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Macy’s beats low Q1 estimates as it weighs between a turnaround and an acquisition
Macy’s (M) beat weak Q1 expectations as a takeover bid remains on the back burner.
As of Tuesday morning, the department store chain reported revenue of $4.85 billion, down 2.7% from last year and slightly above Wall Street estimates of $4.81. billion. Its adjusted earnings per share of $0.27 also beat the $0.14 expected.
Same-store sales fell 1.2% at company-owned stores, less than the 3.01% decline predicted by Wall Street.
“We believe we are gaining traction, it is still early days… We are still practicing the changes in the stores from a staffing, sales and service perspective, there are a number of changes that have not yet been implemented,” Macy’s CFO and COO, Adrian Mitchell, told Yahoo Finance over the phone.
This is the first quarterly report since CEO Tony Spring, who took the helm earlier this year, launched the “Bold New Chapter” initiative for the company. The global strategy includes plans to close 150 underperforming stores over the next three years, improve the remaining stores and product range, and invest in digital sales.
In the quarter, the other focus stores had same-store sales growth of 0.1%, compared to a 4.5% drop in closed stores.
In a conference call with investors, Spring said the addition of “new brands like Donna Karan or the expansion of brands like French Connection, Free People and Karl Lagerfeld and Hugo Boss” helped boost sales at these focus stores.
The company now expects to end 2024 with net revenue in the range of $22.3 billion to $22.9 billion. Same-store sales are expected to be between a 1% year-over-year decline and a 1.5% increase. This compares to the previous expectation of a decline of around 1.5% to an increase of 1.5%.
Adjusted earnings also got a boost, projected to end the year in the range of $2.55 to $2.90, compared with $2.45 to $2.85 previously.
“We’re not making any assumptions of an improvement in the consumer situation,” Mitchell said of the difficult consumer landscape. “We continue to believe that there is a lot of uncertainty, inflation remains stubborn.”
Guests attend the 2024 Macy’s Flower Show at Macy’s Herald Square on March 24, 2024, in New York City. (Noam Galai/Getty Images for Macy’s, Inc.) (Noam Galai via Getty Images)
Wall Street remains skeptical about the company’s future.
Ahead of the report, UBS analyst Jay Sole said the new initiatives were “unlikely” to make a difference.
In a note to clients, Sole wrote: “These initiatives are not part of our base case. However, they are part of our positive case.” He identified the three key areas as “Macy’s Backstage, Macy’s small store initiative and its omnichannel service improvements, both online and in-store.”
The story continues
Since 2012, Macy’s has lost 25% of its market share “primarily to off-price retailers, brands and Amazon,” according to Sole.
CFRA analyst Zachary Warring expects sales to continue falling, “with a single-digit decline over the next five years,” he wrote in a client note.
The company did not provide any update on Arkhouse Management and its partner Brigade’s $6.6 billion bid to take the department network private. In mid-March, they both said on a SEC Filing that they were working on a confidentiality agreement with Macy’s that would allow buyers to perform financial due diligence.
“We will be focused on continually simplifying our business to expand margin and invest in customer experience. But now it’s about growth,” said Mitchell, who alluded to Macy’s focus on staying the course as a public company.
As of market close on Monday, Macy’s had a market value of about $5.3 billion.
The Earnings Summary
Here’s what Macy’s reported, compared to Wall Street estimates, according to Bloomberg data:
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Liquid sales: US$4.85 billion versus US$4.81 billion
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Adjusted EPS: $0.27 versus $0.14
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Same-store sales: -0.30% versus -2.78%
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Gross margin: 39.2% versus 39.63%
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Adjusted net profit: US$77 million against US$39.6 million
Other areas of note include its two subsidiaries, Bloomingdale’s and cosmetics company Bluemercury, which reported same-store sales growth, up 0.8% and 4.3%, respectively.
“We’re just betting on these luxury brands. We’re definitely pleased with the performance and feel like there’s a lot more ground there,” said Mitchell, who also identified beauty as an important category for customers.
The company’s credit card revenue fell $45 million to $117 million due to “the impact of expected higher delinquency rates and net portfolio credit losses.”
Mitchell said the team is monitoring the situation “very closely.”
“Our credit card customer tends to be a relatively healthy customer within the portfolio… But what we’re seeing is not out of the ordinary in terms of what our projections are,” he said.
He added that more promotions or discounts could emerge in the second quarter as Macy’s seeks to attract value-focused customers.
Merchandise margin fell 1% in the quarter due to discounts on warm-weather products, while merchandise inventory was 1.7% higher than last year, Warring wrote in a separate note.
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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter at @Brooke DiPalma or send an email to bdipalma@yahoofinance.com.
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