10-Q: Macy's Reports Mixed Q1 Results Amid Strategic Transformation

Macy's first quarter results show a slight sales decline and reduced profits as the company continues to implement its 'A Bold New Chapter' strategy.

Summary

• Macy's, Inc. reported a decrease in net sales to $4.846 billion from $4.982 billion in the same quarter last year.
• Total revenue decreased to $5.000 billion from $5.173 billion year-over-year.
• The company's comparable sales declined by 1.2% on an owned basis and 0.3% on an owned-plus-licensed-plus-marketplace basis.
• Net income decreased significantly to $62 million from $155 million in the prior year.
• Diluted earnings per share fell to $0.22 from $0.56 year-over-year.
• EBITDA was $345 million, down from $466 million, and adjusted EBITDA was $364 million compared to $468 million.
• The gross margin rate decreased to 39.2% from 40.0% due to increased discounting.
• SG&A expenses decreased to $1.911 billion from $1.950 billion, but increased as a percentage of total revenue to 38.2% from 37.7%.
• Macy's is implementing its 'A Bold New Chapter' strategy, which includes closing approximately 150 underperforming stores over the next three years.
• The company is focusing on revitalizing its assortment, growing digital sales, and accelerating growth in its luxury brands, Bloomingdale's and Bluemercury.
• Macy's digital visits increased by 2.3%, but the conversion rate decreased by 14 basis points.
• The company opened one new small format Macy's store and plans to open 11 more this year.
• Bluemercury reported its 13th consecutive quarter of comparable sales growth, driven by skincare and brand expansions.
• Merchandise inventories increased by 1.7% year-over-year.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the decline in sales, profits, and gross margin. While there are some positive aspects, such as the performance of the 'First 50' locations and Bluemercury, the overall financial results are concerning and indicate challenges ahead.

Positives

• The 'First 50' Macy's locations showed positive comparable sales growth of 3.3% on an owned basis and 3.4% on an owned-plus-licensed basis, indicating the potential of the new strategy.
• Bluemercury continues to perform well with a 4.3% increase in comparable sales, marking its 13th consecutive quarter of growth.
• Macy's Media Network revenue increased by 28%, showing growth in this area.
• Digital visits increased by 2.3%, indicating continued customer engagement online.
• Delivery expense as a percent of net sales improved 20 basis points from the first quarter of 2023 reflecting ongoing efforts to improve supply chain efficiency.

Negatives

• Macy's, Inc. experienced a 1.2% decline in comparable sales on an owned basis and a 0.3% decline on an owned-plus-licensed-plus-marketplace basis.
• Net income decreased significantly to $62 million from $155 million year-over-year.
• Diluted earnings per share decreased to $0.22 from $0.56 year-over-year.
• The gross margin rate decreased to 39.2% from 40.0% due to increased discounting.
• Credit card revenues decreased by $45 million due to higher delinquency rates and net credit losses.
• The conversion rate for digital sales decreased by 14 basis points.
• Big ticket, home, and handbag categories continued to underperform.

Risks

• The company faces risks related to the successful implementation of its 'A Bold New Chapter' strategy.
• There are risks associated with general consumer shopping behaviors and spending levels, including the shift to digital channels.
• The company is exposed to competitive pressures from various retail channels.
• There are risks related to potential systems failures, security breaches, and cyberattacks.
• The company faces risks related to the cost of colleagues, including inflation and benefits.
• There are risks associated with transactions and strategy involving the company's real estate portfolio.
• The company is exposed to risks related to weather, natural disasters, and health pandemics.
• There are risks related to supply chain disruptions, inventory shortages, and labor shortages.
• The company is exposed to risks related to its reliance on foreign sources of production and import duties.
• There are risks related to the company's level of indebtedness and changes in currency, interest, and exchange rates.

Future Outlook

The company views fiscal 2024 as a transition and investment year as it implements its new strategy, 'A Bold New Chapter', which is designed to return the company to enterprise growth, unlock shareholder value, improve the omni-channel experience and better serve its customers. The company expects to open 11 more small format Macy's stores this year, bringing the total to 24 by the end of fiscal 2024. They also plan to open approximately 15 small format Bloomingdale's and Bloomie's locations through fiscal 2026.

Management Comments

• The Company continues to view fiscal 2024 as a transition and investment year as it implements its new strategy, A Bold New Chapter.
• The Company was encouraged by customer response to A Bold New Chapter through progress of its initiatives.
• The First 50 locations are a key component of the Macy's Bold New Chapter growth strategy.
• The Company is focused on offering newness across categories.
• The Company is actively advancing on solutions to consolidate capacity, increase automation and reduce costs across the network.

Industry Context

The results reflect the ongoing challenges faced by traditional department stores in a rapidly changing retail landscape, with increased competition from online retailers and shifting consumer preferences. Macy's is attempting to address these challenges through its 'A Bold New Chapter' strategy, which includes store rationalization, digital growth, and a focus on luxury brands. The performance of the 'First 50' locations and Bluemercury suggests that these strategic initiatives have potential, but the overall results indicate that the company still has work to do to achieve sustainable growth.

Comparison to Industry Standards

• Macy's comparable sales decline of 1.2% is worse than some competitors who have reported flat or positive growth in the same period, such as some off-price retailers.
• The decrease in net income and diluted EPS is a concern, as many retailers are focusing on improving profitability through cost-cutting and efficiency measures.
• The growth in Bluemercury is a positive sign, as the luxury beauty sector has been performing well, with companies like Ulta and Sephora showing strong results.
• The company's digital sales, while representing 32% of net sales, need to improve in terms of conversion rates, as other retailers are seeing higher conversion rates with their online platforms.
• The store closures are in line with industry trends, as many retailers are rationalizing their physical footprint to focus on more profitable locations and digital channels, similar to actions taken by companies like JCPenney and Sears in recent years.

Stakeholder Impact

• Shareholders will be impacted by the decrease in net income and diluted earnings per share.
• Employees may be affected by the store closures and restructuring efforts.
• Customers may experience changes in store locations and product offerings.
• Suppliers may be impacted by changes in the company's sourcing and inventory strategies.
• Creditors may be affected by the company's financial performance and debt levels.

Next Steps

• The company will continue to implement its 'A Bold New Chapter' strategy.
• Macy's will close approximately 150 underperforming stores over the next three years.
• The company plans to open 11 more small format Macy's stores this year.
• The company will open approximately 15 small format Bloomingdale's and Bloomie's locations through fiscal 2026.
• Macy's will refresh its kid's private brands in the summer of 2024 and introduce a new men's contemporary apparel brand later in the year.
• The company will continue to focus on revitalizing its assortment, growing digital sales, and accelerating growth in its luxury brands.

Key Dates

Keywords

retail, omni-channel, department store, Macy's, Bloomingdale's, Bluemercury, e-commerce, digital sales, comparable sales, financial results, restructuring, store closures, luxury retail, supply chain, inventory