Macy’s Posts Surprise Profit

Macy’s Posts Surprise Profit

Macy’s Inc. reported a surprise first-quarter profit and lifted its outlook for the year.

Highlights Of The Quarter

  • Performance exceeded expectations on both the top and bottom lines;
  • Comparable sales up 62.5 percent versus 2020 on an owned basis; up 63.9 percent versus 2020 on an owned plus licensed basis;
  • Diluted EPS of $0.32 and Adjusted diluted EPS of $0.39. A loss of 41 cents a share was expected by analysts;
  • The company continues momentum as a digitally-led omnichannel retailer with digital sales growth of 34 percent versus 2020; and
  • Raised full-year guidance bolstered by improved macroeconomic trends and strength of its Polaris strategy execution.

“In our first quarter we outperformed sales expectations across all three of our brands: Macy’s, Bloomingdale’s and Bluemercury. We built on our momentum from the fourth quarter and our sales trend continued to improve throughout the first quarter,” said Jeff Gennette, chairman and chief executive officer of Macy’s, Inc. “These results were driven by the positive effects of the government stimulus program and expanding vaccine rollout, coupled with the accelerated execution of our Polaris strategy, including investments in our digital platforms. Macy’s remains a fashion and style source for customers as a digitally-led omnichannel retailer.”

“As consumers seek to re-engage with each other, we are seeing promising signs that our core customers are shopping again, and we continue to attract new customers, who increasingly begin their shopping experience with us online,” continued Gennette. “Customers are shopping categories that have been strong throughout the pandemic, including home, fine jewelry and watches, fragrance and luxury items. And we’re encouraged by the improvement we’re seeing in special occasion categories as customers begin to travel and return to a pre-pandemic lifestyle. We also have emerging opportunities in new categories and brands, including toys, health & wellness, pet, and home décor.”

“As we look to the rest of the year, we are hyper-focused on meeting consumers’ demand for speed, convenience and a seamless omnichannel shopping experience. We also continue to evolve our merchandising strategy, and we remain a partner of choice for top brands with more collaborative and profitable vendor relationships,” continued Gennette. “With a healthier economy and the reopening of communities as the backdrop to the execution of our Polaris strategy, we are well-positioned to deliver sustainable, profitable growth in 2021 and the years beyond.”

First Quarter Highlights
In addition to prior-year comparisons, Macy’s, Inc. is providing comparisons to 2019 to benchmark its performance given the impact of the pandemic last year.

Diluted earnings per share of $0.32 and Adjusted diluted earnings per share of $0.39 both exceeded expectations for the quarter. This compares to $0.44 of both diluted earnings per share and Adjusted diluted earnings per share in first-quarter 2019.
 Excluding asset sale gains, Adjusted diluted earnings per share for the quarter exceeded first quarter 2019 by $0.04.

Comparable sales up 62.5 percent on an owned basis and up 63.9 percent on an owned plus licensed basis versus 2020. Comparable sales down 10.5 percent on an owned basis and down 10.0 percent on an owned plus licensed basis versus 2019.
 Trend improvement compared to a 17.1 percent owned plus licensed comparable sales decline in the fourth quarter of 2020.

Digital sales grew 34 percent over the first quarter 2020, and grew 32 percent over the first quarter 2019. Digital penetration was 37 percent of net sales, a 6 percentage point decline from the first quarter 2020 when stores closed, but a 13 percentage point improvement over the first quarter 2019.

The company saw Platinum, Gold and Silver customers in its Star Rewards Loyalty program re-engage, with the average customer spend up 10 percent compared to first quarter 2019 and an 11-percentage point trend improvement from fourth quarter 2020. The company’s Bronze segment, its youngest and most diverse loyalty tier continued to grow, adding 1.7 million members.

The company brought 4.6 million new customers into Macy’s brand, a 23 percent increase compared to the first quarter 2019.
47 percent of new customers came through the digital channel in the first quarter 2021.

Gross margin for the quarter was 38.6 percent, up from 17.1 percent in first-quarter 2020 and up 40 basis points from the first quarter 2019. The improvement due to increased merchandise margin was largely driven by inventory productivity and the execution of the Polaris strategy.
 The first quarter 2020 included an approximately $300 million inventory write-down from markdowns on fashion merchandise due to the store closures in the first quarter of 2020 
Delivery expense declined approximately 20 basis points from the first quarter of 2020 and increased 230 basis points from the first quarter 2019, partially due to the higher penetration of digital sales.

Inventory was down 23.1 percent from the first quarter 2019. The decline reflected continued strong inventory management discipline from 2020.

Selling, general and administrative (“SG&A”) expense of $1.7 billion increased $150 million from first quarter 2020 and declined $364 million from first quarter 2019. SG&A, as a percent of sales, was 37.1 percent, down from 52.9 percent in the first quarter of 2020 and an improvement of 130 basis points from the first quarter 2019.
 Disciplined expense management, Polaris savings and improved productivity contributed to the first quarter SG&A performance.

Net credit card revenue of $159 million, up $28 million from first quarter 2020 and down $13 million from first quarter 2019. Represented 3.4 percent of sales, 90 basis points lower than first quarter 2020 and 30 basis points better than first quarter 2019.

Approximately $1.8 billion in cash as of the end of the first quarter due to strong performance and the more efficient use of capital compared to pre-pandemic.

Revised Full-Year 2021 Guidance
As a result of Macy’s, Inc.’s outperformance in the first quarter of 2021 and its improved outlook, the company is raising its full-year 2021 guidance.

Macy’s is now calling for net sales in fiscal 2021 to fall within a range of $21.73 billion to $22.23 billion, up from a prior range of $19.75 billion to $20.75 billion. It estimates it will earn $1.71 to $2.12 per share, after adjustments. Previously, it expected adjusted earnings of 40 cents to 90 cents per share. Analysts had been looking for adjusted earnings of 79 cents per share on revenue of $20.7 billion.

“Our achievements in the first quarter, combined with the faster than anticipated economic recovery, give us the confidence to update our full-year 2021 guidance,” said Adrian Mitchell, CFO, Macy’s, Inc. “The momentum and strength of our digital business are reshaping how we engage with customers as an omnichannel retailer. As we execute the Polaris strategy, Macy’s, Inc. is well-positioned for long-term, profitable growth.”