Macy’s is “feeling good” about what’s right around the corner, despite last quarter’s depressed sales.
“Here is the good news. The consumer is out there shopping in our categories. I am encouraged by that,” Jeff Gennette, Macy’s chief executive officer, told WWD on Thursday.
That was right after the $26 billion department store chain reported a lift in third-quarter net income to $34 million from $15 million a year ago, while comparable sales fell 3.6 percent. Earnings per diluted share reached 12 cents, or 23 cents per share excluding restructuring and other costs and noncash retirement plan settlement charges. This compares with 5 cents per share in the third quarter of 2016, or 17 cents excluding noncash retirement plan settlement charges.
Sales in the three months ended Oct. 28 totaled $5.3 billion, a decrease of 6.1 percent, compared with sales of $5.6 billion in the third quarter of 2016. Macy’s said the decline in total sales reflects, in part, the closure of stores previously announced by the company.
Related Galleries
“I think there is growth for us,” Gennette said. “The fourth quarter is going to be good. I feel good about the mood of the consumer and our holiday plans.”
The best-performing areas at Macy’s were fragrance, fine jewelry, active, dresses, men’s tailored clothing, men’s dress shirts, handbags, cosmetics, shoes and limited-time capsule collections.
The weakest areas were coats, boots, winter accessories and home. Handbags were in the negative zone though improvement was seen.
Overall, sales at the Bloomingdale’s division were stronger than Macy’s, particularly in home categories.
Comp sales were worse than expected due to the hurricanes and warm fall weather. Sales of cold-weather merchandise were $50 million below what was expected. Tourism continues to be a drag on the company, with tourist sales last quarter dropping more than 11 percent.
However, Gennette said Macy’s inventory is “in a good place” and that “overlapping” discounts and promotions of a year ago have been “cleaned up.”
Macy’s is expecting comparable sales to be down 1.9 percent in the fourth quarter, significantly less than last quarter. According to Gennette, the improvement would stem from continued digital sales gains where Macy’s has had 33 consecutive quarters of double-digit growth, as well as the new loyalty program launched Oct. 2, some post-hurricane recovery and colder weather ahead. The loyalty program is important since 10 percent of Macy’s customers account for half the revenues. Fourth-quarter margins are expected to be flattish.
While several of Macy’s initiatives, such as Backstage and its steady diet of exclusive capsule collections from designers and brands, seem to be taking, it remains to be seen whether the $26 billion Macy’s can get back to posting positive revenue gains and beat back the headwinds impacting department stores and malls generally.
Macy’s does have improved inventories and open-to-buys, which puts the retailer in a stronger position to reorder any merchandise that proves to be in heavy demand and running low. “There is always inventory available out there. If you have liquidity, if you have seen something the customer is responding to, and if you have a buyer ready to go. you can generally find it,” or something similar, Gennette said.
In addition, Macy’s recently streamlined its merchandising organization and certain ordering approval processes, which means the team is nimbler and can react faster to trends, potentially lifting sales results.
Without the benefit of sales improvement, Macy’s was largely able to lift income through margin improvement and cost controls. There was also a $65 million gain in asset sales.
Sales improvement could also come from Backstage, which is getting bigger at Macy’s. The rollout of the off-price format, occurring inside Macy’s full-line department stores, will accelerate next year, Gennette said, though to what degree precisely is to be determined. There are 45 Backstage areas inside Macy’s stores.
In another significant development, Macy’s, through its year-old partnership with Brookfield Asset Management, has determined that about two-thirds of the 50 properties being examined will in one way or another get redeveloped. “There are a lot of negotiations going on,” Gennette said during the interview. Gennette acknowledged there’s a range of redevelopment possibilities that in some cases could involve creating “a ring of restaurants” on a property, or converting a parking lot for mixed use. Macy’s is also examining potential ways to monetize some upper floor space at the Herald Square and Chicago flagships.
During a conference call with retail analysts, Gennette mentioned “signs of life” in apparel. Further explaining that to WWD, he said, “Parts of apparel have never been tough. The dress business is just great. That continues. Active continues to be quite strong.” In addition, he said some suiting areas in men’s and women’s, and kids, are picking up. With casual sportswear, it’s a “play-by-play” situation in the full-line stores, while there is clear growth in casual in the Backstage off-price business.