Dive Brief:
- Macy’s inventory levels were down 10% year over year in Q2 while turnover was roughly flat, the department store retailer said in its earnings release.
- The decline in merchandise inventories reflected “ongoing disciplined inventory management and the clearance of excess spring seasonal product,” the company said. The managing down of stock came as net sales fell 8% to $5 billion.
- “We will continue to leverage our data science tools to refine inventory composition, breadth and depth on a weekly basis and to further streamline decision-making to efficiently find and execute compelling opportunities that had a positive impact, both near and longer term,” Chairman and CEO Jeff Gennette told analysts Tuesday.
Dive Insight:
Macy’s faced another quarter of substantial declines in sales and operating profit, but the company’s tight control of inventory may have prevented a worse outcome, as it did last quarter and the previous year.
The retailer couldn’t always claim as much. Compared to 2019, Macy’s inventories at the end of Q2 were down 18% and turnover had improved by 15%, the company said.
The aim in lean inventories is to limit overstocks that need steep markdowns — and with them, hits to margins — to clear out. Less stock and quicker turnover also means budgets are open to chase product that is selling well. “We're committed to having current and compelling product at the appropriate receipt levels, based on expected sales demand,” CFO and COO Adrian Mitchell said.
Mitchell also noted that inventory composition “allows us to support full price sell-through” while fresh new inventory flowing in gives the retailer “the relevant content for our customers to shop from us versus the competition.”
Still, maintaining that clean position against a tough demand environment isn’t without its costs. Clearance activity weighed on the company’s profitability as merchandise margin fell by 130 basis points.
Gennette noted, though, that “our data-driven tools to reduce the length of seasonal clearance activity by several weeks” while promotional sell-throughs beat expectations and clearance markdowns were not as deep as the company feared.
As the company heads into the second half of the year, Mitchell rattled off a litany of demand headwinds, including higher interest rates, the return of student loan payments and lower job creation.
“Even with this backdrop, there is much that remains in our control,” Mitchell said. “Entering the third quarter, inventories are clean, current, and fresh, with an improved fashion and seasonless composition at compelling values that we believe appropriately reflects demand.”
