After four consecutive quarters of progressively declining results, Macy’s managed to surprise the markets on Tuesday (Feb. 25) with an unexpected beat on earnings, gaining a boost from late holiday season sales strength. As it turned out, last-minute shoppers brought the Christmas miracle Macy’s needed.
“Taken as a whole, 2019 did not play out as we intended for Macy’s, Inc. However, we executed well during the holiday 2019 season,” CEO and Chairman Jeff Gennette noted in a statement.
By the numbers, it does look like Macy’s, for everything that didn’t go right in 2019, did manage to stick the landing pretty solidly. EPS came in at $2.12, comfortably ahead of the $1.96 per share expected. Revenue also edged in a bit higher than expected, at $8.34 billion as opposed to the $8.32 billion forecasted by analysts. And while same-store sales fell by half a percent during the final quarter of the year, it was less of a drop than the .9 percent analysts were looking for.
The holiday sales news wasn’t a total surprise – last month, Macy’s reported that while declines were present, they were not as sharp as investors had anticipated. And while the earlier part of the season was sluggish, Gennette noted, the last 10 days represented something of a rally for the embattled department store retailer, as consumers began filing into stores at greater than anticipated rates.
This sets the stage for what Gennette described as a “transition year” – a term that recurred a few times during the earnings call, particularly when the firm was offering its forecasts for 2020 in total, but was not fully defined. Given that for the year, the firm is forecasting drops in revenue, earnings and same-store sales growth, it is safe to say that the transition might be a bumpy one.
That interpretation buttressed the fact that earlier this month, Macy’s announced a major restructuring that would see 125 stores shuttered, its corporate workforce shrunk by 9 percent and some of its offices closed. The efficiencies, by Macy’s estimates, will generate $1.5 billion in annual savings, which are projected to be fully realized by the end of fiscal 2022. Some of those funds will be reinvested into the Macy's business, particularly the opening of more of its off-price Backstage locations, as well as testing its new smaller-format shop called Market by Macy’s.
“We’ve shut about 40 percent of our total stores over the past five years,” Gennette noted, but added that they are not abandoning the mall entirely. “We believe these malls are going to be vital destinations for generations to come.”
But they are making efforts to diversify their position, he noted, in an effort to better tailor their offerings to the customers’ needs and to remove underperforming locations for the sake of “right-sizing costs and expanding gross margin.”
Macy’s is also facing a known, but in many ways uncertain, headwind in the form of the COVID-19 virus, as the latest in a growing crowd of retailers and brands to see their supply chains disrupted. Gennette confirmed that the virus could have a “small impact on first-quarter sales,” mostly due to slowed global tourism. He also confirmed that about 70 Macy’s stores have a “strong Asian customer base,” and that those stores have seen “some slowdown of sales.”
Overall, however, the impact on the brand has remained relatively minor. Macy’s has reopened its corporate offices in Hong Kong, and as of now, the retailer has not figured any potential negative effect from the Coronavirus into their 2020 guidance as they continue to work with their vendor partners to minimize disruptions.
But Gennette was also careful to note that as cases increase and the story evolves, they are monitoring the situation daily, particularly in terms of their supply chain.
“We have seen a slowdown … nothing concerning yet, but we’re watching this one very, very carefully,” he said.
Based on Gennette’s remarks, Macy’s is more focused on the transition year they are undertaking – and the hopes that boosting its family of associated brands, including Bloomingdale’s and the Bluemercury beauty brand, will bring its diminishing customer base back in force.
How well Macy’s will pull it off remains to be seen – after all, this isn’t the first time in the last several years that the retailer has advertised a turnaround. But at least for today, investors were happy with the holiday sales bounce and the company’s path forward. For the first time in a year, Macy’s saw its stock price go up – by 6 percent – in after-hours trading.