Earnings

Macy's Manages An Earnings Beat — But Performance Is Still Lackluster

Though there is plenty to be concerned about in Macy's latest round of earnings, the report was not entirely absent good news. Earnings did manage to eek out a beat on analysts’ expectations — but top line performance fell short yet again as Macy's continued to struggle to attract foot traffic to its stores, even during the holiday season.

By the numbers, Macy's posted earnings of $2.02 per share, adjusted, which surpassed the $1.96 per share, adjusted, expected by Thomson Reuters analysts. Revenue clocked in at $8.52 billion — a miss on the $8.62 billion estimated by Reuters. Same store sales were down 3.5 percent (excluding licensed departments) — a somewhat worse result that the 2.5 percent predicted pre-earnings.

"While 2016 was not the year we expected, we made significant progress on key initiatives that are starting to bear fruit," CEO Terry Lundgren noted. "These include continued improvement in our digital platforms, the rollout of our new approach to fine jewelry and women's shoes, an increase in exclusive merchandise and the refinement of our clearance and off-price strategy."

Macy's struggles have not exactly been a unique story in retail of late — as consumers are increasingly attracted to off-price retailers like the TJX fleet of stores, or to online shopping.

Macy's saw shopping in its established locations down 2.1 percent in November and December. That result was considered particularly notable because winter 2015 contained an element that winter 2016 did not — an unseasonably warm patch that pushed consumers off of winter apparel.

So how is Macy's going to battle back — assuming that it still can?

The chain affirms that it intends to expand its Bluemercury and Backstage businesses — as well investigating new (less discount-centric) consumer retention methods, as coupons are really starting to bite into the bottom line.  That change, leadership notes, will likely be undertaken slowly.

"You will hear more on this subject as we move forward," one exec noted in the post-earnings investor debrief.

As for what's next, store closings are in Macy's future — another 34 over the next few years.

Macy's will also be hitting its real estate portfolio to boost its value.  Activist investors have long pressured the ailing retail giant to sell off some of its high value flagship locations in major U.S. cities.

"I think [Starboard], like our other investors, they want to see our stock price go up. And so do we. We're all aligned in this regard," Lundgren told CNBC Tuesday.

There is also continued speculation that a takeover could be coming soon — there were rumors recently that Hudson's Bay had approached Macy's regarding a takeover.

Neither company has confirmed the validity of those reports.

“You've heard and talked about the rumors of somebody buying us, and you've probably also heard we're buying them,” Lundgren said. “What I can tell you is we're going to do the right thing for our shareholders. We're not going to be a highly-leveraged retailer because those movies never turn out well. We've seen that before.”

Lundgren will soon be at the end of his tenure as CEO — he officially steps down March 23 but will continue on as executive chairman. He will be succeeded by Jeff Gennette, who was named Macy's president in 2014.

Gennette will take over the ship during what Macy's predicts will be a rocky 2017. Macy's projects comparable sales excluding licensed departments will fall between 2.2 percent and 3.3. percent. Analysts had been forecasting a decline of 2.2 percent. The department store also said it expects sales to decrease between 3.2 percent and 4.3 percent due to store closures. Analysts had been calling for a decline of 4.1 percent.

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