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Macy’s Inc. is looking to MOM for its future growth.
This story first appeared in the May 15, 2014 issue of WWD. Subscribe Today.
In reporting a rise in profits despite a drop in sales in the first quarter, the department store operator said warmer temperatures have led to a rebound in May and its My Macy’s localization strategy, omnichannel offerings and “magic selling” initiatives — or MOM — position it for continued success as the year progresses.
“We’ve picked up $4.4 billion in sales in the last four years without opening a lot of new stores,” Terry J. Lundgren, chairman and chief executive officer, told WWD. “So the strategy is definitely working.”
Lundgren called this one of the “core” initiatives for the company and said Macy’s has spent a “tremendous amount of time and effort” on it over the past five years.
In the three months ended May 3, net income increased 3.2 percent to $224 million, or 60 cents a diluted share, from $217 million, or 55 cents, in the year-ago period. Revenues declined 1.7 percent to $6.28 billion from $6.39 billion in the 2013 quarter. Comparable sales, including those recorded online, fell 1.6 percent and declined 0.8 percent when the growth of comps from leased departments was included. Gross margin improved to 38.9 percent of revenues from 38.8 percent in the 2013 period.
On average, analysts expected earnings per share of 59 cents on revenues of $6.46 billion.
Lundgren said revenue comparisons were made more difficult by the strength of last year’s first quarter and by a calendar shift in the company’s Friends & Family event.
Lundgren said “it was tough going” from January through March, and admitted he was “concerned. I was not accepting that weather was the only culprit.”
But “once the weather normalized” in April, business began to rebound. The uptick began first in the warm-weather regions such as Florida and Southern California, he said, giving the company “confidence that we had the right product on the floor. We feel very good about it, and the consumers are finding it and buying it.”
Lundgren said that while inventories were a bit higher than the company liked at the end of the quarter — up 4.7 percent over last year, or 4.2 percent on a comp basis — Macy’s did not push the panic button. “We didn’t mark things down because we knew the product was right,” he said. “And we’re very comfortable we’ll get through. We’re already in positive territory year-to-date thanks to the May business.”
Karen Hoguet, chief financial officer, said on the company’s earnings call that Macy’s expects to be able to achieve its previously announced guidance for comp sales of 2.5 percent to 3 percent and EPS of $4.40 to $4.50.
This also prompted the company to increase its quarterly dividend to 31.25 cents a share from 25 cents, with the first dividend at the higher level payable July 1 to shareholders of record June 13. It has also authorized a $1.5 billion stock buyback.
Hoguet singled out handbags, activewear, children’s wear, intimate apparel and the Impulse merchandise offering targeted to the Millennial customer as among the top performers in the period. She also cited “positive momentum in juniors” and strong sales within licensed areas, including Sunglass Hut and Finish Line. In answer to a question from an analyst, Hoguet said these categories have succeeded in achieving the company’s objective of “pleasing our customers and finding great assortments in categories they want to find at a Macy’s.” As a result, “there may be other opportunities to do this,” she said, noting that the Locker Room by Lids team apparel and accessories concept is “starting to roll out” now.
Macy’s has been on a mission to attract a younger customer with an aggressive strategy targeted to the Millennial customer. Hoguet said the brands earmarked for the “older Millennial began to gain traction last year, and it’s taken us a little longer on the juniors business. But that’s now doing very well, and we feel much better about the total. And you combine that with the active strategy, which is on fire both for men and women, and we are very excited about the prospects.”
She said the uptick in business among Millennials is not just in apparel, but is also registering in shoes, handbags, cosmetics and home. “One of the strengths in our furniture business has been the smaller-scale furniture, which is really appealing to that Millennial customer,” added Hoguet. Overall, she said, the weakest part of the business continues to be the home area, but even that has shown some signs of life in May.
Lundgren said new brands such as Maison Jules, a line of women’s contemporary apparel, are appealing to older Millennial shoppers in their early 30s, who are also embracing accessories such as handbags. But the “momentum is beginning to take hold” among the “more fickle teenage consumer” as well, he said. And the popularity of activewear among young women is helping Macy’s “pick up market share with the female consumer.”
Lundgren said activewear is strong with young men and kids as well and transcends apparel to include footwear and accessories.
“The other extreme is dress-up,” he said, pointing to special occasion dresses and tailored looks for men as among the top performers. “It’s either very dressed up or dressed down,” he said.
Hoguet said that in addition to “pent-up demand from earlier in the year,” heightened marketing strategies and promotional strategies are also expected to boost sales. “Remember that we had a disappointing second quarter last year, and we concluded at that time that our marketing support was insufficient. We then reacted with renewed and strengthened promotional strategies in the third quarter. The customer responded very well to these changes, and we hope we will experience a similar reaction as these same strategies are executed in the second quarter this year.”