With strong fourth-quarter and year-end results under its belt, Macy’s Inc. has entered 2022 with momentum, greater confidence in its strategies, and with the industry adopting a positive view on a retailer that not long ago was regarded as antiquated and stalled.
On Tuesday, Macy’s reported that for the quarter ended Jan. 29, net income rose to $742 million from $160 million in the year-ago period, while net sales rose to $8.67 billion from $6.78 billion. Comparable sales rose 27.8 percent in the last quarter from the year-ago quarter, and 6.1 percent from the 2019 quarter.
For all of last year, Macy’s Inc. generated $1.43 billion in net income, versus a loss of $3.94 billion the year before. Net sales rose to $24.46 billion, from $17.35 billion in the prior year.
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“The big point here is that Macy’s is a very different competitor and company than it was two years ago. We are stronger financially and we have a healthier balance sheet,” Jeff Gennette, Macy’s Inc. chairman and chief executive officer, told WWD on Tuesday, just after the results were reported.
Gennette said Macy’s has decided not to spin off its digital business, after a review of its operations. Macy’s had been under pressure from activist shareholder Jana Partners, to create separate dot-com and brick-and-mortar store businesses.
“This was a very comprehensive review…pressure testing our strategy that we are maximizing shareholder value.”
The review was undertaken by the board along with management and AlixPartners, a leading retail consultancy that worked on Hudson’s Bay Co.’s separation of its dot-com and brick-and-mortar operations at the Saks Fifth Avenue, Hudson’s Bay and Saks Off 5th divisions.
“Key to the decision by Macy’s management and the board was that an integrated Macy’s delivered greater value than the separation of physical assets,” Gennette said during the interview. They also concluded that spinning off the dot-com business would result in “really high” separation costs, as well as ongoing costs of operating separate companies, and execution risks, Gennette said.
Gennette added that Macy’s has been heavily investing in its dot-com business and has the wherewithal to continue investing, without the need to bring in a partner or outside investor. In the case of Saks Fifth Avenue, Insight Partners became a minority stake holder and invested $500 million into saksfifthavenue.com and $200 million into Saks Off 5th.
The CEO pointed out that Macy’s has a new, three-year, $3 billion cap-ex budget, largely devoted to growing the digital business by launching a marketplace next August. It will have additional categories and stock keeping units from what’s on the website currently, though Gennette said the assortment will be “curated.”
Cap-ex is also earmarked for enhancing personalization online and fulfillment improvements both “upstream and downstream,” Gennette said. The beefed up cap-ex budget marks a return to its historical levels, after sinking to around $600 million in the last few years.
Last quarter, digital sales increased 12 percent versus the fourth quarter of 2020 and increased 36 percent versus the fourth quarter of 2019. Digital penetration was 39 percent of net sales, a 5 percentage point decline from the fourth quarter of 2020, but a 9-percentage point improvement over the fourth quarter of 2019.
Fitch Ratings has upgraded Macy’s to “BBB-” from “BB+” and said the rating outlook is stable. “The upgrade reflects Macy’s recent strong topline trajectory, which provides some evidence of successful implementation of omnichannel and other topline initiatives, Fitch said Tuesday. The ratings agency also cited good cost reduction and balance sheet management and an ability to sustain EBITDA levels.
Still, while enjoying momentum, there are challenges ahead for Macy’s Inc. Gennette sees 2022 playing out with a mix of tailwinds and headwinds. Regarding the former, “There’s a healthy consumer, low unemployment, a return to offices and a return to social activity continuing, and we have international tourism, which is currently about half the level it was pre-COVID-19.” In normal years, international tourism accounts for 3 to 4 percent of Macy’s revenues. “It may not be coming back in 2022, but certainly will in the future,” Gennette said.
Gennette said the business was helped by a fundamental change in the merchandising from what was an over-dependence on dress up, wear-to-work, social occasion and tailored clothing to pumped up casual offerings, as well as developing categories new to Macy’s, such as wine, exercise equipment, pet supplies, health and fitness, and gourmet food.
Bestselling categories last quarter at both Macy’s and Bloomingdale’s were fragrance, fine jewelry, fine watches, sleepwear, luggage, toys, men’s footwear and men’s contemporary.
