Macy’s Inc. reported both earnings and sales were down in the fourth quarter but sales were down less than expected and earnings exceeded Wall Street’s consensus target.
In the fourth quarter, sales were down 1.4 percent to $8.34 billion from $8.46 billion. Comparable sales at Macy’s owned and licensed stores fell 0.7 percent in the fourth quarter ended February 1, compared with the 0.93 percent drop estimated by analysts.
On an adjusted basis, earnings in the quarter fell 22.2 percent to $661 million, or $2.12 a share, from $850 million, or $2.73, a year ago, but came in ahead of analysts’ consensus target of $1.96 per share. Net income came to $340 million, $1.09 a share, against $740 million, or $2.37, a year ago.
For the year, sales were $24.6 billion, down slightly from $24.97 billion a year ago. Owned plus licensed comps were down 0.7 percent. Adjusted earnings were down 30.3 percent to $906 million, or $2.91, from $1.3 billion, or $4.18, a year ago. Net income came to $564 million, or $1.81, against $1.11 billion, or $3.56, a year ago.
“Taken as a whole, 2019 did not play out as we intended for Macy’s, Inc. However, we executed well during the Holiday 2019 season. We were pleased with the significant trend improvement in the fourth quarter, including a meaningful sales uptick in the 10 shopping days before Christmas. Together with disciplined expense management, our solid sales results in the fourth quarter allowed us to deliver stronger-than-expected earnings results. Importantly, we exited the year with a clean inventory position,” said Jeff Gennette, chairman and chief executive officer of Macy’s, Inc.
2019 Asset Sale Gains
Asset sale gains for the fourth quarter of 2019 totaled $95 million pre-tax, or $71 million after-tax and $0.23 per diluted share attributable to Macy’s, Inc. This compares to the fourth quarter of 2018 when asset sale gains totaled $278 million pre-tax, or $204 million after-tax, and $0.65 per diluted share attributable to Macy’s, Inc.
Asset sale gains for fiscal 2019 totaled $162 million pre-tax, or $120 million after-tax, and $0.38 per diluted share attributable to Macy’s, Inc. This compares to fiscal 2018 when asset sale gains totaled $389 million pre-tax, or $287 million after-tax, and $0.92 per diluted share attributable to Macy’s, Inc.
Polaris Strategy
On February 4, 2020, Macy’s, Inc. announced its Polaris strategy, a three-year plan designed to stabilize profitability and position the company for sustainable, profitable growth.
“We have a clear perspective of where Macy’s, Inc. and our brands, Macy’s, Bloomingdale’s, and Bluemercury, fit into American retail today. We know 2020 will be a transition year as we make significant structural changes to the business. I am confident that the Polaris strategy we shared earlier this month will allow us to stabilize margins in 2020 and position the company for healthy growth,” continued Gennette.
The five major components of the Polaris strategy are:
- Strengthen Customer Relationships: Build customer lifetime value, expand the Star Rewards loyalty program with the launch of Loyalty 3.0 in early February and accelerate personalization and monetization.
- Curate Quality Fashion: Drive disciplined merchandise category roles, be the best destination for the best brands and balance sales and margin.
- Accelerate Digital Growth: Enhance the digital experience across the Macy’s website and app, grow omnichannel customer base and improve profitability.
- Optimize the Store Portfolio: Continue the Growth treatment for stores in the best malls, expand off-mall profitably and test and prove a retail ecosystem model with a mix of Macy’s store formats within a geographic market.
- Reset Cost Base: Right-size the organization and expense base, improve working capital and balance top-line and bottom-line growth.
The company is updating the estimated total costs related to Polaris to approximately $400 million to $420 million. In 2019, the company recognized Polaris-related costs of approximately $318 million, of which approximately $161 million were non-cash impairment charges associated with store closures and campus consolidations and $157 million were cash costs related to restructuring activities. The remaining costs to be recorded in 2020 are expected to be cash.
2020 Guidance
Macy’s, Inc. is reiterating its previously provided annual guidance for 2020. Sales are expected to range between $23.6 billion to $23.9 billion. Comparable sales owned are expected to be up approximately 40 basis points better than owned plus licensed. Owned plus licensed is expected to be down in the range of 2.5 percent to 1.5 percent. Adjusted diluted earnings per share are expected in the range of $2.45 to $2.65.
Photo courtesy Macy’s