On December 23rd, 2021, Macy’s flagship store is located in Herald Square, New York.
Scott Mullin | CNBC
Macy’s Investors waited and saw how quickly CEO Tony Spring could pull away the turnaround of the business along with yet another activist investor trying to make the chain private, resulting in a quarter mixed result on Thursday.
Comparable sales fell 1.1% during the very important holiday quarter across businesses, including Macy’s Banner, Bloomingdale and Blue Mercury. However, comparable sales and online marketplaces in owned and licensed companies rose 0.2%.
Additionally, the so-called first 50 locations – stores where Macy’s devotes more resources as part of their turnaround plans, rose comparable sales by 0.8%, marking metrics for the fourth quarter in a row.
Otherwise, two bright spots on a set of worse outcomes than expected suggest that Macy’s turnaround shows signs of life.
Macy’s forecasts for adjusted earnings per share of $2.05 to $2.25 and revenues of $21 billion to $21.4 billion in FY2025, lower than Wall Street’s forecast of $2.31 and $21.8 billion, according to LSEG.
Macy’s stock fell slightly in early trading.
Based on an analyst survey by LSEG, here is how department stores performed in the fourth quarter compared to what Wall Street had expected:
Earnings per share: $1.80 adjusted vs. $1.53 forecast: $7.777 million vs. $7.777 million
The company had net income for the three months ended February 1 at $1.21 per share, compared to a loss of $128 million or a loss of 47 cents per share. Macy’s report reported earnings of $507 million, or $1.80 per share, excluding one-off items that include impairment and settlement and restructuring fees.
Revenue fell to $7.77 billion, down about 4% from $8.12 billion the previous year. Like other retailers, Macy’s benefited from an extra sales week of the same period last year that distorted comparisons.
Macy’s is hoping to sell revenues of 12 to 15 cents per share, with revenues of $4.4 to $4.5 billion in the current quarter, according to LSEG.
In a call with analysts, Chief Operating Officer and Chief Financial Officer Adrian Mitchell said the company is taking a “smart” approach to guidance given the liquidity of its turnaround plans, careful consumer spending and the uncertainty created by recent tariffs.
“If we weren’t in an environment where we were operating, I would be even more bullish about our potential,” CEO Spring told analysts in a call. “But I think it’s important to be careful at this point.”
Track the turnaround
Macy’s mixed results have come more than a year since his spring tenure, CEO of Legacy Department Store, as his three-year strategy to turn the business around. Bloomingdale and Blue Mercury were looking at a quarter of equal sales, each increasing 4.8% and 6.2%, respectively, while Macy’s flag of the same name is the company’s Laguard, which continues to fall by 1.9%.
To address years of issues with legacy banners, Spring has implemented an aggressive store closure plan, including closing 150 doors and a strategy to fix better performance locations. Macy’s and other department stores have been shrinking over the years, and are facing criticism for ignoring stores by falling behind the retail essentials they need to win in any environment.
Spring has begun to address these issues by investing in 50 locations and providing better staffing, merchandising and visual presentations for the company’s diverse assortment.
So far, the plan appears to be working. When Macy’s added more staffing to its shoe and handbag division at 100 test locations, those stores outperform stores that don’t have those investments, Spring said Thursday.
The first 50 locations across the store continue to surpass most of the chain, with in February adding 75 stores to the program, bringing the total number of “reconsidered” locations to 125.
“The performance of both the first 50 and 100 test stores shows that investing in the customer experience can help grow sales,” Spring said. “Now we must expand these changes to achieve our long-term goals.”
In 2024, Macy’s overall business equivalent sales still fell 0.9%, a 5.1 percentage point improvement over 2023. Equal sales at Mayme Plate in the fourth quarter were also 0.9%, up 3.8 percentage points from the previous year.
Still, investors shouldn’t expect a return to growth this year. In addition to comparable sales from open-owned stores, the company forecasts a flat 2% decrease in fiscal year 2025 compared to fiscal year 2025.
The rethinked store accounts for 36% of the 350 Macy’s locations that businesses plan to keep open after closing low-performing locations. Scaling your strategy to most of the chain requires time and capital. Spring gave the company a further two years to pull it apart, but it has yet to be seen whether investors have the patience to see the strategy unfold, and whether macroeconomic conditions slow it down.
In December, activist investor Barrington Capital revealed that it has a position at Macy’s, where the company is cutting spending, exploring luxury brand sales and looking closely at its real estate portfolio. He is the fourth activist push in department stores in the past decade.
Like the activists, Arkhouses and Brigades who came just before that, many suspect that Barrington is primarily after Macy’s lucrative real estate portfolio. Still, Macy’s must act in the interest of its shareholders, and activists can ultimately win if they don’t do enough to quickly return the value.
Macy’s announced on Thursday its intention to resume share buybacks based on the “disputed market situation” approval of the remaining $1.4 billion share buyback.
“Based on our momentum, we will continue to improve our customer experience, provide operational excellence and make careful capital investments,” Mitchell said. “We remain committed to generating healthy free cash flow and returning capital to shareholders through stock buybacks and predictable quarterly dividends.”
