• Macy’s, Seen as Gauge of US Retail Property Performance, Draws Higher Sales Despite Record Inflation

    Macy’s, using varied retail properties that appeal to both the price-conscious and the luxury shopper, racked up a strong fiscal first quarter despite inflation and other headwinds facing consumers.

    The New York-based retailer — parent of Macy’s, Macy’s Backstage, Bloomingdale’s and Bluemercury — on Thursday said its overall comparable sales for owned-and-licensed stores were up 12.4% for the quarter ending April 30. Net income increased to $286 million from $102 million in the same quarter a year earlier.

    “We delivered strong earnings, beating our estimates, and sales that were in line with our expectations,” Macy’s CEO Jeff Gennette said in a statement. “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 ... despite the volatile environment.”

    Retail analysts and economists had been awaiting Macy’s earnings, as the department store giant is considered an indicator of what may be ahead this year as consumers deal with 40-year-high inflation, skyrocketing gas prices and the drop of the value of their savings with the stock market’s recent turbulence. Last week, Walmart and Target reported taking a haircut on their first-quarter profits, which sent Wall Street into a tailspin.

    Retail analysts have suggested that department stores that serve the middle market, such as the namesake Macy’s stores, might suffer most if medium-income consumers trade down to pinch pennies, perhaps instead going to an off-price option such as T.J. Maxx.

    But on Thursday’s earnings call with Wall Street analysts, Gennette said parent company Macy’s was able to reach consumers of all income levels with the Macy’s brand, its off-price Backstage and upscale Bloomingdale’s, which total more than 700 stores.

    “During the first quarter, all income tiers continue to engage with us, led by the higher-income and middle-income consumers,” the CEO said. “Luxury sales remained a standout for our business as shopping behavior among high-income consumers has so far remained less affected by inflation. These trends show the benefit of our balanced portfolio across nameplates."

    Clothes for Occasions

    Comparable sales for owned-and-licensed stores for the flagship Macy’s chain were up 10.1%. That chain’s sales accelerated as spending on what Gennette called “popular pandemic categories, such as casual and active wear,” shifted to “occasion-based” apparel such as dresses, women’s shoes, men’s clothing and furnishings as Americans returned to work or attended weddings and parties.

    “With our broad assortment base, we are pivoting to those categories and building replenishment stock in our best-sellers,” he said.

    During the quarter, Macy’s also benefited from an increase “in international tourist traffic, particularly from Central and South America as well as Europe, aiding stores like our flagships at Herald Square in New York and Union Square in San Francisco, along with many of our downtown locations,” according to Gennette.

    Bloomingdale’s exceeded expectations both in stores and online, “as luxury consumer spending remained robust,” according to Gennette. Comparable sales on an owned-and-licensed store basis were up 26.9%.

    “Overall, this robust broad-based performance is a testament to how the Bloomingdale’s team has evolved the product assortment to be relevant for new younger generations that is investing in both their wardrobes and their homes,” Gennette said.

    The retailer is also seeing a strong performance from its off-price Backstage store-within-store locations, according to the CEO.

    “These locations, open more than a year, posted a high single-digit [comparable] increase versus last year, driven by continued strong performance in kids apparel, men’s, dresses, missy sportswear and luggage as well as higher” average selling prices, Gennette said. “We’re also expanding this off-price presence in strategic spots that advance the Macy’s value-spectrum strategy. During the quarter, we announced that we will open 37 new Backstage store-within-store locations nationwide.”

    Backstage at Herald Square

    In May, Macy’s opened its 300th Backstage location as well as its largest store-within-store location in the Herald Square flagship in Manhattan, according to the CEO.

    Neil Saunders, managing director of GlobalData, lauded Macy’s for its first-quarter performance and said it has an edge over other retailers because of the breadth of the appeal of its chains.

    “In some respects, the balanced nature of Macy’s business — which includes several divisions and a wide selection of brands and price points — will be a significant advantage over the next year or so as consumer behavior polarizes,” Saunders wrote in a note on Thursday.

    He added that “with good planning, Macy’s can flex to take advantage of differences in the trading across various shopper groups and categories. This includes expanding off-price via Backstage, which Macy’s has been proactive in rolling out across more stores and that will serve it well during more constrained times. All this, along with the weaker prior-year growth, is why Macy’s outlook has not deteriorated as much as those of other retailers.”

    But Saunders still expressed a number of concerns about Macy’s future, saying that management isn’t doing enough to continue to make the company vital.

    “Shop floors, for example, are still extremely messy and, at a time when consumers are returning to physical stores, this is an area Macy’s should have got to grips with,” he said. “New own-label launches, while welcome and a key part of Macy’s strategy, are underwhelming and lack oomph. ... If Macy’s fails to correct its operational sloppiness and rests on its laurels because of a string of good numbers, then we fear that, over time, the company will fall back into its pattern of lackluster growth.”

    Despite the uncertainty within the macroeconomic environment, Macy’s affirmed its 2022 sales guidance and raised its earnings guidance. It expects sales in the range of $24.46 billion to $24.7 billion, flat to up 1%.

    Source: www.CoStar.com