Macy’s Bullish About Year Ahead

Lifted by its omnichannel and localization strategies, the retailer on Tuesday reported higher profits for last year and said it expects a strong 2013.

Macy’s Inc., lifted by its omnichannel and localization strategies, on Tuesday reported higher profits for last year and said it expects a strong 2013.

This story first appeared in the February 27, 2013 issue of WWD.  Subscribe Today.

The retailer said fourth-quarter diluted earnings per share rose 5.3 percent to $1.83 versus $1.74 in the year-ago period. Excluding early retirement of debt and store closing costs, diluted EPS in the quarter came to $2.05, beating Wall Street expectations of $1.99.

Macy’s operating income totaled $1.4 billion for the quarter ended Feb. 2, compared with $1.3 billion in the year-ago period, but the net fell to $730 million from $745 million due to the higher costs.

Sales in the fourth quarter totaled $9.35 billion, an increase of 7.2 percent from $8.72 billion in the year-ago quarter. Same-store sales rose 3.9 percent, and Internet sales rose 48 percent. Strong January sales and an extra week on the calendar offset weak November and December business.

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For year, Macy’s earned $3.24 a diluted share versus $2.92 in 2011, an 11 percent increase. Comp sales rose by 3.7 percent and totaled $27.7 billion, a 4.9 percent rise from $26.4 billion in 2011. Net income rose 6.3 percent to $1.34 billion from $1.26 billion a year ago.

Terry J. Lundgren, chairman, president and chief executive officer, said “2012 was another great year in our company’s evolving story of growth. We again added more than $1 billion in top-line sales growth in 2012.”

Lundgren said the company intends to “sharpen our approach to localized merchandise assortments and marketing, which we continue to believe is Macy’s sustainable competitive advantage. We are accelerating progress in omnichannel strategies at Macy’s and Bloomingdale’s” and in 2013 will begin rolling out new strategies for Millennial customers, Lundgren said.

For the year, Macy’s is projecting same-store sales growth of about 3.5 percent and diluted EPS of $3.90 to $3.95, versus diluted EPS in 2012 of $3.46 excluding early retirement of debt and store closings. Capital expenditures this year are seen at $925 million.

Karen Hoguet, Macy’s chief financial officer, said 2012 marked the third consecutive year of “very strong financial performance” and credited the My Macy’s localization strategy for triggering new initiatives for warmer climates, Latino populations, small-store prototypes and “extreme” growth stores.

Macy’s omnichannel program, Hoguet said, helps Macy’s “best optimize warehouses and stores in an ever-changing fulfillment environment.” Macy’s began to fill some online orders from store inventory in 2012 and has been experimenting with showing goods online — 700 items in all — and shipping them from stores without storing them in online warehouses.

The company has 290 stores fulfilling online orders, compared with 23 a year ago, and by fall it expects to have 500 stores, representing 85 percent of Macy’s business, fulfilling online orders. “We have built algorithms to help determine from where to pull inventory,” Hoguet said. “We are really just scratching the surface here. In the future we expect these fulfillment locations will be key to offering faster and even same-day delivery and enable customers to buy online and pick up in stores.”

She said Macy’s was improving its Web site and mobile app and taking new approaches to marketing and collaborating on merchandise strategies across channels. “The line between stores and the Internet is blurring so much so that beginning in 2013 we will no longer break out our Internet growth when we report our results,” she said.

She also cited strides with the “Magic Selling” program to better train store associates on selling and customer engagement, and hyped Macy’s new Millennial strategy and its activewear, which was among the retailer’s best performing categories in the fourth quarter. Last year Macy’s signed a partnership agreement with The Finish Line, which sells athletic shoes and gear. “By the end of 2013, we expect to launch 13 new Millennial brands,” Hoguet said.

Since 2009, Macy’s has added $4 billion in top-line sales, and EPS has grown from $1.36 to $3.46 in 2012. “We have a very long runway ahead of us for further improvement,” Hoguet said. “If I were to pick two words to describe Macy’s Inc. today, I would pick confident and determined.”

Handbags, watches, shoes, women’s suits, active, men’s overall, home textiles, luggage, furniture and mattresses, as well as Millennial and classic apparel private brands, were last quarter’s best-selling categories.

On the downside, women’s apparel remained difficult and cold weather merchandise was disappointing for the second year in a row. Macy’s has decided to stop selling the Emeril by All-Clad line of pots and pans and kitchen appliances for fall in stores but will continue to sell the brand on macys.com. The brand is owned by Martha Stewart Living Omnimedia Inc., but Macy’s said the decision to drop the line was based on sales trends and was not related to the ongoing court case with J.C. Penney Co. Inc. over selling Martha Stewart products.

Hoguet said the Bloom­ingdale’s division is performing well relative to its peer group but had a tough 2012 after a strong 2011.