019.

Brick and mortar sales increased 3 percent versus 2021 and were down 11 percent versus 2019.

Comparable sales were up 0.6 percent versus 2021, and up 3.7 percent versus 2019.