By Suzanne Kapner and Aisha Al-Muslim
Macy's Inc. posted stronger-than-expected growth in a key sales
metric in the latest quarter as the retailer said it benefited from
more customers making purchases through digital channels.
Sales at stores open at least a year grew 0.6% for the period
ended May 4, above the FactSet estimate of a 0.6% decrease.
Including licensed departments, same-store sales rose 0.7%.
Overall, the Cincinnati-based company reported Wednesday that
net sales for the first quarter fell less than 1% to $5.5
billion.
"The consumer is still healthy," Macy's Chief Executive Jeff
Gennette said on a conference call. But he added that challenges
loom, including the U.S. trade war with China.
Mr. Gennette said the three tranches of tariffs enacted last
year had no meaningful impact on Macy's business. But the increase
last week to a 25% tariff on the third tranche of goods from 10%
will affect its furniture business. He added that the real concern
is whether the fourth tranche covering all Chinese imports goes
into effect.
In that event, it would be "hard to find a path where the
customer isn't impacted," Mr. Gennette said.
He said Macy's was working with suppliers to determine which
products could withstand a price increase and which couldn't. For
those that couldn't, discussions centered on who would absorb the
additional costs, Macy's or its vendors. For its private-label
brands that it sources directly, Macy's is working on moving
production out of China, Mr. Gennette said.
Macy's better-than-expected results bucked an overall trend in
which retail sales declined in April from a month earlier,
according to the Commerce Department. In a reversal of recent
trends, spending at department stores increased slightly, but
nonstore retailers, a category that includes e-commerce companies
such as Amazon.com Inc., posted a decline.
The company posted a profit of $136 million, or 44 cents a
share, down from $139 million, or 45 cents a share, a year earlier.
Excluding impairment and other costs, adjusted earnings were 44
cents a share, higher than the 33 cents a share that analysts
polled by FactSet were looking for.
Analysts were concerned about rising inventory levels, which
were up 2.4% on a comparable basis compared with a year ago. Mr.
Gennette said Macy's also had more goods in transit than it did a
year ago in case additional tariffs go into effect. The company
expects inventory levels to be down by year-end.
Like other retailers, Macy's is grappling with higher delivery
costs for online orders. One way it is looking to cover those costs
is by doing a better job of managing its markdowns, which eat into
profits. Rather than marking down goods by one of its six U.S.
regions as it currently does, it has been testing a program that
marks down goods locally, based on the inventory of a particular
store.
If a store in Boston has 10 pairs of khaki pants left, but a
store in Houston only has one pair, the Boston store will mark down
those goods, while the Houston store might not. The new pricing
strategy affects markdowns only, not the original price or pricing
during promotional sales.
Macy's is also exploring options for its flagship store on
Manhattan's 34th Street, including building an office tower atop
the building. Mr. Gennette said in an interview that the company
was in talks with city officials about the project, which wouldn't
include downsizing the store.
"We'll continue to operate the full store and then build on
top," he said.
In April, Macy's said it would bring its Story concept shop to
36 stores in 15 states. Macy's acquired Story in May 2018; at the
time, Story had one location in New York City that rotated its
merchandise and store layout every four-to-eight weeks.
Mr. Gennette said on the conference call that Story was
performing well and helping to draw new customers into its stores.
But perhaps more important, it was helping Macy's shrug off its
reputation as a fusty department store, he said.
"This is breaking that paradigm and opening us to new
partnerships," Mr. Gennette said, adding that the company has been
getting calls from potential partners who normally wouldn't have
reached out in the past.
Macy's also affirmed its sales and earnings guidance for the
current fiscal year. The company expects net sales to be roughly
flat from the last fiscal year, with comparable sales to be flat to
up 1%. Excluding settlement charges, impairment and other costs,
the company forecasts adjusted earnings per share of $3.05 to
$3.25.
Its shares were off 1.4% on Wednesday afternoon, trading at
$21.49.
In February, Macy's signaled 2019 would be a challenging year,
predicting sales wouldn't grow and announcing another round of cost
cuts. The company said it would streamline senior management as
part of a plan to save $100 million a year, resulting in the
elimination of 100 jobs.
The retailer operates about 680 department stores under the
Macy's and Bloomingdale's names, and nearly 190 specialty stores
that include Bloomingdale's The Outlet, Bluemercury, Macy's
Backstage and Story.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Aisha
Al-Muslim at aisha.al-muslim@wsj.com
(END) Dow Jones Newswires
May 15, 2019 15:21 ET (19:21 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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