Macy’s Cuts Holiday Forecast

Macy’s Cuts Holiday Forecast

Macy’s, Inc. reported earnings grew 30 percent in the third quarter but sales came in below expectations, sinking 0.7 percent. The department store giant also lowered its sales and EPS guidance for the year.

Third quarter earnings per diluted share rose by 30 percent to 61 cents in the third quarter of 2014, ended Nov. 1, 2014. This compares with 47 cents per share in last year’s third quarter.

For the first three quarters of 2014, Macy’s, Inc.’s diluted earnings per share were $2.01, an increase of 15 percent compared with earnings of $1.74 per diluted share in the first three quarters of 2013.

“We are very pleased with our third quarter earnings, even though the sales performance fell short of our expectations. On a two-year basis, our third quarter sales trend was essentially unchanged from the first half of 2014. We knew we were up against very strong third quarter sales growth for our company last year, and thus we had anticipated that our year-over-year comparison would be lower in the third quarter than in the fourth quarter. Even so, sales did not live up to our expectations in the quarter. However, we were able to maintain gross margin flat to last year and reduced SG&A expense, even excluding the timing benefit of some items, including the sale of certain assets. All in all, it was a solid quarter for earnings,” said Terry J. Lundgren, chairman and chief executive officer of Macy’s, Inc.

“Going forward, we remain optimistic for the fourth quarter based on several factors. First, we have developed an outstanding merchandise assortment for holiday gift-giving and self-purchase rooted in great style, exclusive offerings and outstanding value during this key shopping period. Second, we have enhanced our transition to fresh post-holiday vacation and resort assortments. Third, we have new store, omnichannel and marketing strategies in place that we believe will drive incremental business throughout the fourth quarter. This includes Buy Online Pickup in Store now rolled out to all full-line Macy’s and Bloomingdale’s locations, Same Day Delivery pilots up and running in eight major Macy’s markets and four Bloomingdale’s markets, and improved functionality and usability in upgraded mobile apps. And fourth, we are poised to capitalize on a return to more normalized weather patterns after the unusually severe snowstorms in the fourth quarter last year,” Lundgren said. “This adds up to a strong opportunity to continue to grow our business this holiday, a time of year when customers naturally gravitate to Macy’s and Bloomingdale’s as primary shopping destinations.”

Sales

Comparable sales together with comparable sales of departments licensed to third parties were down 0.7 percent in the third quarter of 2014 over 2013. Third quarter comparable sales exclusive of licensed businesses were down 1.4 percent in 2014 compared with 2013. Total sales in the third quarter of 2014 were $6.195 billion, down 1.3 percent from total sales of $6.276 billion in the third quarter of 2013.

Comparable sales together with comparable sales of departments licensed to third parties were up 0.8 percent in first three quarters of 2014 over 2013. Year-to-date comparable sales exclusive of licensed businesses were up 0.1 percent in 2014 compared with 2013. For the year to date, Macy’s, Inc. total sales were $18.741 billion, up slightly from total sales of $18.729 billion in the first three quarters of 2013.

Please see the last page of this news release for important information regarding the calculation of the company’s comparable sales and comparable sales together with comparable sales of departments licensed to third parties.

In the third quarter of 2014, the company opened three new Macy’s stores in Sarasota, FL, Las Vegas, NV, and The Bronx in New York City, and closed Macy’s stores in Bradenton, FL, and York, PA. In Torrance, CA, three Macy’s stores were consolidated into two as part of a mall redevelopment. A new Bloomingdale’s replacement store opened in the third quarter in Palo Alto, CA.

Operating Income

Macy’s, Inc.’s operating income totaled $422 million or 6.8 percent of sales for the quarter ended Nov. 1, 2014, compared with operating income of $360 million or 5.7 percent of sales for the same period last year. For the first three quarters of 2014, Macy’s, Inc.’s operating income totaled $1.436 billion or 7.7 percent of sales, compared with operating income of $1.329 billion or 7.1 percent of sales for the same period last year.

Cash Flow

Net cash provided by operating activities was $777 million in the first three quarters of 2014, compared with $819 million in the first three quarters of 2013. Net cash used by investing activities in the first three quarters of 2014 was $596 million, compared with $541 million a year ago. Net cash used by financing activities in the first three quarters of 2014 was $1.406 billion, compared with net cash used by financing activities in the first three quarters of 2013 of $943 million.

The company repurchased approximately 9.0 million shares of its common stock for a total of approximately $534 million in the third quarter of 2014. In the fiscal year to date, the company repurchased approximately 25.3 million shares of its common stock for approximately $1.48 billion. At Nov. 1, 2014, the company had remaining authorization to repurchase up to approximately $1.45 billion of its common stock.

Looking Ahead

The company has revised its 2014 guidance. Earnings per diluted share for the full-year 2014 now are expected in the range of $4.25 to $4.35, compared with previous guidance in the range of $4.40 to $4.50. Guidance is for full-year 2014 comparable sales together with comparable sales of departments licensed to third parties to increase by 1.2 percent to 1.5 percent (0.7 percent to 1 percent on a comparable sales basis exclusive of licensed businesses), compared to previous guidance for growth of 2 percent to 2.5 percent (1.5 percent to 2 percent on a comparable sales basis exclusive of licensed businesses). In the fourth quarter, comparable sales together with comparable sales of departments licensed to third parties are expected to grow by approximately 2 percent to 3 percent (1.8 percent to 2.8 percent on a comparable sales basis exclusive of licensed businesses).