Macy’s, Inc raised its annual profit forecast after reporting earnings and sales topped Wall Street estimates in the first quarter.

Highlights of the quarter include:

  • Comparable sales up 12.8 percent on an owned basis and up 12.4 percent on an owned-plus-licensed basis;
  • Diluted EPS of $0.98 and Adjusted diluted EPS of $1.08;
  • Increased financial flexibility through a number of financing transactions;
  • Repurchased $600 million of shares under the $2 billion share repurchase program; and
  • Reaffirmed annual sales guidance and raised Adjusted diluted EPS guidance.

“Our company delivered solid results in the first quarter despite a challenging operating environment. We delivered strong earnings, beating our estimates, and sales that were in line with our expectations. While macroeconomic pressures on consumer spending increased during the quarter, our customers continued to shop. We saw a notable shift back to occasion-based apparel and in-store shopping, as well as continued strength in sales of luxury goods. Our omnichannel ecosystem, which spans the value spectrum, has supported our ability to flex our wide assortment of categories, products and brands to capture consumer demand despite the volatile environment,” said Jeff Gennette, chairman and chief executive officer, Macy’s, Inc. “As we look ahead to the rest of 2022, we remain focused on our customers and the successful execution of our Polaris long-term growth strategy. We believe that the efficiencies we built into our business enable us to navigate through the current uncertain macro environment.”

First Quarter Highlights
(Comparisons are to the first quarter of 2021 unless noted otherwise. Comparisons to 2019 are provided, where appropriate, to benchmark performance given the impact of the pandemic in 2020.)

  • Diluted earnings per share of $0.98 and Adjusted diluted earnings per share of $1.08. This compares to diluted earnings per share of $0.32 and Adjusted diluted earnings per share of $0.39.
  • Comparable sales were up 12.8 percent on an owned basis and up 12.4 percent on an owned-plus-licensed basis.
  • Digital sales increased 2 percent year-over-year while increasing 34 percent versus the first quarter of 2019. Digital penetration was 33 percent of net sales, a 4-percentage point decline from the first quarter of 2021, but a 9-percentage point improvement over the first quarter of 2019.

Highlights of the company’s nameplates include:

  • Macy’s comparable sales were up 10.7 percent on an owned basis and up 10.1 percent, on an owned-plus-licensed basis. Approximately 44.4 million active customers shopped the Macy’s brand, on a trailing twelve-month basis, which was a 14 percent increase compared to the prior year. Star Rewards program members made up approximately 69 percent of the total Macy’s brand-owned plus licensed sales on a trailing twelve-month basis, up approximately 6 percentage points versus the prior year; and. Consumer shopping behaviors shifted during the quarter to more occasion-based apparel. As a result, dresses, women’s shoes, accessories, and men’s tailored products had strong sales performance. For Macy’s omnichannel markets, more than 88 percent of the markets with stores saw omnichannel sales growth over the first quarter of 2021 levels.
  • Bloomingdale’s comparable sales on an owned basis were up 28.1 percent and on an owned-plus-licensed basis were up 26.9 percent. Approximately 4.0 million active customers shopped the Bloomingdale’s brand, on a trailing twelve-month basis, which was a 21 percent increase over the prior year. The company continued to see strong performance from luxury throughout the first quarter. Results were driven by strong sales of dresses, men’s tailored, men’s and women’s contemporary apparel, and luggage.
  • Bluemercury comparable sales were up 25.2 percent on an owned and owned-plus-licensed basis. The company continued to build on its momentum and saw strong sales performance during the quarter. Results were driven by the increase in store traffic, better-than-expected growth in its private brands and the increase in demand for color in lip, face and eye categories.

Inventory turnover, on a trailing twelve-month basis, increased 9 percent over 2021 and 18 percent over 2019. Inventory was up 17 percent year-over-year and down 10 percent versus 2019. Inventory performance was impacted by the downshift in consumer demand from active/casual and soft home categories to accelerated demand at occasion-based apparel, coupled with the loosening in supply chain constraints resulting in a higher percentage of receipts than expected. The company believes that its pricing science and disciplined buying behavior puts it in a position to navigate the dynamic environment.

Gross margin for the quarter was 39.6 percent, up from 38.6 percent in the first quarter of 2021. Merchandise margin improvement was largely due to higher average unit retail driven by lower promotions on regular price merchandise, ticket price increases and category mix. Delivery expense as a percent of net sales decreased 50 basis points, due to decreased digital penetration.

Selling, general and administrative (SG&A) expenses of $1.9 billion, a $131 million increase.SG&A expense as a percent of sales was 35.1 percent, an improvement of 200 basis points. The quarter benefited from expense leverage in conjunction with growing sales driven by disciplined expense management.

Net credit card revenue of $191 million was up $32 million and represented 3.6 percent of sales, 20 basis points higher than the prior-year period. Performance was driven by better-than-expected bad debt levels and higher sales. Sales of $5.35 billion were in line with consensus estimates of $5.33 billion. EPS of $1.08, topping consensus estimates of 82 cents.

Capital Allocation
During the first quarter, Macy’s, Inc. took the following actions to boost its liquidity, financial flexibility and return capital to shareholders.

  • On March 8, 2022, the collateral securing the company’s second lien notes was automatically released and all of the company’s long-term debt is now unsecured;
  • Using the proceeds from the issuance of $850 million in new unsecured notes along with cash on hand, Macy’s, Inc. redeemed approximately $1.1 billion of near-term debt that was originally maturing in 2023 and 2024. The net result of the issuance and redemptions is an approximately $300 million reduction in total long-term debt. As a result, the company does not have any material debt maturities for the next five years;
  • The company amended its asset-based credit facility, including extending the maturity of the $3 billion facility to March 2027; and
  • The company repurchased $600 million of shares under its newly authorized $2 billion share repurchase program, which does not have an expiration date, and paid $45 million in dividends to shareholders.

“We believe that our first quarter performance reflects the durability of the Polaris strategy. The actions we took in the quarter to boost our liquidity and increase our financial flexibility provide us a long runway to invest further in our transformation, navigate the unprecedented macroeconomic environment and return capital to shareholders,” said Adrian Mitchell, chief financial officer of Macy’s, Inc. “As we move into the rest of this year, we have confidence in our ability to flex and pivot quickly in this dynamic environment.”

At its last meeting, Macy’s board of directors declared a regular quarterly dividend of 15.75 cents per share on Macy’s, Inc. common stock, payable July 1, 2022, to shareholders of record at the close of business on June 15, 2022.

2022 Guidance
Sales for the year are still expected in the range of $24,460 million to $24,700 million, which is flat to up 1.0 percent growth versus 2021. Adjusted EBITDA as a percent of sales is now expected in the range of 11.2 percent ti 11.7 percent, up from 11.0 percent to 11.5 percent under previous guidance given on February 22. Adjusted EPS is expected in the range of $4.53 to $4.95, up from the previous guidance of $4.13 to $4.52.

Photo courtesy Macy’s