The strong quarterly results pushed Macy’s stock up 19.6 percent to $21.61 at the close of the market Thursday.
Digital sales declined 6 percent versus the second quarter of 2020 and grew 45 percent versus the second quarter of 2019. Digital penetration was 32 percent of net sales, a 22 percentage-point decline from the second quarter of 2020, but a 10 percentage-point improvement over second-quarter 2019. The decline in digital sales compared to the prior year was driven by the shift of omnichannel customers to stores, which are now fully open.
Macy’s has beat estimates for both earnings per share and sales each quarter since the second quarter of 2020.
Gennette said going forward he sees Macy’s benefiting from two other tailwinds: the return of international tourism, which he predicts will happen in the second half of 2022, and the return of office workers to urban settings, which he said has been delayed due to the COVID-19 Delta variant but should happen later this year, though that all depends on whether the pandemic subsides or not, Gennette added.
Macy’s capital budget is increasing from $650 million for this year to $1 billion annually over the next few years, and will be heavily allocated to digital, data analytics and technologies, including systems and software that simplify the customer journey and improve the speed and convenience of shopping online, and a new app.
Macy’s ended the second quarter with about $2.1 billion in cash, allowing the company to invest back in the business, de-leverage its balance sheet, and return capital to shareholders. As previously announced, the company voluntarily repaid $1.3 billion in senior secured notes on Aug. 17. Macy’s Inc. has long-term debt of almost $3.3 billion.
Macy’s Inc., which operates the Macy’s, Bloomingdale’s and Bluemercury brands, is reinstating its regular quarterly dividend at 15 cents a share on its common stock, resulting in an annual return of cash to shareholders of nearly $200 million. The dividend is payable on Oct. 1 to shareholders of record at the close of business on Sept. 15. The company has authorized a $500 million share repurchase program.
The company raised its guidance for this year. Sales are now seen reaching between $23.55 billion and $23.95 billion, compared to previous guidance of $21.73 billion to $22.23 billion. Adjusted diluted EPS are seen at $3.41 to $3.75, compared to previous guidance of $1.71 to $2.12.
While there is reason for optimism, concerns perpetuate largely because of the unpredictability of the pandemic. This summer, COVID-19 cases have continued to rise again across the country, worrying retailers, particularly those selling “nonessentials.” Executives are keeping a watchful eye on the path of the pandemic and hope that government officials don’t reimpose the kind of restrictions or mandated closings they saw last year.
Macy’s, like other retailers, confronts labor shortages that could impact service for holiday. International tourism, accounting for 3 to 4 percent of Macy’s Inc. revenues, has dried up, though domestic tourism is picking up.
There’s also inflation, supply chain bottlenecks, urban stores remain far less trafficked than suburban units, and there are high costs associated with fulfilling digital orders. Macy’s needs to get more shoppers to take advantage of the buy online pick up in store service, or BOPIS, to save on delivery costs. Macy’s officials say the company is developing ways to increase BOPIS usage, as well as make shipping from stores faster and more efficient through automation.
He said back-to-school had a strong start, with high, single-digit improvement versus 2019, and selling across the board, in girls and boys. Denim, T-shirts, uniforms, backpacks and active were all singled out.
With supply chain bottlenecks and reduced inventories, Macy’s has reduced its price promotions and couponing.
“We are committed to growing our AUR (average unit retail price) and our retail margins,” Gennette said, adding he hopes the reduced promoting can go through holiday and into 2022, though as the supply chain normalizes and more product is available, prices are affected. Gross margin last quarter was 40.6 percent, up from 23.6 percent in the second quarter of 2020 and up 180 basis points from the second quarter of 2019.
At the Macy’s division, comparable sales were up 5.2 percent compared to the second quarter of 2019 and saw a 15.6 percent trend improvement to the first quarter of 2021. Bloomingdale’s comps rose 11.5 percent compared to the 2019 period and saw a 18.6 percent trend improvement to 1Q21. Bluemercury’s comp sales rose 2.2 percent compared to the 2019 quarter and saw a 17.6 point trend improvement to the first quarter of 2021.