Macy's executives said the retailer's turnaround efforts, including revamping its brick-and-mortar locations, are starting to take hold as it posted its strongest comparable-store sales growth in 12 quarters.
The New York department store operator — parent of its namesake chain as well as luxury retailers Bloomingdale's and Bluemercury — on Wednesday reported second-quarter earnings that surpassed Wall Street's expectations. Macy's also raised its full-year guidance.
Overall, Macy's net sales, including store closings, decreased 2.5% to $4.8 billion, with roughly $170 million of the sales decline attributable to the closing of 64 stores at the end of last year. Comparable store sales were up 0.8% on an owned basis and up 1.9% on an owned-and-licensed basis compared with the prior-year period. Those numbers reflect positive comparable sales at all three of Macy's chains, according to the retailer. "Owned" sales are from what Macy's and its banner companies sell directly to consumers, while licensed sales are revenue from vendor departments.
In addition, "Macy's Inc. and Macy's nameplate both had their strongest comparable sales in 12 quarters," said Chairman and CEO Tony Spring said on an earnings call.
He is into the second year of his "Bold New Chapter" strategy to mount a comeback for Macy's core chain, a plan that includes closing 150 underperforming stores to focus on the remaining 350 locations. So far, Macy's has weeded out dozens of stores and "reimagined" 125 others. The changes and improvements, including offering a better array of merchandise and better customer service, are resonating with shoppers, Spring said.
"We have shifted from being an operationally led to customer-led organization and are calibrating our assortments on both a brand and category basis," he told Wall Street analysts.
'Struggling company'
But one good quarter doesn't mean Macy's problems are all solved, according to some retail analysts.
"Macy's earnings are only 'good' in the relative sense," David Swartz, senior equity analyst at Morningstar Research Services, said in an email to CoStar News. "This is still a struggling company with poor sales growth and margins. I don't think Macy's is in any danger of falling into financial distress. I didn't think that even when its debt situation was much worse. So, I would say that Macy's is out of the woods in terms of severe problems, but I wouldn't say that it has found great success either."
Macy's didn't respond to an email from CoStar News seeking comment on Swartz's remarks.
Macy's slices and dices its comparable-store sales numbers in various ways, which Neil Saunders, a retail analyst and managing director at analytics firm GlobalData, called attention to.
"At the Macy's nameplate, comparable sales increased by 0.4% on an owned-basis," he said in a note. "For reimagined stores, which are the ones Macy's is investing in, comparable sales rose by 1.1%. This is a comfortable delta that gives some confidence that the improvements being made to the in-store experience are taking hold. We need quite a few further quarters of this kind of uplift to fully bed in confidence, but the results chime with our data on improved satisfaction and customer ratings which are helping things like visitation and conversion."
Macy's didn't respond to an email from CoStar News seeking a comment on Saunders' remarks.
In a note Wednesday afternoon, Swartz wrote, "Macy's owned comparable sales outperformed our estimate of a 2% decline. Underperforming stores that are slated for closure over the next 16 months continue to weigh on results. As Macy's downsizes, we project consistent, but small, 0.5% yearly same-stores sales growth."
And Saunders said Macy's comparable-store sales uplift this quarter isn't a function of closing weaker stores.
"On a year-over-year basis, they have only shuttered five more stores than they did last quarter and the comparable [store sales] have strengthened by way more than the closures could influence," he said in an email to CoStar News. "The 125 reimagined stores, which have remained consistent over time, also saw comparables rise."
Favorable reactions
The changes in Macy's 125 improved stores included more staffing, Spring has said in the past. Overall, the chain is getting more favorable reactions from consumers, he added, getting a high mark on Net Promoter Score, an industry market research metric that gauges a customer's loyalty and satisfaction.
"We view this as an important measure of customer sentiment and a leading indicator of future sales," Spring said. "I recently received a note from a customer who had just visited a store and they said shopping at Macy's was such a pleasant surprise."
The note said the store was clean, organized and, most importantly, the employees were a joy to interact with, and the service had improved tremendously, according to Spring. That shopper planned to return to Macy's, the CEO said.
"I read every customer note that I receive," Spring said. "Listening to feedback is one of the most important ways we can improve and grow our business."
Macy's has also improved its product curation, according to Spring.
"As one of their largest partners, we receive compelling product from the brands our customers are asking for, including Coach, Donna Karan, Levi's and Ralph Lauren, just to name a few," he said. "And as these brands thrive at Macy's, other brands are taking notice. We've been attracting new partners including Abercrombie Kids, expanding our distribution of existing labels such as Sam Edelman, Hugo Boss, Good American, and we're continuing to update our private brand assortment."
In terms of category performance, comparable sales of women's contemporary and career as well as men's tailored clothing performed well, and there was strong demand for fine jewelry and watches, textiles and mattresses, Spring said.