In other news, Gennette told WWD:
- Additional Bloomie’s stores are in the works. “We have the capital set aside for it.” Bloomie’s launched last year with one unit in Alexandria, Va., and offers contemporary and luxury brands, services, tech-enabled stylists, new store design concepts and a restaurant.
- Market by Macy’s, currently with three units in Texas, and two in Atlanta, will expand to additional markets. The specialty format has branded and private-label fashion, products from local designers and direct-to-consumer brands, food, an apothecary, plants, home items and a café.
- One hundred sixty Macy stores have a “curated” assortment, focused on customers under 40 and a diverse audience, and weighted toward certain brands such as Michael Kors, Steve Madden, Cotton On and private brands such as And Now This. Adjacencies have changed for better flow and navigation, and there’s cross-merchandising of brands.
- An improved balance sheet, with $1.6 billion in debt repaid, and $2.3 billion in free cash flow last year. Macy’s authorized a $2 billion share repurchase program after completing a $500 million share repurchase program. The corporation increased its quarterly dividend by 5 percent to $0.1575 a share from the prior dividend of $0.15.
In January, Macy’s closed six Macy’s mall stores and one Bloomingdale’s Outlet. In late 2019, Macy’s determined it would close 125 closures from 2020 to 2022. So far, about half of those have been closed. But as Gennette said during a conference call with Wall Street analysts Tuesday, “We have delayed most of the remaining closures we earmarked in 2019, in order to maintain a physical presence in many markets while we scale up our off-mall format stores. In addition to being a place for discovery and shopping, our stores are now also fulfillment hubs supporting our digital operations through buy online, pick up in store, curbside pickup and same-day delivery. Keeping these cash-positive stores open also helps to fund the investments we are making to reposition our fleet over the next several years.”
In a statement, Gennette said, “We are more confident in our path forward as one integrated company. The board’s review reaffirmed our conviction that we are pursuing a robust strategy, and it provided us with greater clarity on several initiatives that could be further accelerated to unlock additional value for our shareholders, which we are pursuing.
“Our results in the fourth quarter delivered a strong end to a solid year. I am proud that Macy’s Inc. outperformed expectations on both the top and bottom lines every quarter in 2021, despite COVID-19 related disruptions, supply chain issues, labor shortages and elevated inflation,” Gennette said. “Our business has momentum and is serving more customers at more touchpoints in their shopping journey.
“Our team began the large-scale work of transforming Macy’s Inc. two years ago when we launched the Polaris strategy, and today, we believe the evidence is clear — our business is stronger, more agile and financially healthier. We are more digitally led and customer centric and believe we are better positioned for long-term sustainable and profitable growth,” Gennette continued. “Thanks to the hard work of our colleagues, successful execution of Polaris, and the strategic allocation of our capital, we believe we are well-positioned to successfully navigate the macroeconomic headwinds we expect in 2022.”
The company is accelerating Polaris initiatives that include initiatives to continue growing digital sales, private label offerings and expansion of off-mall, small-format Market by Macy’s and Bloomie’s stores.
In other results for the latest quarter, operating income rose to $1.02 billion, or 11.7 percent of sales, from $401 million, or 5.9 percent of sales, in the same period a year ago.
By division, comparable sales at Macy’s were up 26.5 percent on an owned-plus-licensed basis versus the fourth quarter of 2020, and up 5.2 percent versus the fourth quarter of 2019.
About 7.2 million new customers shopped the Macy’s brand during the quarter, an 11 percent increase versus the fourth quarter of 2019. During the fourth quarter of 2021, 58 percent of new customers came through the digital channel.
Comparable sales at Bloomingdale’s rose 37.6 percent versus the fourth quarter of 2020, and 13 percent versus the fourth quarter of 2019.
About 391,000 new customers shopped the Bloomingdale’s brand during the quarter, a 26 percent increase versus the fourth quarter of 2019 and spent 41 percent more.
The company said it continued to see strong performance from luxury throughout the fourth quarter.
Bluemercury’s comparable sales were up 30.9 percent versus the fourth quarter of 2020, and up 3.1 percent versus the fourth quarter of 2019.
For all of last year, Macy’s Inc. generated $1.43 billion in net income, versus a loss of $3.94 billion the year before. Net sales rose to $24.46 billion, from $17.35 billion in the prior year.