Macy’s Beats Expectations, But Shares Slide

Despite an earnings reports that outstripped analyst expectations on both revenue and earnings — and led Macy’s to increase its forecast for the full year — the market was not impressed, and Macy’s shares slipped this morning (Aug. 15).

The year on the whole has been good for Macy’s, and though their stock decreased by 6 percent, it’s still up 100 percent from a year ago. Since November, share prices have doubled. As for efforts going forward, Macy’s told investors that it will be moving to add more local merchandise to its shelves, updating and modernizing fixtures within its stores and renting out excess space in at least 50 of its locations. The latest reports showed some indications that Macy’s is moving to reduce its inventory, re-do its stores and bring more shoppers into its Backstage brand.

By the numbers, earnings per share came in at 70 cents instead of the 51 cents forecasted, and revenue came in at $5.57 billion, again, more than the $5.55 billion forecast — though it was down 1.1 percent from last year’s numbers. Net income for the second quarter was $166 million, or 53 cents a share, compared with $111 million, or 36 cents a share, a year earlier. Comparable sales — retail’s most watched metric — were up 0.5 percent, instead of down the predicted 0.9 percent. This marked the third consecutive quarter of same-store sales growth for Macy’s. The company further said all three divisions that it operates — Macy’s, Bloomingdale’s and Bluemercury — all logged strong performances during the quarter.

“There are reasons for the apparent slowdown,” Retail Managing Director Neil Saunders at GlobalData said. “[Macy’s] is still losing market share across a number of categories. Moreover, with the closure of underperforming stores, a natural bounce to comparables is to be expected — especially as some of the trade from shuttered shops finds its way to both other locations and to the digital channel.”

For the rest of the year, Macy’s is forecasting a range of  $3.95 and $4.15 per share — 20 cents higher than the company previously forecasted. Same-store sales are expected to increase by 2.5 percent, compared to the previous expectations of between 1 and 2 percent growth.

“We … continue to be disciplined with inventory management, which allows us to give our customers more fashion and freshness, while increasing sales and improving gross margin,” CEO Jeff Gennette said in a statement.

Speaking of increasing freshness, Macy’s acquired concept shop Story last quarter and added its founder, Rachel Shechtman, as Macy’s “brand experience officer.” The brand has also been testing pop-up marketplaces in-store in a few locations nationwide, and made it clear during a call with investors that the intention is to expand that pop-up plan. Backstage — Macy’s discount store chain — is also set for additional expansion.

Macy’s will have about 180 Backstage stores open by the end of the third quarter, according to Gennette, also noting that instead of cannibalizing Macy’s shoppers, their observations is that Macy’s customers actually like to buy from both shops. Shopping trips are up two times at stores that have a Backstage location inside, he said, and basket sizes are up by more than 30 percent at those shops.

Macy’s is also in the process of rolling out mobile checkout to all of its shops by the year’s end.