- Macy's fourth-quarter net sales fell 1.4% year over year to $8.3 billion as comparable sales on an owned basis fell 0.6%, according to a press release.
- Operating income in Q4 fell by half from a year ago to $559 million. Net income fell 54% to $340 million. But earnings, sales and comps all beat the FactSet consensus estimates, sending Macy's shares up 5.8% in premarket trading, according to MarketWatch.
- For full fiscal 2019, Macy's sales fell 1.6% to $24.6 billion as comps fell 0.8% on an owned basis, after rising 1.7% in 2018. Net income fell nearly in half to $564 million.
Macy's not-as-bad-as-feared Q4 comes shortly after the company revealed blueprints for its latest business overhaul. The retailer's ambitious turnaround plan (dubbed "Polaris") hinges on the department store chain's loyalty program, fashion curation and digital growth, as well as cost cuts and a revamping of its store base, with 125 store closures planned for the next three years.
In the short term, executives expect challenged growth to the retailer's top and bottom lines through Q1, CFO Paula Price said on a conference call Tuesday. She added that benefits from Polaris are expected to show up in Q2 and expand from there.
Dragging down profit comparisons in Q4 and 2019 was a smaller windfall from asset sales ($162 million in 2019, according to Price). Delivery costs also dragged down gross margins, which fell by 90 basis points to 38.2% for the fiscal year, she said.
CEO Jeff Gennette said Macy's is focusing its resources on the healthy parts of his businesses, including its loyalty program, saying the company would expand its personalization efforts.
The company is also looking to beef up its private labels as part of its turnaround. Gennette said the company's goal is to build four brands worth $1 billion each and for private label to represent 25% of Macy's total business by 2025. Asked by an analyst how the company will achieve that, Gennette said Macy's was shifting its sourcing from brand-based to category-based and from relationship-based to data-driven, and had centralized its sourcing capabilities.
The company is also looking toward digital, including building out its pickup option. "We see digital as a key engine of growth going forward," Gennette said, adding later than more that three million customers visit its sites every day.
Macy's Backstage off-price concept is set to play a stronger roll in its future and is already performing well. The company is looking at spots where it can add stand-alone Backstage stores away from malls.
Gennette said Macy's has seen "little cannibalization" from its stores that mix full-price and Backstage, and that customers become more loyal, and more profitable to Macy's, when they shop from both the off-price and full-price sections of mixed stores. Backstage stores also clear more inventory, with sell-through rates double those of full-price stores.
Gennette also called out the strength of the company's luxury chain, Bloomingdale's. The chief executive said Bloomingdale's brings in $3 billion in revenue, has an affluent and loyal customer base, and has an "early line" on fashion trends that can filter down to other parts of the business.
While executives expressed optimism — Price said that "we are confident about our future" — Macy's struggled to make its previous turnaround efforts translate into sales growth. All three major ratings agencies have downgraded the retailer since it unveiled its latest plans. In downgrading Macy's, S&P Global analysts said in an emailed report that they "see considerable execution risks as the company attempts to improve its position in the challenging department store sector."