Macy’s Inc. reported fourth-quarter earnings were down year over year, but easily surpassed Wall Street targets while giving upbeat guidance for 2023. Macy’s attributed the strong performance to inventory disciplines and a focus on gift-giving categories.

Earnings per share on an adjusted basis in the quarter was $1.88 against Wall Street’s consensus estimate of $1.57. Revenue of $8.26 billion was in line with expectations.

“We successfully navigated 2022 from a position of financial and operational strength. Despite an increasingly volatile macroeconomic climate, through the ongoing execution of our Polaris strategy, we remained agile, pivoted to meet customer demand and elevated our approach to inventory management,” said Jeff Gennette, chairman and chief executive officer of Macy’s, Inc. “In the fourth quarter, we benefited from our disciplined inventory approach and compelling gift-giving strategy, which allowed us to provide fresh fashion and style at great values for all our customers. We were competitive but measured in our promotions, took strategic markdowns and intentionally did not chase unprofitable sales. As we look to 2023 and beyond, we believe our five growth vectors which include our private brands reimagination, off-mall expansion, online marketplace, luxury brands acceleration and personalized offers and communication will further solidify our modern department store positioning.”

Added Adrian Mitchell, chief financial officer, “We have built a solid foundation for long-term, profitable growth through enterprise-wide investments in our supply chain, data and analytics, pricing science, digital and technology which have enabled our operations and talented teams to become more efficient and flexible. Looking ahead, we will continue to take a balanced approach to expense management and capital allocation. With an ongoing focus on maintaining our financial health and strong balance sheet, we will make disciplined investments to drive growth while returning capital to shareholders.”

Fourth Quarter 2022 Highlights

Comparisons are to fourth quarter 2021 unless noted otherwise. Comparisons to 2019 are provided, where appropriate, to benchmark performance given the impact of the COVID-19 pandemic.

  • Diluted earnings per share of $1.83 and Adjusted diluted earnings per share of $1.88, which includes a $46 million discrete income tax benefit, or $0.17 per share, related to the favorable resolution of a state income tax litigation.
    • This compares to diluted earnings per share of $2.44 and Adjusted diluted earnings per share of $2.45 in the fourth quarter of 2021.
    • This compares to diluted earnings per share of $1.09 and Adjusted diluted earnings per share of $2.12 in the fourth quarter of 2019.
  • Net sales of $8.3 billion, down 4.6 percent versus the fourth quarter of 2021; down 0.9 percent versus the fourth quarter of 2019.
    • Digital sales decreased 9 percent versus the fourth quarter of 2021; up 24 percent versus the fourth quarter of 2019.
    • Brick-and-mortar sales decreased 2 percent versus the fourth quarter of 2021; down 11 percent versus the fourth quarter of 2019. The comparison to 2019 is impacted by store closures, including approximately 80 Macy’s full-line stores.
  • Comparable sales down 3.3 percent on an owned basis and down 2.7 percent on an owned-plus-licensed basis versus the fourth quarter of 2021; up 3.1 percent and up 3.3 percent, respectively, versus the fourth quarter of 2019.
  • Highlights of the company’s nameplates include:
    • Macy’s comparable sales were down 3.9 percent on an owned basis and down 3.3 percent, on an owned-plus-licensed basis.
      • Performance year-over-year primarily reflects the impacts of macroeconomic pressures on the consumer in conjunction with a lack of government stimulus benefits and a heightened competitive retail environment driven by industry-wide inventory surpluses.
      • Experienced sales strength in gifting and occasion-based categories, including beauty, men’s tailored apparel, dresses and shoes, while sales in active, casual and soft home declined versus the prior year.
    • Bloomingdale’s comparable sales were up 1.2 percent on an owned basis and up 0.6 percent on an owned-plus-licensed basis.
      • Beauty, women’s and men’s apparel in both contemporary and dressy performed well partially offset by weakness in handbags and textiles.
    • Bluemercury comparable sales were up 7.2 percent on an owned basis.
      • Results were driven by strength in skincare and color, strategic partnerships and its new initiative The Cache, an incubator platform that curates the latest undiscovered, emerging, and cutting-edge brands.
  • Gross margin for the quarter was 34.1 percent, down from 36.5 percent in the fourth quarter of 2021.
    • Merchandise margin declined largely due to planned markdowns and promotions, which were higher relative to last year, when inventory constraints in the industry led to low promotional levels and robust full-price sell-throughs. The higher level of markdowns and promotions was reflective of both the company’s commitment to end 2022 with inventories at the right level and composition, as well as its response to the competitive retail environment.
    • Delivery expense as a percent of net sales was 60 basis points lower than the prior year due to a 200 basis points decline in digital penetration combined with lower peak delivery surcharges.
  • Selling, general and administrative (“SG&A”) expense of $2.4 billion, a $30 million decrease from the fourth quarter of 2021.
    • SG&A expense as a percent of sales was 29.0 percent, 100 basis points higher compared to the fourth quarter of 2021 and an improvement of 110 basis points from the fourth quarter of 2019.
    • The company has been investing in its colleagues to remain competitive and attract the best talent, while simultaneously remaining disciplined in its SG&A expense productivity efforts.
  • Net credit card revenue of $262 million, down $2 million.
    • Represented 3.2 percent of sales, 20 basis points higher than the fourth quarter of 2021.
    • Performance primarily driven by lower-than-expected bad debt levels and larger balances within the portfolio.

