Macy’s, Inc. reported first-quarter earnings topped analyst expectations on margin improvement, but sales missed Wall Street’s targets. The department store chain slashed its EPS and sales outlook for the year reported financial results for the first quarter of 2023 and updated its annual guidance as spending on discretionary categories weakened since late March.

EPS in the quarter reached 56 cents on an adjusted basis, topping analysts’ consensus estimate of 45 cents. Revenue totaled $4.98 billion versus Wall Street’s consensus estimate of $5.04 billion. Comparable sales on an owned-plus-licensed basis dropped 7.2 percent against analysts’ consensus expectations of a 4.7 percent decline.

“During the first quarter, we delivered a solid beat on our gross margin rate and bottom line expectations enabled by our disciplined teams, strength of our inventory management and operational efficiencies. We planned the year assuming that the economic health of the consumer would be challenged, but starting in late March, demand trends weakened further in our discretionary categories,” said Jeff Gennette, chairman and chief executive officer of Macy’s, Inc.

“We have moved quickly to take the appropriate actions to meet current consumer demand and manage our expenses. Our revised guidance reflects incremental clearance markdowns to address excess spring seasonal merchandise in the second quarter, along with adjustments to the category composition and inventory levels in the back half of the year. Supported by our solid foundation of financial health, we remain focused on strengthening our core business and advancing our five growth vectors, which we believe will drive sustainable and profitable sales growth in the future,” continued Gennette.

First Quarter Highlights
Comparisons are to the first quarter of 2022 unless noted otherwise. Comparisons to 2019 are provided, where appropriate, to benchmark performance. 

  • Diluted earnings per share of $0.56 and Adjusted diluted earnings per share of $0.56, compares to diluted earnings per share of $0.98 and Adjusted diluted earnings per share of $1.08 in the first quarter of 2022.
  • Net sales of $5 billion, down 7 percent versus the first quarter of 2022.
    • Brick-and-mortar sales decreased 6 percent versus the first quarter of 2022; and
    • Digital sales decreased 8 percent versus the first quarter of 2022.
  • Comparable sales were down 7.9 percent on an owned basis and down 7.2 percent on an owned-plus-licensed basis.

Highlights Of The Company’s Nameplates

Macy’s

  •  comparable sales were down 8.7 percent on an owned basis and down 7.9 percent, on an owned-plus-licensed basis;
  • 42.2 million active customers shopped the Macy’s brand, on a trailing twelve-month basis;
  • Star Rewards program members made up approximately 70 percent of Macy’s brand comparable owned-plus-licensed sales on a trailing twelve-month basis, up approximately 1 percentage point versus the prior year;
  • The nameplate saw strength in beauty, particularly fragrances, men’s tailored, women’s career sportswear and off-price with Backstage.

Bloomingdale

  •  comparable sales on an owned basis were down 3.9 percent and on an owned-plus-licensed basis were down 4.3 percent.
  • 4.1 million active customers shopped the Bloomingdale’s brand, on a trailing twelve-month basis.
  • The nameplate saw strength across beauty, particularly fragrances, women’s and men’s contemporary apparel, housewares and the outlet locations.

Bluemercury

  • comparable sales were up 4.3 percent on an owned basis.
  • Approximately 676,000 active customers shopped the Bluemercury brand, on a trailing twelve-month basis.
  • The nameplate saw strength in the clinical and medical skincare and color categories during the quarter.

Other

  • revenue of $191 million, a $26 million decrease.
  • Represented 3.8 percent of net sales, down from 4.1 percent in the prior year period.
  • Performance driven largely by credit card revenue net which reflected the impact of higher bad debt within the portfolio.

Inventory turnover, on a trailing twelve-month basis, was down 2 percent to 2022 and up 14 percent to 2019. Merchandise inventories were down 7 percent year-over-year and down 16 percent to 2019, reflecting ongoing disciplined inventory management.

The company is taking pricing actions in the second quarter to sell through remaining first-quarter seasonal merchandise inventories, and May receipts at the Macy’s nameplate, and anticipates end of second-quarter merchandise inventories to be down low to mid-single digits compared to last year on a percentage basis.

Gross margin rate for the quarter was 40.0 percent, up from 39.6 percent in the first quarter of 2022. Versus the first quarter of 2019, gross margin rate increased 180 basis points from 38.2 percent.

Merchandise margin was flat, benefiting from lean beginning-of-year inventory levels and lower clearance markdowns, offset by promotions and category mix shifts. Compared to the first quarter of 2019, the merchandise margin improved 310 basis points primarily as a result of lower markdowns and promotions.

Delivery expense, as a percent of net sales, was 40 basis points better than the prior year primarily due to improvements in its contracted carrier rates, reductions in packages per order, and a one-percentage-point decline in digital penetration year-over-year. Compared to the first quarter of 2019, delivery expense, as a percent of net sales, was 130 bps higher primarily due to increased digital penetration and higher fuel costs.

SG&A expense of $2.0 billion, was a $45 million increase. SG&A expense, as a percent of total revenue, was 37.7 percent, 350 basis points higher compared to the first quarter of 2022. The increase in the minimum wage for store employees was fully implemented on May 1, 2022. The year-over-year dollar and rate growth includes the impact of these increases. SG&A expense also includes continued investments in colleagues across competitive pay, incentives and benefits.

Dividend Declaration
On May 31, 2023, the board of directors of Macy’s, Inc. declared its regular quarterly dividend of 16.54 cents per share on Macy’s, Inc.’s common stock, payable July 3, 2023, to shareholders of record as of the close of business on June 15, 2023.

2023 Guidance
The company is taking a cautious approach to the remainder of the year and is reducing its annual 2023 sales and earnings guidance to reflect anticipated macroeconomic impacts on the consumer. On the low end, updated guidance assumes macro pressures on the consumer worsen. The high-end assumes heightened macro pressures experienced in mid-March through April persist. Additionally, it incorporates the second-quarter markdown actions the company is taking to clear out spring transitional and early summer categories to support clean end-of-quarter inventories as well as a higher annual shortage rate than previously anticipated.

The company’s updated earnings guidance also includes the benefit of an incremental $200 million of cost savings identified as part of ongoing expense management that is expected to impact both gross margin and SG&A expense. 

Photo courtesy Macy’s