Macy’s Retools Operations As Q3 Sales, Earnings Slide

For the third quarter ended October 31, Macy’s posted company net income of $118 million, or 36 cents per diluted share, versus $217 million, or 61 cents per diluted share, in the period a year prior.

Excluding asset impairment charges of $111 million, or 20 cents per share, primarily related to the previously-announced plans to close 35 to 40 stores in early 2016, third quarter earnings per share were 56 cents, the company asserted.

Despite declines, Macy’s did manage to beat a Thomson Reuters analyst average estimate by two cents per share in the quarter.

Comparable sales on an owned plus licensed store basis were down 3.6% in the quarter year over year. On an owned basis, comps slipped by 3.9% versus the quarter a year ago, the company reported.

Net sales were $5.87 billion versus $6.2 billion in the quarter versus the prior-year period. Operating income in the third quarter was $258 million versus $422 million in the year-earlier period.

Among the business strategies Macy’s has employed to turn around its recent slump, the company noted, are accelerating investments in Macy’s, Bloomingdale’s and Bluemercury’s digital and mobile capabilities to address growth in online shopping, concentrating resources in top, better located stores to boost customer activity and operations productivity, and reducing expenses.

In addition, Macy’s plans call for expanding its newly launched Backstage off-price operation, with plans to roll out about 50 of the freestanding outlet stores in off-mall locations. In spring 2016, Macy’s will plot Backstage operations within up to 10 existing department store locations, creating a new hybrid operation to offer the latest fashions, service and major brands along with the treasure hunt off-price experience. Macy’s also plans to open about 40 additional Bluemercury self-standing beauty specialty locations, bringing the total store base to approximately 115 by the end of 2017, while also integrating Bluemercury shops with department store beauty operations. Plans also call for Macy’s international expansion based on what the company learns from its China limited pilot with Alibaba’s Tmall Global operation, which begins in the fourth quarter.

Macy’s also entered into a deal to open licensed LensCrafters departments in as many as 500 Macy’s stores.

“We are disappointed that the pace of sales did not improve in the third quarter, as we had expected,” said Terry Lundgren, Macy’s chairman and CEO. “Spending by domestic customers remained tepid, especially in key apparel and accessory categories. Simultaneously, the slowdown in buying by international visitors continued to significantly impact Macy’s and Bloomingdale’s stores in tourist centers, which are some of our company’s largest-volume and most profitable locations. We have begun testing and learning from new sales growth initiatives that we believe will begin yielding incremental results in the quarters and years ahead. This included the opening of the first five Macy’s Backstage off-price stores in the New York City metro area, with a sixth opening planned in the fourth quarter.”

Lundgren added, “Heading into the fourth quarter, we are shifting our organization into overdrive to focus on sales-driving activities in the holiday shopping season, when Macy’s and Bloomingdale’s shine as destinations for gift-giving and self-purchase. We also will be opening stores in several of our nameplates in the fourth quarter, including a new Bloomingdale’s at Ala Moana in Honolulu. Moving forward, we are accelerating steps needed to adapt in response to changing customer shopping preferences so we can restore our annual comparable sales growth on an owned plus licensed basis in the years ahead to the level of 2% to 3% while re-attaining an EBITDA rate as percent of sales of 14%. This includes building on our strength as a leading omnichannel innovator with consistent growth in online sales.”