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Macy’s Calls in Saks Split-Up Guru

Macy’s Inc. has hired the financial engineering wizard behind Saks’ closely watched store-digital decoupling, multiple sources confirmed to Sourcing Journal, a sign that the retailer is serious about responding to activist investors’ calls to review the fast-growing e-commerce business.

In a Nutshell: Jeff Gennette, CEO of the retail giant that owns the Macy’s brand in addition to Bloomingdale’s and BlueMercury, told Wall Street analysts that the company routinely reviews “the structure in our business and our strategy.”

“We’re open to all options that are likely to create long term shareholder value,” he told analysts on a conference call Thursday.

Macy’s had already analyzed e-commerce and brick-and-mortar to see “how each contribute to the value of the company, as well as how each benefits from being integrated and working together,” Gennette said. A new curated digital marketplace in partnership with Mirakl, set to launch in the second half next year, would augment Macy’s and Bloomingdale’s assortment and help the company reach more customers.

Matt Baer, chief digital and customer officer at Macy’s, Inc., described the Mirakl news as “an exciting next chapter in our digital evolution.”

“The marketplace platform will further accelerate our Polaris strategy and unlock new opportunities for sustainable and profitable growth,” he said in a statement. “Our digital business is targeted to generate $10 billion in sales by 2023, and we expect the new marketplace platform to produce incremental revenue on top of that target.”

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He added that the “marketplace platform will enable us to expand our assortment at a low incremental cost, while giving Macy’s customers easy access to even more product selection to meet their diverse needs.”

On the topic of a Saks-inspired click-and-brick split, Gennette would only say that the retailer is further investigating how such a move could unlock value for Macy’s and has retained a retail expert at consulting firm AlixPartners, the brains behind the luxury rival’s split-up, to do so.

Of course, Saks’ success is no guarantee that separating stores from online would make sense at Macy’s much larger operation. Digital is playing a bigger for the retailer as its prioritizes off-mall location, Gennette said. “The interplay between our digital and physical assets is more important than ever,” he added.

“Our 2021 results demonstrate the progress we’ve made with our Polaris strategy operating in a better economic environment, as well as the strength of our digitally led omni-channel model. We’re poised for sustainable and profitable growth. and we’ll continue to build and invest in our retail ecosystem to maximize and accelerate our opportunities,” Gennette said.

Macy’s improved its gross margin rate to 41.0 percent, up from 35.6 percent a year ago, and up 100 basis points over 2019. The company credited pricing, promotion and inventory productivity for lifting margins.

Others in the industry have also resorted to raising prices to defray higher shipping costs, though Target has abstained from increasing prices and saw third-quarter margins decline accordingly.

Net Sales: For the three months ended Oct. 30, net sales jumped 36 percent to $5.44 billion from $3.99 billion. Comparable sales were up 35.6 percent on an owned-plus-licensed basis from 2020, and up 8.7 percent over 2019. Quarterly revenue included $213 million from credit cards, representing 3.9 percent of sales. Digital sales rose 19 percent from last year.

By banner, Macy’s comparable sales were up 35.1 percent on an owned-plus-licensed basis versus last year, and rose 8.4 percent when compared with the third quarter of 2019. The company said 4.4 million new customers shopped the Macy’s brand, representing a 28 percent increase from the same pre-pandemic 2019 period. Forty-one percent of the new customers came from the digital channel in the third quarter. Top categories were home, fragrances, jewelry, watches and sleepwear. Occasion-based categories, such as dresses, men’s tailored and luggage, continued to recover. Emerging categories, such as toys and pets, showed encouraging results.

Bloomingdale’s comp sales climbed 38.5 percent on an owned-plus-licensed basis from a year ago, and 11.2 percent over 2019. Luxury handbags, fine jewelry, home, men’s shoes and contemporary apparel performed well in the quarter.

For the Bluemercury beauty business, comparable sales rose 39.5 percent on an owned-plus-licensed basis from a year ago.

Inventory rose 19.4 percent from the third quarter of 2020, but dropped 15.4 percent versus 2019.

For the nine months, net sales jumped 49 percent to $15.79 billion from $10. 57 billion.

Earnings: Net income for the third quarter was $239 million, or 76 cents a diluted share, against a net loss of $91 million, or 29 cents, in the year-ago period. Adjusted diluted earnings per share (EPS) totaled $1.23, beating Wall Street’s estimate of 31 cents on revenue of $5.2 billion.

For the fourth quarter, Macy’s expects comparable sales on an owned-plus licensed basis up 2 percent to 4 percent over 2019.

For full-year 2021, the company guided net sales to a range of $24.12 billion and $24.28 billion from $23.55 billion to $23.95 billion. Macy’s also guided adjusted diluted EPS to between $4.57 to $4.76, up from prior estimates of $3.41 to $3.75.

For the nine months, net income reached $687 million, or $2.17 a diluted share, against a net loss of $4.10 billion, or $13.20, a year ago.

CEO’s Take: “Looking ahead to the fourth quarter, we remain a special place for holiday shopping, and our robust omnichannel ecosystem is showing resilience in the face of labor and supply chain challenges and enables us to meet customer shopping needs with speed and convenience,” Gennette said.