Despite its poor first-quarter showing, Macy’s Inc. expects a bounce back in the back half of the year and is sticking to its guidance for sales and profits.
On Wednesday, Macy’s reported that it fell short of expectations for the first quarter ended May 2, posting a 13.4 percent slide in net profit and a comparable sales slip of 0.1 percent. By midday, Macy’s stock dropped almost 2 percent, or $1.20, to $64.13.
For fiscal 2015, the company still expects comparable sales growth of approximately 2 percent, total sales growth of about 1 percent, and earnings per diluted share of $4.70 to $4.80.
“Most factors behind the weaker sales are behind us, or will be shortly. We are comfortable with our guidance,” Karen Hoguet, Macy’s chief financial officer, said during a conference call. Earnings are expected to be down again in the second quarter.
Short-term factors that the $28 billion Macy’s cited as negatively impacting sales and earnings were the West Coast ports slowdown delaying deliveries of both private label and market brands; the harsh winter weather, and the strong dollar discouraging spending by international tourists. Roughly 5 percent of Macy’s annual sales come from international tourists and those sales were down double digits last quarter, accounting for a one percent drop in the company’s sales, Hoguet said. Flagships in key tourist markets, like New York, Los Angeles and Chicago, were most affected.
Hoguet also blamed some of the sales disappointment on an internal “learning curve” for those involved in the recently announced restructuring of Macy’s and Bloomingdale’s central merchandising and marketing functions to provide a “single omnichannel view” in all categories. Instead of each division having separate marketing teams for stores and online, and separate merchandising teams for stores and online, they are moving forward so each division has one marketing team and one merchandising team covering both channels.
Terry J. Lundgren, Macy’s chairman and chief executive officer, was not available for comment Wednesday. But according to Hoguet, Lundgren has been telling executives that he was disappointed by the performance so far this year but not discouraged. “That sums up how we all feel,” Hoguet said.
Hoguet gave a breakdown of what’s selling and not selling by category. The weakest categories were fashion jewelry, watches, tabletop and housewares, while activewear, dresses, furniture and mattresses were strong. “Digital growth continued very strong,” and southern markets are performing “relatively better” than northern markets, Hoguet noted. She also said the Thalia private brand launch was a success and is resonating with a broad audience though it’s targeted to Latinas.
“The first quarter is a low volume quarter making it a tough quarter to reduce expenses,” Hoguet noted.
“We are disappointed for the quarter and encouraged by our prospects for the back half of the year and beyond,” Hoguet said.
Lundgren and Hoguet tried to keep investors upbeat by revealing a 15 percent increase in its dividend on common stock and a $1.5 billion increase in its share repurchase authorization. Macy’s will hold its annual shareholders’ meeting Friday at the Cincinnati headquarters.
They also cited several initiatives including the acquisition of Bluemercury. “It will contribute to our growth and earnings going forward.” Macy’s has already added four freestanding Bluemercury shops, bringing the current total to 63, and 14 more are expected to open by year-end. “We are developing plans to maximize e-commerce, and expect to open five shops within Macy’s stores this fall.
Other initiatives cited:
– The new Plenti cross-brand loyalty program, launched May 4, which enrolled more than 2 million customers at Macy’s so far. “It will take customers time to start building points and understand the strength of the program, Hoguet said. Plenti lets shoppers earn points at Macy’s, Rite Aid, AT&T, ExxonMobil, Nationwide, Hulu and Direct Energy and bundle those points to get discounts at any of those seven companies.
– Developing strategies to focus on the top 150 doors, such as shifting of space to emphasize stronger brands and categories and bringing in new brands. “Top malls in the country are doing extraordinarily well, but we think we can actually push that growth farther,” Hoguet said. Regarding the remaining 550 stores, “We continue to focus on each and every store with a strategy that works in its local market. Obviously, the elevation of assortment doesn’t work in all markets. Through My Macy’s [the strategy to localize assortments], we have strategies for each and every door.” Some retail experts believe Macy’s has a couple of hundred doors that are underperforming, and that some will be converted to off-price units or possibly nonretail space, such as for office use by other companies.
– Building up the wedding business, with opportunities seen in gift registry, engagement rings, bridesmaid dresses, tuxedos and cosmetics. “This initiative impacts almost every category in the store. It’s a way to build loyalty with Millennial customers.”
– Pumping up the activewear, dresses and jewelry sectors.
– Piloting four off-price Macy’s stores this fall, called Backstage, with an eye for a much larger rollout.
– International expansion. “Numerous third parties have been approaching us about potential partnerships overseas,” Hoguet said.
“Our style is not to make excuses but to take action. Both Macy’s and Bloomingdale’s continue to put in new strategies on every front,” Hoguet said. “Not everything we are doing will pan out, nor should it, but we know the value of testing and learning.”