For Macy’s, second-quarter earnings showed better than expected numbers, but they also made it clear that the pandemic continues to be a draining factor – and that the fourth quarter will be a critical time in the life of the iconic department store.
By the numbers, comparable sales were down 34.7 percent for the stores Macy’s owns and 35.1 percent on an owned plus licensed basis. The company said this performance was better than it expected, owing to the growth of its digital business.
Digital sales grew 53 percent over second-quarter 2019, on par with Nordstrom, but off the triple-digit growth seen from some of its competitors. The company added four million digital customers during the quarter.
Gross margin, which CEO Jeff Gennette had been focused on, was 23.6 percent, up 650 basis points from first-quarter 2020 due to better sell-through of clearance merchandise. Inventory was down 29 percent from 2019, putting the company in a position to raise prices and exit Q2 without excess goods.
Perhaps more importantly, Macy’s did not give any guidance for the rest of the year. Informally, it said on the call that its back-to-school sales have been slow, and that it expects Q4 in-store comps to fall about 20 percent compared to 2019. It also expects eCommerce sales to fall compared to its Q2 totals.
“Restarting our stores’ business was our top priority, and we successfully accomplished that while also ensuring that our digital business remained strong. Going into this crisis, we had a well-developed digital business, and we’re seeing that thrive as we attract new and welcome existing customers back to our brands,” said Gennette. “We are encouraged by our second-quarter performance; however, we continue to approach the back half of the year conservatively. Our immediate priority is successfully executing holiday 2020. We are also focused on laying the groundwork for 2021 and beyond. We plan to invest in fashion, digital and omnichannel, work with agility, and galvanize the resources of the company to serve our customers and move the Macy’s, Inc. business forward.”
As expected, the retailer’s Polaris strategy was the centerpiece of the earnings call. Gennette devoted about 15 minutes of his remarks ticking through each element of the plan, which was originally announced before the pandemic. The strategy basically puts the customer at the center of the company’s future planning, through stepped-up loyalty programs and a better digital experience. Macy’s has not yet been able to execute on the plan due to the survival mode necessary for Q2. Gennette noted that digital will now dominate the Polaris strategy, and could represent up to 40 percent of the company’s sales by the end of 2020.
“I think the big change in Polaris is the mix of the business,” Gennette said on the earnings call. “Moving forward, we're clearly seeing that in 2020 with the store closures, it is forever is changing the complexion of the business. And so I feel very good about our digital team, and how they're going at that part of the business, how they're responding to demand, how we're using that data, how we're building the supply chain to improve profitability. So we're expecting … higher shipping costs, but we're expecting margin expansion based on all of what we're doing with personalization and new categories that we're getting into.”
Gennette also addressed holiday 2020, which he said the company is approaching conservatively with an emphasis on fashion and luxury goods.
“America comes to Macy's and Bloomingdale's for gifting,” he said. “We had a successful gifting strategy for [the] holiday of 2019, and we're building on that for 2020, and believe the shift away from experiential gifting provides some upside for us. For holiday 2020, new products represent nearly 50 percent of the total gift assortment, including items in beauty and home. We have great brands and are introducing new categories and in-demand content. And whether customers are shopping in our stores or on dot.com, we will have something for every person.”