Thanks to relatively tight inventory control, Macy’s fared better than feared in the second quarter. Inventory was up 7% year over year and down 8% versus 2019. Net sales were essentially flat, down 0.8%, with store comps (including licensed spaces) down 1.6% year over year and up 4.4% compared to 2019, per a company press release.
Gross margin contracted to 38.9%, from 40.6% a year ago, with merchandise margin degradation driven by permanent markdowns at Macy’s, largely on pandemic-related goods, seasonal goods and private brands. Net income fell 20.3% to $275 million.
Noting that results have deteriorated since Father’s Day as consumers grow more 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 previous guidance for $24.5 billion to $24.7 billion.
Speaking to analysts Tuesday, Macy’s CEO Jeff Gennette described a by-now familiar situation, where shoppers have grown careful about what they spend on discretionary goods. But there are also some bright spots for the company, he said, including the appeal of its off-price Backstage and Bloomingdale’s Outlet options and evidence that its new “Own Your Style” campaign is boosting the retailer’s reputation for value and style.
Macy’s also stands to benefit from the pages it’s 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-be-launched marketplaces the company’s “number one” opportunity to grow revenue, and noted that the media network, 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 last year but rose 37% compared to 2019, representing 30% of net sales, a 2 percentage-point year-over-year decline, per the company’s press release.
Considering the rough environment and tough comparisons to last year’s results, Macy’s Q2 performance was “far from terrible,” according to GlobalData Managing Director Neil Saunders. He and other analysts noted that its inventory position is especially strong compared to Q2 results from other retailers. However, retail sales growth from before the pandemic — up 24% for the industry compared to 2019, but just 1% at Macy’s — shows that the company is struggling against rivals, Saunders also said.
“This continues the well-established trend of Macy’s losing share of the market and of spending and, in our view, underlines the groups’ difficulties to adapting to the needs of the modern consumer,” he said in emailed comments.
Macy’s may be forced into deep discounts to compete and draw in customers, especially considering the state of many of its stores, Saunders said, adding that even worthy initiatives like its tie-up with Toys R Us run the 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 Polaris turnaround. “We feel confident that we can deliver on our long-term initiatives as part of our Polaris strategy,” he said. “We firmly believe that we'll be able to reverse the challenges ahead, grow market share and profitability and emerge from this uncertain period as an even stronger business than when we entered.”
Saunders is not so sure, unless the company makes some bold moves. “The past couple of years have been good ones for Macy’s and the company is now in a better state than it was pre-pandemic,” he said. “However, unless the business capitalizes on this fortune to make major changes, it will continue to lag the overall market.”