Macy's Inc. ceo and president Jeff Gennette

The Macy’s ship isn’t turned around yet and it’s headed for another highly promotional fall and holiday.

Nevertheless, executives sounded upbeat about the way results overall — inventory levels, new formats across several categories and real estate initiatives meaning closing stores or redeveloping properties — are shaping up.

“We had a solid second quarter,” Jeff Gennette, Macy’s Inc. president and chief executive officer, told WWD right after Macy’s reported that its net income for the second quarter rose to $113 million compared with $3 million in the year-ago period, topping analysts estimates.

“When you look at overall comp trend, it was two points better than the first quarter. So progress was made. The margin was a little better than expected and inventory is in a good position for the back half of year. We feel good about initiatives that we are carrying into the back half of year…fine jewelry, shoes, men’s tailored, big tickets [furniture], mattresses, fragrances — it’s all good news.”

He also cited double-digit growth in digital sales, with Macy’s app enabling shoppers to see pricing and product availability, read reviews, and to purchase items and have them shipped.

Still, not all categories are performing well. The color and treatment businesses have been off, and housewares and handbags remain tough.

Sales in the second quarter totaled $5.55 billion, a decrease of 5.4 percent, compared with sales of $5.87 billion in the year-ago quarter. The decline in total sales reflects, in part, the closure of stores previously announced by the company. Comparable sales were down 2.5 percent last quarter.

Macy’s stuck to previous guidance of comparable sales slipping between 2 and 3 percent for the year. Total sales are expected to be down between 3.2 percent and 4.3 percent in fiscal 2017, reflecting a 53rd week, whereas comparable sales are on a 52-week basis. Adjusted earnings per diluted share of between $3.37 and $3.62 are expected in 2017, excluding the impact of the anticipated settlement charges and net premiums and fees associated with debt repurchases.

Wall Street wasn’t impressed by Macy’s results, at first giving the stock a lift in the morning but by mid day, the stock dropped about 10 percent, or $2.38, to $20.66.

During the interview, Gennette, while upbeat about progress at Macy’s, sounded cautious about the consumer and the retail climate, and concerned about tourism declines.

“We expect the back half to be very promotional, particularly in fourth quarter,” he said.

On the consumer mind-set, the ceo said, “You have to earn every sale. Consumers are less brand loyal than ever. She has more choices at her fingertips. That’s not going to change. With undifferentiated widely distributed merchandise, that will be a price war. We are ready to do battle, but with products that are ours only, or with more limited distribution, you will see us distort those,” in marketing and merchandising.

The decline in tourism, Gennette acknowledged, “was significantly worse. It came as a surprise to us in the second quarter since the first quarter of this year was better than it had been. That’s probably going to carry into the back half.” Macy’s tourist sales were down about 9 percent last quarter. Despite the tourist decline, “We still saw comp-store improvement,” Gennette said.

Macy’s, one of the nation’s highest-profile advertisers, has reengineered its marketing strategy including its loyalty program. The new marketing will be unleashed at the end of September and the new loyalty program launches in October.

“We’ve got fashion content that we are ready to crow about,” Gennette said. “There will be more balance on Macy’s as a fashion destination. Core customers as well as occasional customers will be addressed.” So will hot trends and Macy’s being a “one-stop shopping” venue.

Ten percent of Macy’s customers account for about half of the retailer’s $25 billion plus in annual sales. “That’s designed into the loyalty program,” Gennette said, adding that “core customers as well as occasional customers will be addressed.”

Promotions are being simplified by reducing the overlap of discounts on top of discounts, but the retailer will remain very promotional.

“We are more efficient in our marketing spend than ever,” Gennette said. “Expect us to be very promotional but also have available dollars to be able to focus on things that make Macy’s stand out as a gift and fashion destination.”

Regarding the company’s aggressive store closings, Gennette said 70 of the 100 designated have already closed, and that the process will continue into 2019, depending on the status of leases or getting buyers for certain sites.

About 12 percent of the volume at stores being closed are picked up by stores still operating.

In other news, Gennette said certain products found in Backstage off-price departments [inside 38 Macy’s stores currently] are being tested at some stores that don’t have Backstage departments. The test merchandise includes home decor, kids’ shoes and opening-price cosmetics.

According to Gennette, Backstage’s lower price points and “treasure hunt environment” are resonating with many customers. “We continue to test different approaches and expect to decide by year-end how best to advance the concept.”

On its back-to-school business, Gennette said, “We’re happy with the way it started,” citing such categories and styles as dresses, young men’s, Bohemian looks, and uniforms.

One initiative Gennette is most pleased with is the shoe pilot rollout. “It is now complete,” with a more edited assortment, more depth in those styles being carried, increased staffing and varying degrees of technology, the ceo explained during a conference call. “Approximately 170 locations now carry elevated product more in line with what the customers want in those locations.” Macy’s shoe business was up in the midsingle digits in the quarter.

Karen Hoguet, chief financial officer, said in the conference call, “Our second quarter demonstrates we are on track to produce sales and earnings consistent with our annual guidance. As the quarter progressed, we saw sequential improvements and continued to gain confidence in our strategies.”

On the real estate front, Macy’s has been partnering with Brookfield to explore redevelopment possibilities at 50 properties. Most are locations where Macy’s plans to continue to operate its store, though preliminary work suggests that Brookfield will recommend proceeding on changes on roughly two-thirds of the sites.

Bloomingdale’s performance in the quarter saw “similar improvement in second quarter from first quarter as the Macy’s brand did, according to Gennette. He said Bloomingdale’s “100 percent” program spotlighting exclusives is “really popular.”

At Macy’s, private brands “are in good shape,” particularly after recently reducing the number of suppliers and reducing the number of weeks of production, Gennette said.

It’s expected that Gennette, who has been ceo since last March when he took over the reins from Terry J. Lundgren, brings new categories and services to Macy’s.

“Macy’s is a very flexible brand. With the leased model and hybrid models, we can be in more categories.…We are open to all opportunities.”

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