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Dive Brief:
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CEO Jeff Gennette on Thursday declared Macy’s Q3 results "further proof that our Polaris strategy first introduced in February of 2020 is working.” The department store’s net sales in the period fell 3.9% year over year, as e-commerce fell 9% and brick-and-mortar sales fell 1%.
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Comps including licensed sales fell 2.7% but were up 6% compared to 2019, according to a company press release. By banner, comps at Macy’s fell 4%, at Bloomingdale’s rose 4.1% and at Bluemercury rose 14%. Off-price Backstage comps weren’t disclosed, but Backstage shop-in-shops open more than a year “outperformed Macy’s full line doors by 2 percentage points,” per an investor presentation.
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Gross margin contracted to 38.7% from 41% last year. Inventory was up 4% year over year and down 12% compared to 2019, with turnover flat in the last 12 months. Net income fell 54.8% to $108 million.
Dive Insight:
Macy’s largely met or beat expectations in the third quarter, including its own, and its inventory discipline, at a time when many retailers have too much merchandise, was especially pleasing to some analysts. But prospects for the holiday quarter remain murky as consumers grapple with inflation, Macy’s executives said Thursday.
“We believe that management deserves credit for operational discipline in a volatile macro environment,” Telsey Advisory Group analysts said in a client note. “However, while the third quarter performance improves confidence in the annual outlook at a time of mixed-at-best sentiment on holiday, the lower than expected fourth quarter guide speaks to the overall caution and uncertainty around consumer demand and the promotional environment as we enter the all-important fourth quarter.”
Gennette expressed optimism about the holidays in light of what he said were operational improvements under the company’s Polaris plan, along with the retailer’s iconic seasonal traditions. The company has fresh inventory for the holidays — 55% newness, which is 30 percentage points higher than 2019 — and is ready for peak demand times like Black Friday, which will be bolstered by an extra Saturday between Thanksgiving and Christmas this year, he said. Consumers are waiting until closer to the holidays to buy this year, according to Macy’s research.
“[W]hile we are honored to uphold many of the traditions of the past, like the Macy's Thanksgiving Day Parade and Santaland, we’re also there for our current and potential customers as they celebrate the moments and holidays that are most meaningful to them,” he said. “Being a modern department store is key to that relevancy. The concept of a trusted one-stop shop is timeless. It works. But only if it reflects the preferences and needs of our customer. And we have transformed our entire organization to do just that.”
Increasingly that means moving away from the mall. Genette pointed to Macy’s closure of its Chesterfield Mall anchor store in St. Louis, and the simultaneous opening of a smaller Market by Macy’s in a nearby strip center. The trade-off, one of many to come, was completed just last week and is going well, he said.
“The Chesterfield Mall used to be a thriving center — Macy's was really all that was left,” he said. “The balance of the mall had either closed or was no longer there.”
Inflation remains “the biggest headwind” in the fourth quarter due to its potential drag on demand for discretionary categories, but the retailer also enjoys some momentum, Chief Financial Officer Adrian Mitchell told analysts.
“The tailwinds we think we have is how we compete in the marketplace. We know that ... value is important to the consumer, customer experience is important to the consumer, relevance is important to the consumer. So we're really focused on what we can control and how we compete and I think that could be a real tailwind for us.”
But Macy’s is especially vulnerable to macro pressures like inflation because its strategies aren’t working all that well, according to GlobalData Managing Director Neil Saunders. The company has maintained financial discipline that kept gross margin and profit declines in check and made it more profitable than before the pandemic, he said in emailed comments. But he took issue with the strengths and tailwinds described by executives on Thursday.
“Macy’s will disagree with this, and management continually trumpets how the Polaris strategy is working and driving the numbers. We respectfully disagree,” he said, adding that Macy’s central issue remains “abysmal shopkeeping standards and a complete lack of effort in creating a compelling customer experience.”
“From all our extensive channel checks and store visits, Macy’s is one of the worst retailers when it comes to basic shopkeeping standards,” he said. “Management’s statement that ‘retail is detail, and our talented and agile team are executing well to compete’ is so wide of the mark that we find it delusional. It raises a very serious question as to whether Macy’s senior team understand what is happening on the shop floors of their stores. Retail standards are not some nice to have cosmetic feature. They matter.”
via https://www.aiupnow.com
Daphne Howland, Khareem Sudlow
