Dive Brief:
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Macy’s Inc. on Wednesday said Q2 net sales fell 3.8% year over year to $4.9 billion, with overall comps down 3.3%. Considering only Macy’s go-forward stores, which will remain open after the banner’s planned downsizing, overall comps fell 3%.
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By banner: Macy’s net sales fell 4.4%, with comps down 3.6%; go-forward store comps fell 2.3% and the others fell 6.5%. At “first 50” Macy’s stores, which have been revamped, comps rose 1%. Bloomingdale’s net sales declined 0.2% as comps fell 1.4%. And Bluemercury net sales rose 1.7%, with comps up 2%, the spa retailer’s 14th straight quarter with positive comps.
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The company swung into the black, reaching $150 million in net income, up from last year’s $22 million net loss. Thanks in part to lower discounts, asset protection efforts and a shift to a cost-accounting method, merchandise margins expanded by 210 basis points. Gross margin expanded 240 points to 40.5%.
Dive Insight:
Macy’s is finally free of a takeover drama that occupied its new chief executive for months, after rejecting activist investors’ $6.9 billion bid last month. Now the department store is leaning into value, not only in terms of discounts, but also enticements related to merchandising, inventory and in-store customer service, executives told analysts Wednesday.
“I said to our team, our challenge is not just to have the lowest price,” CEO Tony Spring said. “Our challenge is to create a compelling reason for the customer to buy at Macy's, Bloomingdale's or Bluemercury.”
As seen in a soft second-quarter performance relative to the first quarter, customers are cautious about their spending, he said, describing the situation as “an environment where the customer is looking for, ‘Why should I buy?’”
Merchandise inventory was up 6% year over year, higher than expected, per the company’s press release. Softer sales and the effort to build inventory for the holiday season contributed to that, although the company’s switch to a new accounting method drove about half of that increase. But the department store expects “to end the third quarter and ultimately the fall season, without any meaningful inventory liabilities,” Chief Operating and Financial Officer Adrian Mitchell told analysts.
“Aged inventories are under control, and we are pleased with the level of newness,” he said. “We're also seeing healthy inventory flows, and have ongoing mitigation strategies in place to offset elevated ocean transit times and constrained container capacity.”
But the company was undeniably hampered by its biggest business, its namesake, in the period, with well over a hundred stores operating without the benefit of its turnaround tactics, according to GlobalData Managing Director Neil Saunders, noting the steep 6.5% decline at stores slated for closure.
“From our channel checks, these stores remain very messy and dispiriting and it is reasonable to expect that they will continue to act as a drag on the overall business until they are closed,” Saunders said in emailed comments. “This managed process of closure and shrinking the business is a necessary evil to get Macy’s back on track.”
