Retail

Macy’s 3Q Comps Down, But Digital Puts Up Digits

The physical world, for Macy’s, is proving weighty – but might online efforts give succor?

As the retail giant reported earnings results on Thursday (Nov. 9), some familiar trends echoed as tangible stores suppressed the top line. Same store sales and other metrics showed the continued impact of the transition from brick and mortar to bits and bytes.

Taken in broad strokes, revenues of $5.28 billion were off six percent year on year, missing analyst expectations of $5.31 billion. The 23 cents a share logged on the bottom line were four pennies better than expected.

Same store sales, which are of course tied to the physical realm, were off 3.6 percent for locations open more than 12 months. Transactions were down 7.3 percent, while number of units per transaction were up one percent, and the average unit retail price was up 2.9 percent due to lower clearance activity.

But bright spots gleamed amid Macy’s digital push, and a long-standing embrace from consumers continues. Double-digit online sales growth marked 33 straight quarters.

CEO Jeff Gennette noted on the call that “we anticipate that digital will contribute strongly in the fourth quarter, as we know our customers are increasingly transacting both online and in our stores” and mobile should see a boost during the all-important holiday shopping season.

That digital torque should come as the company is spending more money on advertising its online conduits, while it also seeks to boost its search engine optimization processes.

Looking at the fourth quarter, said the CEO, digital sales will give a “sales lift … of 100 to 150 basis points.” Delivery options have been expanded to embrace same-day delivery or in-store pickup for online purchases.

Elsewhere during the call, management said that loyalty efforts stemming from the Star Rewards loyalty program proceed apace. Gennette stated that about half the company’s sales come from the top 10 percent of spenders. Early results of the loyalty program, slightly more than a month old, have been encouraging.

With a nod to the Backstage (off-priced) offerings, there are 45 locations, and CFO Karen Hoguet told investors that there will be aggressive expansion plans here.

Gennette noted on the call that inventory management had improved (with inventory down 6.9 percent from last year), and this in turn boosted gross margins by 10 basis points year over year.

“If you look at the first half of 2017, we had carryover from a very tough fourth quarter in sales last year. And we were out of parity. We had too much inventory for the demand generated online and in our stores,” said Gennette.  “So, there was a lot of liquidation that was going on. We really entered the third quarter in a good inventory position, as we reported last earnings call, and we’re in a very good position right now.”

The company is not anticipating “having to liquidate a lot of unplanned inventory walking into the fourth quarter,” he told analysts. Inventory management also goes hand in hand with technology initiatives, Gennette noted.

He told analysts that “what we’re doing in technology to fuel all of our initiatives online, so ongoing site monetization, what we’re doing with our mobile and … the tablet app … [is] to improve conversion. Expect that to be a part of what is fueling our confidence about digital and the double-digit growth that we expect [going] into the fourth quarter.”

Speaking further to omnichannel and digital efforts, he said “we expect buy online, pick up in store to be a more potent piece of our business in the fourth quarter. And when customers are coming in, you’re obviously getting a bunch of those customers that are buying other things. That radiates sales. That’s captured in our guidance.”

The company confirmed its earnings targets for the year, with comp sales slated to decline between two percent to three percent, and the consolidated top line in a range of 3.2 percent to 4.3 percent. On an adjusted basis, sans asset sales, the earnings per share should range between $2.91 to $3.16.

Investors, cheered by the results, bid the stock up nearly 11 percent to $19.50 Thursday.

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