Macy’s Inc. reported a strong third quarter and sees the pace continuing right through the holiday season.
This story first appeared in the November 10, 2011 issue of WWD. Subscribe Today.
“We purposely brought in inventory early for holiday setups so stores could have time to be organized early and could focus on selling execution as the momentum builds in the next week or two,” Terry J. Lundgren, Macy’s Inc.’s chairman, president and chief executive officer, told WWD.
Consumers, he said, will notice “so many improvements in designer and celebrity gifts that we didn’t have last year,” such as knit cap and glove combinations from Ralph Lauren, new sweaters from Tommy Hilfiger and a special fragrance set from Justin Bieber to be unveiled soon, as well as other gift items from Calvin Klein, Rachel Roy, Karl Lagerfeld and Betsey Johnson, among the designer lineup.
“We feel very prepared for the fourth quarter,” Karen Hoguet, chief financial officer, said during a conference call. “Our fourth-quarter merchandising and marketing strategies are terrific and should enable us to achieve our 4 to 4.5 percent comp-store sales guidance.”
The extra day between Thanksgiving and Christmas this year will boost results, she noted.
The all-around optimism was stoked by the quarterly results, posted Wednesday. Net income for the third quarter ended Oct. 31 rose to $139 million from $10 million a year ago as comparable-store sales grew 4 percent to total $5.85 billion, from $5.62 billion in the 2010 period. Earnings per share rose about 15 fold to 32 cents from 2 cents. The company also increased its full-year guidance for earnings per share to $2.70 to $2.75, from $2.60 to $2.65.
Lundgren credited the My Macy’s strategy of localizing assortments; accelerating online sales and better integrations across channels; the “magic selling” program coaching associates on customer engagement; better trends in higher-priced designer and bridge labels, and a strong credit performance as key factors behind the third-quarter success.
“We had a terrific quarter in most categories,” Lundgren observed. “Women’s accessories, watches, cosmetics, shoes, handbags, men’s dress shirts, furnishings and sportswear were all very strong. Parts of home were strong,” led by textiles, furniture and luggage.
The best store performers in the third quarter were Herald Square, Union Square in San Francisco and State Street and Water Tower Place in Chicago. Business was best across the entire South — east to west.
Macy’s has set a four-year, $400 million top-to-bottom renovation for the Herald Square flagship beginning next year, which will lead to some disruption in business, though Macy’s still expects the 2.2 million-square-foot flagship to generate year-over-year increases. The big capital outlay for Herald Square won’t reduce expenditures to spruce up branches, which will continue at the usual rate of 40 to 50 units annually, Hoguet said. The flagship renovation budget was already built into the overall capital budget, which, for next year alone, will be between $850 million and $900 million.
Adding to the optimism, Macy’s revealed three store openings, occurring at the Mall at Bay Plaza, Bronx, N.Y., in fall 2013 or spring 2014; in Bay Shore, N.Y., for fall 2013, which will be a replacement store, and at the Mall of Victor Valley, Victorville, Calif., in mid 2013. Two other Macy’s openings were previously announced for 2012.
Still, not everything clicked.
“Women’s apparel continues to be a mixed bag, with more of the casual and opening price points not performing as well,” Lundgren said. “There’s not enough newness and interest on the part of consumers.”
Juniors has also been weak, and cold weather categories have recently been disappointing, though Lundgren was confident that outerwear and boots will improve as temperatures drop. Macy’s officials are also hoping for some improvement in women’s traditional sportswear, particularly since a mainstay private brand, Charter Club, has been “retooled,” potentially leading to better sales for spring, Hoguet said.
Despite Macy’s selling trends, which have beat most competitors, the promotional cadence is unchanged. For holiday, “I think it’s pretty much going to be as it’s been the last couple of years, which is heavy,” Hoguet said. “Holiday periods are always promotional and I don’t think any of us could make them more so.…By the way, planned promotions tend to be profitable. It’s only when inventory is out of line with sales, which is not our case, that you get excessive markdowns and margin hits.”
One concern was Macy’s decline in gross margin, which was attributed to increased free shipping of items sold online, though merchandise margins were flat. Lundgren said “the evidence is clear” that the increase in sales from free shipping more than justified the margin hit. “Our online business is still growing at 40 percent. We will hit $2 billion in sales by 2012,” Lundgren predicted. Macy’s total volume last year was $25.7 billion.
Macy’s stock price fell 5.3 percent, or $1.71, closing at $30.45. Concerns over the European debt and a spike in Italian bond yields drove The Dow Jones Industrial Average down 389.24 points Tuesday.