Macy’s reported fourth-quarter earnings fell by about half but came in well ahead of analyst targets. Comparable sales fell 17 percent on an owned basis, but sales were also ahead of expectations, led by 21 percent e-commerce growth.

“Macy’s, Inc.’s fourth-quarter results exceeded our expectations across all three of our brands, as we showed continued quarter-to-quarter sales performance improvements and returned to profitability,” said Jeff Gennette, chairman and chief executive officer. “Performance was driven by the home, beauty, jewelry and watch categories, growth in digital sales and by acquiring new customers. Our investments in digital innovation continued to pay off in the quarter, with digital sales up 21 percent from 2019. We anticipate annual digital sales to reach $10 billion within the next three years, and that digital will become an even more profitable contributor to our business. Additionally, we exited the quarter with a lower cost base and a strong liquidity position, supported by a $3 billion asset-based lending facility that we have not drawn upon.”

“We have made progress on the Polaris transformation strategy we introduced a year ago. We are accelerating several elements, including our focus on digital and omnichannel sales, improving customer value and building the infrastructure to support the growth of our business. We believe these actions will propel us to stronger performance in 2021 and beyond,” continued Gennette. “2020 was a year of unprecedented disruption. We are incredibly proud of our team for their hard work to make our customers feel safe and comfortable when shopping with us. And we are grateful to our brand partners for navigating through the pandemic with us.”

Fourth Quarter Highlights

  • The company’s omnichannel performance during the fourth quarter, driven by digital growth, creates a foundation for the future success of the Polaris strategy.
  • Diluted earnings per share of $0.50 and Adjusted diluted earnings per share of $0.80 both exceeded the expectations for the quarter the company set in the fall.
  • Comparable sales were down 17.0 percent on an owned basis and down 17.1 percent on an owned plus licensed basis, a reflection of the continued challenges posed by the pandemic. This performance beat the company’s expectations, driven by the successful execution of the company’s holiday strategy from off-price to luxury.
    • Digital remained a growing and increasingly profitable platform. Sales grew 21 percent over the fourth quarter 2019, with digital penetration at 44 percent of net sales; and
    • Approximately 25 percent of Macy’s digital sales were fulfilled from stores, including curbside pickup and same-day delivery.
  • The company’s Star Rewards Loyalty program saw a 45 percent increase of its Bronze tier members in 2020, an essential part of its under-40 strategy.
  • Net credit card revenue of $258 million was up $19 million from the fourth quarter 2019.
  • Gross margin for the quarter was 33.7 percent, down 310 basis points from fourth-quarter 2019.
    • Delivery expense increased approximately 300 basis points from the fourth quarter of 2019, partially due to holiday surcharges.
  • Inventory down 27 percent from fourth-quarter 2019.
    • Aggressively addressed slow-selling merchandise, reduced excess inventory levels and improved visual presentation in stores; and
    • Exited the year in a healthy inventory position.
  • Selling, general and administrative (“SG&A”) expense of $2.0 billion; improved $464 million from fourth quarter 2019.
    • SG&A, as a percent of sales, was 30.2 percent, generally in line with the fourth quarter of 2019; and
    • Illustrates efficient execution of expense management.
  • Ended the year with a strong liquidity position and continued de-levering of the balance sheet.
    • Approximately $1.7 billion in cash as of the end of the year, benefiting from efficiencies gained in working capital and a refocusing of capital spend on highest priority projects;
    • Retained approximately $3 billion in untapped capacity in the company’s revolving asset-based credit facility; and
    • Repaid approximately $530 million of debt in January 2021 at maturity.

Adjusted EPS of 80 cents per share blew past Wall Street’s consensus estimate of 11 cents. Sales of $6.78 billion came in ahead of the consensus estimate of $6.48 billion.

Polaris Strategy Update
“The Polaris strategy proved to be a critical enabler of our performance in 2020, allowing us to adapt and innovate with agility during the pandemic. Early actions guided by Polaris helped us broaden fashion categories, including home, beauty and casual apparel, and improve the digital experience. Additionally, the cost controls we committed to in February were key in helping us weather the pandemic. When we needed to make hard choices on our investments, Polaris gave us the clarity to focus first on the areas most critical to growth,” concluded Gennette.

The company is updating its Polaris strategy to accelerate growth as a digitally-led, omnichannel retailer while improving profitability and returning to cash flow growth.

2021 Guidance
Macy’s, Inc. anticipates 2021 as a recovery and rebuilding year as the company sets a foundation for growth. The company’s annual guidance contemplates continued pandemic-related challenges in the spring season with momentum building in the back half of 2021.

For fiscal 2021, expectations include:

  • Net sales in the range of  $19.75B to $20.75B;
  • Adjusted diluted earnings per share in the range of $0.40 to $0.90; and
  • Asset sale gains in the range of $60M to $90M.

Photo courtesy Macy’s