When Jeff Gennette logged in Thursday morning to give investors a Macy’s Inc. update, he touched on all of the major coronavirus business themes.
The pain of the shutdown, the changed retail world that’s reopening, the incredible distance still to go and, yes, the competitive potential of the moment were all on vivid display as the Macy’s Inc. chairman and chief executive officer revealed tough first-quarter numbers and spoke with J.P. Morgan analyst Matthew Boss in a digital fireside chat.
Macy’s net sales for the quarter ended May 2 fell more than 45 percent to roughly $3 billion from $5.5 billion a year earlier, according to preliminary figures. Operating losses are expected to range from $905 million to a staggering $1.11 billion.
All of the Macy’s, Bloomingdale’s and Bluemercury stores were temporarily closed on March 18 and began to reopen on May 4. About 190 of the 668 Macy’s and Bloomingdale’s opened already and another 80 are set to open Friday, in time for Memorial Day weekend.
The full impact of the shutdown won’t be clear until July 1, when the company releases its full results, which will include a writedown of about $300 million on inventory that would have been marked down if stores were open.
While the digital business has been a bright spot — and up 80 percent this month — it hasn’t been enough to offset the stores, which once they have reopened are are only about half as productive as they would be expected to be for this time of year.
“These are difficult times for the country, the retail landscape, and in Macy’s Inc.,” Gennette said. “I’m comfortable that we will emerge on the other side of this crisis as a strong and resilient company. Macy’s has the innovation, the vision, and the execution to remain an iconic American retailer.”
To get through the slowdown, Macy’s is in the midst of an important refinancing — which comes shortly after the company took a hit to its credit rating, getting cut to “junk” status by Standard & Poor’s in February.
“We have run a variety of scenarios for the future store reopenings and recovery sales in order to stress test our liquidity needs,” Gennette said. “Across all these scenarios, the actions we’re taking contemplate what we — that we would need — to make sure that we’re covering all the capital to fund operations, but also to retire the $1 billion of debt that will come due over the next two years.”
In some of those scenarios, Macy’s doesn’t expect sales to stabilize until well into 2021 or 2022.
That’s a long, tough slog. But it’s starting with a sprint.
Macy’s expects to have its inventory right-sized with demand by the end of the second quarter — a quick move in a market that’s seen as overwhelmed with goods that sat idle in stores. And business is being conducted in new ways.
“We now have approximately 300 stores offering curbside pickup and almost every door that we open will have this service as well,” Gennette said, adding that the company is working with the New York City’s Mayor’s office to set up curbside pick up for the Herald Square flagship.
“While this has been a very challenging time, we have significantly picked up the metabolism of the organization, and we’ve been required to reset our plans each day and innovate and execute quickly,” Gennette said.
That means looking anew at the company’s plans — including additional stores closures — and surveying the competitive landscape, changed with the bankruptcies of Neiman Marcus Group, J.C. Penney Co. Inc. and J. Crew Group.
“We see there’s about $10 billion worth of opportunity that’s up for grabs right now based on what’s going on with the competitive climate,” Gennette said. “That amount may grow.”
He said it’s up to Macy’s to grab that opportunity through its existing brands, brand partners or by entering into new categories.