Macy's says its Polaris turnaround is 'working'

Dive Brief:

Declaring "The Polaris strategy is working," Macy's on Thursday reported second quarter net sales rose 58.7% year over year to $5.6 billion, just up from 2019. A rebound at stores hurt e-commerce, which fell 6% year over year but was up 45% compared to Q2 2019.
Digital sales were 32% of net sales, a 22-percentage point decline from a year ago, but a 10-percentage point increase compared to 2019. Year over year, comps rose 62.2% on an owned-plus-licensed basis; against 2019, comps rose 5.9% on an owned-plus-licensed basis.
The department store swung to a profit of $345 million, from its prior-year $431 million net loss, per a company press release. Gross margin expanded to 40.6% from 23.6% a year ago, and a 180-basis point expansion from 2019. Inventory was down 14.5% from two years ago.

Dive Insight:

Macy's is having a pretty good year so far. The department store is welcoming customers back to its stores after last year's pandemic-related lockdowns, health worries and economic anxiety, which scuttled its Polaris turnaround plans.

CEO Jeff Gennette on Thursday told analysts that Polaris is back on track. The company's off-price Backstage operation in store outperformed the full-line stores they're in, and comps at Backstage stand-alone locations were also up. Bloomingdale's "was strong online and in stores," and its Bluemercury spa business "showed a trend improvement versus the first quarter," he also said.

The department store has paid down $1.3 billion of the debt it incurred in order to stave off financial disaster last year. And as consumers continue shopping despite ongoing concerns about the pandemic, some 5 million Macy's shoppers are newcomers to its brand: the company reported a 30% increase in new customers compared to the same period in 2019, with 41% of them finding Macy's online.

But that has much to do with the broader environment, which includes a mostly confident consumer flush with savings after more than a year of hunkering down, according to GlobalData Managing Director Neil Saunders. In fact, Macy's actually appears to be losing market share, per GlobalData research.

"At best, its performance can be described as treading water," Saunders said in emailed comments. "This is a concern as it reinforces our view that Macy's current results come down to riding the wave of consumer spending rather than of charting its own course to long-term success."

Along with its taking important financial steps, the retailer has also improved the merchandising at many of its stores, including fresh fixtures, point-of-sale upgrades, refined assortments and new categories like toys, according to Saunders.

But those may not be enough for Macy's once the consumer settles down, with less federal relief to count on and, possibly, new worries about the pandemic, Saunders warned. Plus, the retailer may soon find itself sparring with Amazon on its own turf.

"Most stores are a hot mess, with a complete lack of care in merchandising and presentational standards," Saunders said. "There is still too little curation of the assortment. And the roll out of potentially game changing initiatives, such as Market by Macy's, are proceeding at a glacial pace. In a market where the consumer is spending with a vengeance, it is easy to paper over these cracks. However, as the spending trends back towards normality, which it will do at some point, the paper will peel off and reveal the ugliness that lies beneath."