NEW YORK – Macy's offered an upbeat outlook on Tuesday after reporting strong quarterly results that exceeded Wall Street estimates despite a slew of challenges from inflation to supply chain clogs.
The New York company also said that it would not spin off its ecommerce division from its Macy's and Bloomingdale's stores, rejecting a push from activist investor Jana to separate the businesses to create better value, similar to what Saks Fifth Avenue did early last year. The decision followed a comprehensive review, Macy's said.
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Like other retailers, Macy’s faces rising costs for everything from labor to shipping as supply chain backups hit companies worldwide during the holidays. This past holiday quarter also offered an extra challenge: a contagious new variant, omicron, that made some customers nervous about going into stores. It also forced many workers to take sick leave, resulting in surging costs for companies having to hire more workers beyond what was planned to fill that gap.
In November, Macy’s said that it would a pay minimum of $15 per hour for new and current workers by May.
But Macy's said it navigated supply chain shortages by working with suppliers and placing bets on such products as fragrances, fine jewelry, home decor, toys, and sleepwear, all areas that performed well in the fourth quarter. Macy's CEO Jeff Gennette told analysts on a earnings call Tuesday that sales of dressy clothing are improving but it's still not back to pre-pandemic levels.
Macy's executives also noted that it's looking at where it can raise prices. In the opening prices for mattress or sofas, for example, something that might have been $500 might have had to be priced at $549 or $599 to make the same profit margin. But, in those cases, the customer pushed back.
Gennette believes there are lots of tailwinds.
“We believe the consumer demand will remain healthy as the job market improves and wages continue to rise," said Gennette. “We expect demand to increase, particularly as people return to the office and to social events."
Gennette also noted that international tourism remains a big opportunity, particularly beyond 2022. This past fiscal year, international tourism was down 50% at Macy's from 2019 levels with the fourth quarter strengthening before omicron weighed on shoppers' moods.
Gennette said inflationary cost pressures, both for the retailer and consumers, supply chain disruptions, competition for talent, and potential COVID variants would remain threats to the business, but he says he's confident Macy's will be able to navigate them because of its agility and its financial health.
Macy's earned $742 million, or $2.44 per share, for the three-month period ended Jan. 29. That compares with $160 million, or 50 cents per share, in the year-earlier period. Adjusted earnings were $2.45 per share.
Revenue rose nearly 30% to $8.66 billion from $6.78 billion in the year-ago quarter.
Analysts were expecting profits of $2.01 per share on $8.46 billion in sales.
Sales at store opened at least a year — a critical measure for a retailer's health — rose 28.3%. That excludes licensed businesses like cosmetics. Online sales were up 12% for the quarter. Macy's online business accounted for 39% of net sales for the quarter, down a bit from the pandemic-induced online shopping surge during the fourth quarter of 2020 , but still up nearly 9 percentage points compared to the fourth quarter of 2019.
Roughly 7.2 million new customers shopped the Macy’s brand during the quarter, an 11% increase versus the fourth quarter of 2019. During the fourth quarter of 2021, 58% of new customers came through the digital channel, the company said.
Meanwhile, Macy's said its decision to reject the call for a spin off of its e-commerce decision came after a lengthy comprehensive review by the board, with the assistance of independent financial, legal and third-party advisers and the company’s management team.
It said that key to the board decision-making were the high separation costs and ongoing costs from operating separated businesses, as well as high risk for the business and the company’s customers. Instead, the company is accelerating initiatives that expand such areas as online, private label and the increase off-mall, small-format Market by Macy’s and Bloomingdale's stores.
The retailer projects earnings per share excluding certain items in the range of $4.13 to $4.52 a share. That's above the $4.09 per share average estimate of analysts surveyed by FactSet. Net sales are forecast to be $24.46 billion to $24.7 billion, above the $24.34 billion that analysts expected.
Macy’s shares rose about 1.4% to $26.07 in late morning trading Tuesday.
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