Macy’s, Inc. unveiled a number of key initiatives Wednesday to boost sales growth after reporting a miss on its fiscal second quarter results and lowering estimates for the year.
The company’s earnings were 64 cents per diluted share for the second quarter of 2015. This compares with earnings of 80 cents per diluted share in the second quarter of 2014. Macy’s, Inc.’s diluted earnings per share in the first half of 2015 were $1.19, compared with earnings per diluted share of $1.40 in the same period last year.
“We are disappointed in our second quarter results, which were impacted by a variety of factors, both internal to the company and in the macroeconomic environment. We expect an improvement in trend beginning in the second half of 2015 based on a range of promising new strategic initiatives, including those initially announced in January, which we believe will transform our company in the years ahead,” said Terry J. Lundgren, Macy’s chairman and chief executive officer.
“In the second quarter, we removed a major Friends & Family promotional event from Macy’s calendar. In addition, as a result of the previous port slowdown, planned markdowns in many departments were delayed into the second quarter to clear merchandise that arrived late. Moreover, throughout the first half of the year, overall consumer demand has been restrained in many of the categories of merchandise we sell, and the strong U.S. dollar has led to significantly lower international tourist spending,” Lundgren said.
“Our work to enhance the performance of our business through organic growth and new businesses is multi-dimensional and rooted in the extraordinarily talented management team at Macy’s, Inc. We remain committed to enhancing value for our shareholders as we strengthen our position as a world-class omnichannel retailer with a capability to serve consumers in new ways,” he added.
Sales Growth Initiatives
The company continues to aggressively position itself for sales growth in the short and long term. Examples include:
- Accelerating progress in the company’s fast-growing online business through integrated omnichannel buying and planning of merchandise, as well as more strategic placement of inventories in stores and online fulfillment centers. Expanded markets for Same Day Delivery, as previously announced, and nationwide Buy Online Pick Up In Store provide Macy’s and Bloomingdale’s customers more options than ever.
- Piloting the first six Macy’s Backstage off-price stores in metro New York City, as previously announced, beginning in September. All are expected to be in full operation for the holiday season. Additional Backstage store locations are expected to be rolled out beginning in 2016, based on learnings and customer response to the pilots.
- Beginning e-commerce selling in China in late fall 2015 through a joint venture with Fung Retailing Limited (for details, see a separate news release issued today).
- Opening another 10 Bluemercury free-standing specialty beauty and spa locations before the end of 2015, bringing its store count to 76. In addition, Bluemercury is using Macy’s, Inc.’s omnichannel and digital expertise to improve its e-commerce offering and drive online sales, and four Bluemercury stores within Macy’s locations will be opened this fall.
Following a competitive bidding process conducted over the past year, the company today announced an agreement to sell property in downtown Brooklyn to Tishman Speyer (see separate news release) to take advantage of the inherent real estate value in this prime location while making the Macy’s store more productive and easier for customers to navigate. This transaction will enable Macy’s to re-create its Fulton Street store while further enlivening one of New York City’s most dynamic neighborhoods.
Macy’s, Inc. continually evaluates the highest and best use of its properties and its overall real estate portfolio. In light of current market conditions, the company has retained specialized real estate advisors, in addition to financial, legal and tax advisors, to intensely study its real estate portfolio to determine where opportunities exist that would further enhance the value of the company. Macy's is actively working with its advisors and will communicate the results of its analysis and review as soon as complete.
Sales in the second quarter of 2015 totaled $6.104 billion, a decrease of 2.6 percent, compared with sales of $6.267 billion in the same period last year. Comparable sales on an owned plus licensed basis were down by 1.5 percent in the second quarter. On an owned basis, second quarter comparable sales declined by 2.1 percent.
For the year to date, Macy’s, Inc. sales totaled $12.336 billion, down 1.7 percent from total sales of $12.546 billion in the first half of 2014. Comparable sales on an owned plus licensed basis were down by 0.8 percent year-to-date in 2015. On an owned basis, year-to-date comparable sales declined by 1.4 percent.
In the second quarter, the company closed Macy’s stores in Pittsburgh, PA, and West Orange, NJ, and opened three new Bluemercury locations. In the fall season, scheduled store openings include a Macy’s in Ponce, PR, a full-line Bloomingdale’s in Honolulu, six Macy’s Backstage, one Bloomingdale’s Outlet, and 10 additional Bluemercury freestanding specialty stores. A Macy’s store in Los Angeles, CA, is scheduled to close in the fourth quarter of 2015 in preparation for a new store to be built in the same mall.
Macy’s, Inc.’s operating income totaled $436 million or 7.1 percent of sales for the quarter ended Aug. 1, 2015, compared with operating income of $571 million or 9.1 percent of sales for the same period last year.
For the first half of 2015, Macy’s, Inc.’s operating income totaled $845 million or 6.8 percent of sales, compared with operating income of $1.014 billion or 8.1 percent of sales for the same period last year.
Net cash provided by operating activities was $398 million in the first half of 2015, compared with $736 million in the first six months of last year. Net cash used by investing activities in the first half of 2015 was $615 million, compared with $378 million a year ago. Net cash used by financing activities in the first six months of 2015 was $1.186 billion, compared with $1.001 billion in the first half of 2014.
The company repurchased approximately 8.0 million shares of its common stock for a total of approximately $552 million in the second quarter of 2015. In the fiscal year to date, the company repurchased approximately 13.9 million shares of its common stock for approximately $937 million. At Aug. 1, 2015, the company had remaining authorization to repurchase up to approximately $1.6 billion of its common stock.
Primarily based on weaker-than-expected sales performance in the first half, the company is reducing its full-year 2015 guidance for comparable sales on an owned plus licensed basis to be approximately flat, compared with previous guidance for growth of approximately 2 percent. Comparable sales on an owned basis will be approximately 50 basis points lower than on an owned plus licensed basis. The company expects total sales to be down by approximately 1 percent in 2015, compared to previous guidance for total sales growth of approximately 1 percent.
The company is maintaining its guidance for 2015 earnings per diluted share to be in the range of $4.70 to $4.80 as a result of the expected $250 million gain on the sale of real estate in downtown Brooklyn, which was not factored into previous calculations.