Macy’s, the well-known department store operator, recently announced its new growth strategy after experiencing another quarter of declining sales. In the holiday quarter, Macy’s reported a nearly 2% decrease in sales compared to the previous year. However, the company’s earnings per share of $2.45 adjusted exceeded Wall Street expectations of $1.96, while its revenue of $8.12 billion fell slightly short of the expected $8.15 billion.
Despite projecting stagnant sales for the upcoming fiscal year, Macy’s new CEO, Tony Spring, expressed a more positive outlook for the following year. Spring, who previously served as the CEO of Macy’s higher-end department store Bloomingdale’s, aims to focus on improving the struggling namesake stores. He emphasized the importance of offering better products, merchandising them appropriately, and providing value to customers in order to increase conversion rates and market share.
As part of its efforts to regain customer interest and investor confidence, Macy’s plans to make significant changes to its store footprint. The retailer intends to close around 150 unproductive locations while investing more in approximately 350 other namesake stores. Additionally, Macy’s will emphasize luxury goods by opening 15 new Bloomingdale’s stores and at least 30 new Bluemercury stores over the next three years. The company also plans to remodel about 30 existing beauty chain stores during that time.
Macy’s had already announced the closure of five stores and over 2,300 layoffs last month. It aims to open up to 30 smaller versions of its namesake stores in strip malls within the next two years. The company also intends to evaluate its e-commerce business and find ways to operate more efficiently, including optimizing its network of warehouses.
Looking ahead, Macy’s expects low-single-digit comparable sales growth on an annual basis in the fiscal year starting in early 2025. The company anticipates a decrease in capital spending compared to 2024 levels and a drop in free cash flow to pre-pandemic levels. It is important to note that Macy’s outlook does not include any potential impact from a proposed credit card late fee ruling by the federal government.
Macy’s, which encompasses its namesake banner, Bloomingdale’s, and Bluemercury, has faced scrutiny from activist investors Arkhouse Management and Brigade Capital Management, who recently made a rejected bid to acquire the retailer. Arkhouse has nominated a slate of nine directors to Macy’s board.
In the fiscal fourth quarter that ended on February 4, Macy’s reported a loss of $71 billion, or 26 cents per share, compared to net income of $508 million, or $1.83 per share, in the previous year. The losses include $1 billion of impairment and restructuring costs related to the closure of approximately 150 locations as part of the company’s turnaround plan. Revenue also fell from $8.26 billion in the year-ago period.
Digital sales during the holiday quarter declined by 4%, while brick-and-mortar sales remained relatively flat. Across the company, comparable sales on an owned-plus-licensed basis decreased by 4.2% compared to the previous year, slightly better than analysts’ expectations of a 5.8% decline. Macy’s namesake store experienced a 4.7% decline in comparable sales, primarily due to struggles in women’s shoes and cold weather apparel and accessories categories. However, the beauty and off-price business, Backstage, performed well during the quarter.
In contrast, Bloomingdale’s and Bluemercury, the two store chains that Macy’s plans to expand, had better performance in the holiday quarter. Bloomingdale’s comparable sales declined by 1.6% on an owned-plus-licensed basis, mainly due to softness in the men’s and designer handbag businesses. On the other hand, Bluemercury saw a 2.3% increase in comparable sales, driven by strong demand for skincare items and color cosmetics.
Macy’s also faced a decline in net credit card revenue, which dropped by 26% compared to the previous year, amounting to $195 million. This decrease can be attributed to higher net credit card losses that the company had to handle.
From a stock perspective, Macy’s shares have fallen about 4% this year, underperforming the approximately 6% gains of the S&P 500 during the same period. The company’s market value currently stands at $5.29 billion.
In conclusion, Macy’s is determined to reverse its declining sales and restore investor confidence. With a new CEO at the helm, the company plans to prioritize investing in its more productive namesake stores, while also expanding its luxury offerings through Bloomingdale’s and Bluemercury. By focusing on better products, appropriate merchandising, and offering value to customers, Macy’s aims to increase conversion rates and market share. Additionally, the company plans to optimize its store footprint and evaluate its e-commerce operations for greater efficiency. While Macy’s faces challenges in a changing retail landscape, its new growth strategy holds promise for a brighter future.
