Macy’s maintains good inventory control in second quarter

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Diving brief:

  • Thanks to relatively tight inventory control, Macy’s fared better than expected in the second quarter. The inventory was up 7% year over year and down 8% from 2019. Net sales were essentially flat, down 0.8%, with store mixes (including licensed spaces) down 1.6% from a year-on-year and up 4.4% compared to 2019, by a company press release.

  • Gross margin contracted to 38.9% from 40.6% a year ago as merchandise margin deterioration was driven by ongoing markdowns at Macy’s, primarily on pandemic-related products, seasonal products and private labels. Net income fell 20.3% to $275 million.

  • Noting that results have deteriorated since Father’s Day as consumers become increasingly financially stressed, the company lowered its outlook for the year. Macy’s now expects net sales to reach $24.3 billion to $24.6 billion, down from a previous forecast of $24.5 billion to $24.7 billion.

Overview of the dive:

Speaking to analysts on Tuesday, Macy’s CEO Jeff Gennette described a now familiar situation, where buyers have become cautious about what they spend on discretionary goods. But there are also positives for the company, he said, including the appeal of its discounted Backstage and Bloomingdale’s Outlet options and evidence that its new “Own Your Style” campaign is bolstering the reputation of the retailer for value and style.

Macy’s should also benefit from pages taken from Amazon’s playbook – the introduction of marketplaces at Macy’s and Bloomingdale’s as well as a new media network. Gennette called the soon-to-launch marketplaces the company’s “number one” opportunity to boost revenue, and noted that the media network, which launched in 2020, contributed some $30 million in the second quarter. .

More consumers are back in stores, including more downtown office workers, he said. E-commerce fell 5% from a year ago, but was up 37% from 2019, accounting for 30% of net sales, down 2 percentage points year-over-year , according to the company’s press release.

Given the tough environment and tough comparisons to last year’s results, Macy’s second-quarter performance was “far from terrible,” according to GlobalData chief executive Neil Saunders. He and other analysts noted that its inventory position is particularly strong compared to other retailers’ second-quarter results. However, pre-pandemic retail sales growth — up 24% for the industry from 2019, but just 1% at Macy’s — shows the company is battling rivals, Saunders also said. .

“This continues Macy’s well-established trend of losing market share and spending and, in our view, underscores the groups’ struggles to adapt to the needs of the modern consumer,” he said in comments by email.

Macy’s could be forced into deep discounts to compete and attract customers, especially given the state of many of its stores, Saunders said, adding that even worthwhile initiatives like its tie-up with Toys R Us are at risk. of poor execution, given Macy’s track record. Merchandising standards in stores “are still incredibly poor” but with profits under pressure, Macy’s is less likely than ever to address what is now an entrenched problem, he said.

Gennette expressed confidence in the company’s turnaround of Polaris. “We are confident that we can achieve our long-term initiatives within our Polaris strategy,” he said. “We firmly believe that we will be able to turn around the challenges ahead, increase our market share and profitability, and emerge from this uncertain period an even stronger business than when we entered.”

Saunders isn’t so sure unless the company makes some bold moves. “The past two years have been good for Macy’s and the business is now in better shape than it was before the pandemic,” he said. “However, unless the company capitalizes on this fortune to make major changes, it will continue to lag the overall market.”