Macy’s is off to a better start to 2018 than anyone saw coming, including Macy’s itself.
On a call with investors to discuss the company’s first quarter, CEO Jeff Gennette said the momentum picked up at the end of last year during the 2017 holiday season carried into the start of the new year, “in fact, exceeding our own expectations on most measures,” he noted. Sales, earnings, and cash flow all came in ahead of what the company predicted, prompting the retailer to raise its outlook for the rest of the year.
Macy’s far surpassed Wall Street’s estimates, too—”trounced” was the word Reuters used. Analysts predicted, for instance, that sales at Macy’s Inc. stores open more than a year, including its licensed stores, would rise about 1.4%. Macy’s blew by that number, delivering 4.2% growth. The company’s stock has jumped more than 9% today, as of this writing.
The earnings growth, Gennette explained, is coming from changes in the retail environment, combined with much-needed adjustments Macy’s has been making in its own operations. Overall US consumer spending remains strong, and Macy’s also got a bump from increased tourist dollars. Sales to international tourists were up 10% in the quarter, after a long stretch of declines.
At the same time, Gennette added, Macy’s is doing a good job of managing its inventory, and new merchandising strategies are showing results. The company is selling more expensive items at full price. “Fashion is selling,” he said. “We’re getting better sell-throughs and more value for it.”
Bloomingdale’s and Blue Mercury, the company’s higher-end subsidiaries, are performing well, as is the off-price concept launched in a number of Macy’s stores, called Backstage. Gennette said a program that ties employee bonuses to the company’s sales growth is also working, and has people in the organization feeling energized again.
Gennette noted that there’s still a lot of work to do. The rest of the year may not look quite as impressive as the retailer runs into the competitive fall season. But the results are a marked turnaround from how Macy’s looked this time last year—and the year before that.
Like several other US department-store chains, Macy’s had been in a slide, shuttering more than 100 stores since 2015, including a few dozen last year. Its sales growth fell for a few years, until finally returning to positive territory at the end of 2017, and now accelerating to begin 2018. (It didn’t hurt this quarter, of course, to compare with a dismal first quarter last year.)
Macy’s now says that its brick-and-mortar stores are improving, and it intends to keep things that way. It has a new program called Growth50, to test out new ideas in 50 stores and then keep the best of what it’s learned. The aim is to help Macy’s make all of its locations better shopping experiences, which it hopes will get more people spending money in its stores again, not just for a quarter or two but over the long haul.