Macy’s provided an upbeat outlook after reporting strong quarterly results that exceeded Wall Street estimates despite a host of challenges from inflation to supply chain disruption.
Macy’s also indicated that it would not spin off its e-commerce division from its Macy’s and Bloomingdale stores, rejecting a push from activist investor Jana to separate the businesses, following a similar move by Saks Fifth Avenue.
“We delivered strong results in the past quarter and year,” said Macy’s CEO Jeff Gennette on a call with analysts. “We continue to make good progress on the transformation of our company and build momentum. And we are much better positioned for long-term success. Our business has changed dramatically since 2019 when we began to lay the groundwork for our Polaris strategy. We stayed focused on that plan, and we have delivered. We are now more digitally-led and customer-centric in our planning and execution. We have also demonstrated the value of an integrated company, meeting customer expectations for a more seamless shopping experience across digital and store offerings. Digital has been a particular priority for us.
Macy’s earned $742 million, or $2.44 per share, for the three-month period ended Jan. 29. That compares with $160 million, or 50 cents per share, in the year-earlier period. Adjusted earnings were $2.45 per share. Revenue rose nearly 30 percent to $8.66 billion from $6.78 billion in the year-ago quarter.
Analysts were expecting profits of $2.01 per share on $8.46 billion in sales.
Comparable owned plus licensed sales for the fourth quarter increased 6.1 percent versus 2019. Gennette said the performance reflects strong November and December holiday sales that exceeded expectations, as well as softer sales in January. Total company AUR was up 11.5 percent for the fourth quarter and for the full year, was up over 11 percent.
For the year, comparable owned plus licensed sales increased 3 percent compared to 2019. For the year, Macy’s generated $984 million more in adjusted EBITDA than 2019, growth of 42 percent, with an adjusted EBITDA margin of 13.6 percent, a rate not achieved since 2014. As a result, adjusted diluted EPS reached $5.31 for the full year, up 82 percent versus 2019.
On the merchandising side, Gennette credited his team’s ability to navigate supply chain challenges.
“We placed bets on categories like fragrances, fine jewelry, home decor, men’s outerwear, toys, sleepwear and watches, which all performed well in the quarter,” said Gennette. “Bloomingdale’s, which helps us reach affluent consumers, continued to see strength in luxury throughout the quarter with strong performance from handbags, fine jewelry, men’s shoes and contemporary, fragrances, and home.”
In addition to enhancing the shopping experience of core customers, Macy’s focused on new offerings to further attract the under-40 shopper. In the fall season, a curated selection of brands, products and categories was added to 160 Macy’s stores that appeal specifically to this younger, more diverse customer.
Said Gennette, “These brands include Cotton On, Steve Madden, Michael Kors, and Levi’s, as well as our new private brands, And Now This and Oak. We are pleased with our customer response and the results we’ve seen to date.”
The CEO added that this in-store strategy aligned well with the digital strategy to attract the under-40 customers. At Bloomingdale’s, brands geared toward the under-40 customer had a record year. The private brand AQUA and various luxury brands outperformed in both sales and margin in 2021.
Roughly 7.2 million new customers shopped the Macy’s brand during the quarter, an 11 percent increase versus the fourth quarter of 2019. During the fourth quarter of 2021, 58 percent of new customers came through the digital channel, the company said.
Meanwhile, Macy’s said its decision to reject the call for a spin-off of its e-commerce decision came after a lengthy comprehensive review by the board, with the assistance of independent financial, legal and third-party advisers and the company’s management team.
It said that key to the board decision-making were the high separation costs and ongoing costs from operating separated businesses, as well as high risk for the business and the company’s customers. Instead, the company is accelerating initiatives that expand such areas as online, private label and the increase off-mall, small-format Market by Macy’s and Bloomingdale’s stores.
Looking ahead, Gennette believes there are lots of tailwinds. He said, “We believe the consumer demand will remain healthy as the job market improves and wages continue to rise,” said Gennette. “We expect demand to increase, particularly as people return to the office and to social events. International tourism remains a tailwind, particularly beyond 2022. This past year, international tourism was down 50 percent from 2019 levels, with the fourth quarter strengthening before Omicron weighed on consumer sentiment. With headwinds, we expect inflationary cost pressures, both for us and consumers, uncertainty of industry promotional behavior, supply chain disruptions, competition for talent, lapping of stimulus packages, and potential COVID variants. But we are confident that our financial health and operational agility put us in a stronger position to navigate the dynamic environment and challenges we expect in 2022.”
The department-store operator projects EPS excluding certain items in the range of $4.13 to $4.52 a share, above Wall Street’s consensus estimate of $4.09. Net sales are forecast to be $24.46 billion to $24.7 billion, above the $24.34 billion that analysts expected.
