Macy's : Bolsters Same-Store Sales, Points to China Risks
By Suzanne Kapner and Aisha Al-Muslim
Macy's Inc. posted stronger-than-expected growth in a key sales metric in the latest quarter as the retailer said it benefited from more customers making purchases through digital channels.
Sales at stores open at least a year grew 0.6% for the period ended May 4, outperforming the FactSet estimate of a 0.6% decline. Including licensed departments, same-store sales rose 0.7%. Overall, the Cincinnati-based company said Wednesday that net sales for the first quarter fell less than 1% to $5.5 billion.
"The consumer is still healthy," Macy's Chief Executive Jeff Gennette said on a conference call. But he added that challenges loom, including the U.S. trade war with China.
Mr. Gennette said the three tranches of tariffs enacted last year had no meaningful impact on Macy's business. But the increase last week to a 25% tariff on the third tranche of goods from 10% will affect the company's furniture business. He added that a concern is whether the fourth tranche covering all Chinese imports takes effect. In that event, it would be "hard to find a path where the customer isn't impacted," Mr. Gennette said.
He said Macy's was working with suppliers to determine which products could withstand a price increase and which couldn't. For those that couldn't, talks centered on who would absorb the additional costs, Macy's or its vendors. For its private-label brands that it sources directly, Macy's is working on moving production out of China, Mr. Gennette said.
The better-than-expected results at Macy's bucked an overall trend in which retail sales fell in April from a month earlier, according to the Commerce Department. In a reversal of recent trends, spending at department stores rose slightly, but nonstore retailers, a category that includes e-commerce companies such as Amazon.com Inc., posted a decline.
Macy's posted a profit of $136 million, or 44 cents a share, down from $139 million, or 45 cents a share, a year earlier. Excluding impairment and other costs, adjusted earnings were 44 cents a share, higher than the 33 cents a share that analysts polled by FactSet were looking for.
Analysts were concerned about rising inventory levels, which were up 2.4% on a comparable basis compared with a year earlier. Mr. Gennette said Macy's also had more goods in transit than it did a year ago in case new tariffs take effect. Macy's expects inventory levels to be down by year-end.
Like other retailers, Macy's is grappling with higher delivery costs for online orders. One way it is looking to cover those costs is by doing a better job of managing its markdowns, which eat into profits. Rather than marking down goods by one of its six U.S. regions as it currently does, it has been testing a program that marks down goods locally, based on the inventory of a particular store.
If a store in Boston has 10 pairs of khaki pants left, but a store in Houston only has one pair, the Boston store will mark down those goods, while the Houston store might not. The new pricing strategy affects markdowns only, not the original price or pricing during promotional sales.
Macy's is also exploring options for its flagship store on Manhattan's 34th Street, including building an office tower atop the building. Mr. Gennette said in an interview that the company was in talks with city officials about the project, which wouldn't include downsizing the store. "We'll continue to operate the full store and then build on top," he said.
In April, Macy's said it would bring its Story concept shop to 36 stores in 15 states. Macy's acquired Story in May 2018; at the time, Story had one location in New York City that rotated its merchandise and store layout every four-to-eight weeks.
Mr. Gennette said on the conference call that Story was performing well and helping to draw new customers into the company's stores. But perhaps more important, it was helping Macy's shrug off its reputation as a fusty department store, he said.
"This is breaking that paradigm and opening us to new partnerships," Mr. Gennette said, adding that the company has been getting calls from potential partners who normally wouldn't have reached out in the past.
Macy's also affirmed its sales and earnings guidance for the current fiscal year. The company expects net sales to be roughly flat from the previous fiscal year, with comparable sales to be flat to up 1%. Excluding settlement charges, impairment and other costs, the company forecasts adjusted earnings per share of $3.05 to $3.25.
Its shares fell 10 cents to $21.70 on Wednesday.
In February, Macy's signaled 2019 would be a challenging year, predicting sales wouldn't grow and announcing another round of cost cuts. The company said it would streamline senior management as part of a plan to save $100 million a year, resulting in the elimination of 100 jobs.
The retailer operates about 680 department stores under the Macy's and Bloomingdale's names, and nearly 190 specialty stores that include Bloomingdale's The Outlet, Bluemercury, Macy's Backstage and Story.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Aisha Al-Muslim at firstname.lastname@example.org