Better than expected fourth-quarter earnings for Macy’s point to only one thing: its merged channel efforts are paying off for the retailer.
Macy's Q4 earnings released yesterday (Feb. 23) showed a stark contrast to the lackluster figures the company reported in Q3. Despite what was then called a "disappointing" quarter, both CEO Terry Lundgren and CFO Karen Hoguet gave optimistic outlooks about what Q4 would bring — driven mainly by Macy's investments in its digital efforts. This included its Buy-Online, Pick-Up In Store initiative and its same-day delivery pilots.
Hoguet didn't provide specific figures from its experiment with same-day delivery or its launch of Buy-Online, Pick Up In Store option, but she did speak about the company's decision to expand its omnichannel offerings in the coming year.
"Our digital channels at both Macy's and Bloomingdale's did extremely well in the quarter. We were very focused and pleased with what we accomplished with Buy-Online, Pick Up In Store. Both because of the new wave of customers who utilize this shopping, but also for the radiated sales we got when the orders were picked up. And our same-day delivery test was successful and we will expand in 2015 to additional markets," Hoguet said during the call with analysts.
One question from an analyst focused specifically on growth opportunities as it comes to same-day delivery and the Buy-Online, Pick-Up In Store option, which Hoguet answered by explaining how having both options can cater to customers' needs, depending on what type of service they are seeking.
Giving a hypothetical example, Hoguet cited where Macy's could edge out competitors with its merged channel capabilities: "If you need something today and you are in a market that doesn’t have same-day delivery yet, the online pick-up and store helps with that or even next day. And by having inventory closer to the customer, that's a huge competitive advantage for us in terms of satisfying what the customers are looking for. So I see that's going to continue to be important and more obviously focused on that,” she said.
Compared with Q3 earnings where sales dipped slightly by 1.7 percent, fourth-quarter sales were up 1.8 percent to $9.36 billon, year over year from $9.2 billion. That figure, however, missed analysts' expectations of $9.4 billion. Macy's ended 2014 with total sales up .6 percent from the year prior, hitting $28.1 billion. Net income was $793 million, down from $811 million in Q4 of 2013.
“Having now reached such a healthy profitability rate, we are shifting our resources and energies to growing the topline faster while maintaining this high profitability rate level. As described in various announcements made over the past 45 days, we have now fully aligned our management team to fuel organic growth within our existing omnichannel business as customer shopping patterns evolve at both Macy’s and Bloomingdale’s,” Lundgren said in the company's earnings statement.
One new strategy discussed during Tuesday's earnings call was Macy's mention of its plans to boost spending to 1.2 billion in 2015 (a 6 percent increase) to open discount shops. As discussed in a Reuters article, Macy's discussed its "off-price" stores that will attempt to sell returned goods and canceled orders at a reduced price.
Overall, Hoguet provided a cautious outlook at the year ahead as Macy's enters its "transition year" that will involve investments in its overall growth. She indicated that the investments in the company's digital channel are being viewed as a way to fuel growth for the two or three years to come. While it continues to balance its brick-and-mortar presence with growing its digital channels, Hoguet said Macy's goal within its storefronts is to bring "more congruency between stores and online."
She also provided insight as to how Macy's merges its goals of connecting its physical stores with its online efforts. This includes efforts to bulk up Macy's offerings online when there are limited options to house specific products in the physical store.
"In some cases, we extend what we have in the store's, what we call, 'the endless aisle,' whether it'd be big and tall sizes or small sizes that may not be in every single store, so that’s been a big help," Hoguet said. "There is some merchandise that we have only online. But for the most part we're aiming for more congruency between stores and online."
Outside of its e-commerce efforts, Lundgren gave an outlook into one of Macy's most upcoming acquisitions — Bluemercury, the luxury beauty products and spa retailer. He also referenced a few points about Macy's growth strategy, both from a domestic and international standpoint.
“Concurrently, we have established an entirely new part of our organization to lead innovation and new growth initiatives – including offprice, international and new store formats,”Lundgren said in the company release. "We expect some of these new activities to enter start-up phases later in 2015, and we remain committed to succeeding in a test-and-learn environment where the best and most promising ideas can be ramped up quickly. We are very excited about our upcoming acquisition of Bluemercury. ...We continue to expect to complete the Bluemercury transaction in the first quarter, with an initial focus on accelerating the growth of its base of self-standing specialty stores in urban and suburban markets, as well as on accelerated omnichannel growth and offering Bluemercury products in Macy’s stores. This represents a new channel and access to new customers for our company.”