Full-Year 2022 Highlights

Comparisons are to full-year 2021 unless noted otherwise. Comparisons to 2019 are provided, where appropriate, to benchmark performance given the impact of the COVID-19 pandemic.

  • Diluted earnings per share of $4.19 and Adjusted diluted earnings per share of $4.48.
    • This compares to a diluted earnings per share of $4.55 and an Adjusted diluted earnings per share of $5.31 in 2021.
    • This compares to diluted earnings per share of $1.81 and Adjusted diluted earnings per share of $2.91 in 2019.
  • Net sales of $24.4 billion, down 0.1 percent versus 2021; down 0.5 percent versus 2019.
    • Digital sales decreased 6 percent versus 2021; up 31 percent versus 2019.
    • Brick-and-mortar sales increased 3 percent versus 2021; down 11 percent versus 2019.
  • Comparable sales up 0.3 percent on an owned basis and up 0.6 percent on an owned-plus-licensed basis versus 2021; up 3.5 percent and up 3.7 percent, respectively, versus 2019.
  • Customer count for the company’s nameplates totaled:
    • 42.7 million active customers shopped the Macy’s brand, a 4 percent decrease compared to the prior year.
      • Star Rewards program members made up approximately 70 percent of the total Macy’s brand owned-plus-licensed sales, up approximately 1 percentage point versus the prior year.
    • 4.1 million active customers shopped the Bloomingdale’s brand, a 5 percent increase compared to the prior year.
      • Strength in luxury coupled with its 150th Anniversary activation and consistent customer engagement supported a banner year for the nameplate.
    • Approximately 662,000 active customers shopped the Bluemercury brand, a 12 percent increase compared to the prior year.
  • Gross margin for the year was 37.4 percent, down from 38.9 percent in 2021.
    • Merchandise margin declined largely due to planned markdowns and promotions, which were higher year-over-year as a result of the impact in the shift of consumer demand from pandemic-related categories like active, casual and soft home to occasion-based categories including dresses, tailored clothing, fragrances and luggage. Elevated industry-wide inventory levels also contributed to a heightened competitive retail landscape.
    • Delivery expense as a percent of net sales decreased 30 basis points from 2021 primarily due to lower digital penetration.
  • Inventory turnover for the year decreased approximately 4 percent versus 2021 and increased approximately 15 percent over 2019.
    • Inventory was down approximately 3 percent and approximately 18 percent versus 2021 and 2019, respectively.
    • Inventory productivity was driven by a culmination of disciplined inventory management, strategic use of data analytics, the alignment of its merchandising team and the successful integration and modernization of its supply chain.
    • Inventory productivity continues to be a focus for the company in 2023 and beyond.
  • SG&A expense of $8.3 billion, a $270 million increase from 2021.
    • SG&A expense as a percent of sales was 34.0 percent, 110 basis points higher than 2021 and an improvement of 260 basis points from 2019.
    • The prior year benefited from a significant number of open positions due to the tight labor market. The positions have since largely been filled.
    • Additionally, the company made investments in talent including increasing minimum wage for store and distribution center colleagues and has been adjusting colleague compensation to remain competitive and attract the best talent.
  • Net credit card revenue of $863 million, up $31 million from 2021.
    • Represented 3.5 percent of sales, 10 basis points higher than 2021.
    • Performance driven by lower-than-expected bad debt levels, larger balances within the portfolio as well as higher-than-expected spend on co-brand credit cards.

Guidance 

Macy’s said it expects net sales in the current year to decline in a range of 1 percent to 3 percent in the fiscal year compared with 2022, which would translate to between $23.7 billion to $24.2 billion. Same-store sales at owned and licensed departments are expected to be down in the range of 4 percent to 2 percent. Macy’s expects adjusted diluted earnings per share will range from $3.67 to $4.11.

At the midpoint, guidance called for EPS of $3.89 on $24 billion, basicially in line with analyst estimates. Wall Street’s consensus estimate had been $$3.84 on sales of $24.29 billion.