Dive Brief:
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For its namesake banner for Q1, Macy’s on Tuesday broke out financial performance metrics for a “go-forward” fleet of about 350 stores, including a group of 50 whose performance serves as a “leading indicator.” The go-forward locations are those spared from a plan, announced in February, to close 150 stores over the next three years.
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The retailer’s Q1 net sales fell 2.7% year over year to $4.8 billion, with Macy’s comps down 0.4%, Bloomingdale’s up 0.3% and Bluemercury up 4.3%. Comps at the go-forward business, including e-commerce, were flat; comps at go-forward stores rose 0.1% and at first-50 stores rose 3.4%. Comps include owned and licensed merchandise.
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Gross margin contracted to 39.2% from 40% a year ago, with merchandise margin contracting by 100 basis points, mostly due to discounted warm-weather items. Net income plummeted by 60% to $62 million.
Dive Insight:
With a $6.6 billion takeover proposal in front of them, Macy’s leadership, led by newly arrived CEO Tony Spring, seems to have taken an unsparing look at its sprawling network of stores, the consequence of an ambitious expansion decades ago of a retail model that was already in decline.
To some extent, the effort reflects pressure from the company’s would-be suitors, financial firms bent on monetizing its real estate holdings. In the months since their proposal was disclosed, Macy’s has taken its own steps to that end, adding board members with real estate expertise and announcing that property value — in some cases more than profitability — will help determine which stores will close in the next three years.
Still, the carved-out metrics for the surviving fleet do provide a glimpse into the potential of a future Macy’s.
Those stores are already the strongest, so their more robust performance makes sense, according to GlobalData Managing Director Neil Saunders. Moreover, since these figures have never been previously available, it’s hard to know what their trajectory has been, he said in emailed comments.
“All that said, the numbers are encouraging, and they underline why Macy’s is right to cut out the dead wood of underperforming stores and to make investments in locations that have a future,” he said.
The work going into this turnaround involves not just shrinking the fleet but also overhauling stores that will remain. Customers and vendors are responding well to improvements in merchandising that have gone into many of the go-forward stores, with a focus on the top 50, Spring told analysts Tuesday.
“The first 50 represent what we can do when we deliver on our customers’ expectations,” he said. “During the first quarter we enhanced merchandising through elevated product rollouts. Full-price and planned promotional sell-throughs of new and expanded assortments has been strong.”
Net promoter scores in these locations improved about 500 basis points year over year, more than 250 basis points above all other Macy's stores, he also said.
These investments have already begun to squeeze the bottom line, though the carved-out metrics could help smooth jittery nerves from investors used to taking a shorter-term view, at a time when Macy’s “needs to be given the time and breathing space to put its plans into action,” Saunders said.
“The year ahead will be one of transition and investment. It is also one in which Macy’s could face continued pressure from activist investors. However, the advantage the group now has is that it has a clearer vision and a stronger plan,” he said. “This is something that was absent under previous leaders and it is a good start to putting Macy’s on the right track.”
