Macy’s takes off in first quarter, profits soar
With shoppers in a mood to spend, particularly on clothing, Macy’s surpassed profit and revenue expectations for the first quarter of the year and raised its outlook.
The company reported its second straight quarter of higher sales at existing stores after a three-year funk. Its shares surged nearly 9 percent Wednesday, and the stocks of other department store chains rose as well. The rosy performance bodes well for J.C. Penney and Nordstrom, both set to report their quarterly results on Thursday. All are working to appeal to shoppers who are spending more online rather than at department stores.
Macy’s, the first of the group to release its results, has been expanding its store label brands, adding more of the off-price Backstage stores, and upgrading its checkout technology to make it faster and easier for shoppers. It’s also testing more curated merchandise displays and localized marketing. It also recently bought the concept store called Story, which rotates themes and what it sells every few months, and brought Story’s founder Rachel Shechtman aboard to create better shopping experiences at Macy’s.
Chairman and CEO Jeff Gennette said the company saw strength across its Bloomingdale’s, Bluemercury and Macy’s brands. He said results are improving at its stores, coupled with robust online and mobile growth. Macy’s also said business got a lift from an increase in spending from international tourists, the first time since 2014.
“While we have more work to do, the continuing improvement in our stores is encouraging,” Gennette said in a statement.
Macy’s results follow government data released Tuesday showing that U.S. retail sales rose a solid 0.3 percent in April, a sign that shoppers may be rebounding from weak spending earlier this year. The spending gains were spread across most retail categories, especially big increases at furniture and clothing stores. Those are trends that could help department stores.
A strong job market could help drive spending gains. Tax cuts have also left most U.S. households with more money to spend, though higher gasoline prices have been cutting into that. Measures of consumer confidence remain mostly healthy.
Neil Saunders, managing director of GlobalData Retail, described Macy’s results as “solid progress” but cautioned that much of the momentum is fueled by the favorable economic backdrop. He also noted that the shift of the big Friends and Family promotion to the first quarter helped results.
“Macy’s still has many fundamental issues that it needs to work through,” he wrote, noting a still-unattractive store experience, customer traffic declines in many locations and tough competition.
For the period ended May 5, Macy’s Inc. earned $139 million, or 45 cents per share. A year earlier, the company earned $78 million, or 26 cents per share. Stripping out impairment charges and other costs, earnings were 48 cents per share. Excluding asset sales gains, earnings were 42 cents per share.
Analysts polled by Zacks Investment Research were calling for earnings of 36 cents per share.
Revenue rose to $5.54 billion from $5.35 billion, also beating Wall Street’s view. Sales at company-owned stores open at least a year increased 3.9 percent. At owned and licensed locations, they climbed 4.2 percent.
Macy’s now foresees a fiscal 2018 adjusted profit of $3.75 to $3.95 per share. Revenue is now expected to be down 1 percent to up 0.5 percent. The chain’s prior outlook was for an adjusted profit between $3.55 and $3.75 per share and revenue that would be down 0.5 percent to 2 percent.
The company, which has corporate offices in Cincinnati and New York, also announced that it’s ending its China e-commerce joint venture with Fung Retailing Ltd. It will remain active on Alibaba’s e-commerce platform TMall and social media channels.
Macy’s shares rose $2.67 to $32.60 on Wednesday.