Heaping praise on its Polaris turnaround strategy, Macy’s on Thursday said Q1 net sales rose 13.6% year over year to $5.3 billion, with overall comps up 12.4%. Namesake comps rose 10.1%, Bloomingdale’s comps rose 26.9% and Bluemercury comps rose 25.2%.
E-commerce rose 2% year over year and 34% compared to 2019, with digital sales penetration down 4 percentage points year over year to 33% of net sales, according to a company press release.
Inventory was up 17% year over year and down 10% versus 2019. Gross margin in the quarter expanded to 39.6%, from 38.6% last year. Net income rose 178% to $286 million.
Macy's has momentum going into the second half of the year, its scale apparently an advantage, with a variety of merchandise and a mix of operations that are helping reach a range of customers.
The company will diversify further with an online marketplace, featuring third-party merchants selling via Macy's and Bloomingdale's sites, which Macy's CEO Jeff Gennette said will launch in the third quarter and scale over the rest of the year.
Customer count and spending were up among shoppers at all income levels, including those making less than $75,000 annually, thanks to the off-price Backstage option, Gennette said in a call with analysts Thursday. As at Nordstrom, consumers interested in refreshing their wardrobes helped drive sales in the period, he said.
"As we move forward we recognize this coming year presents unique challenges for both our business and our customers," he said. "Our strength is in our omnichannel ecosystem. We operate across the value spectrum from off price to luxury, and have a balanced portfolio that can shift and flex with consumer demand. Our Polaris strategy has proved durable and we have confidence that enables us to weather any storm we may face."
Its pandemic-era investments in initiatives like in-store pickup have helped Macy's stabilize its share, according to Fitch analysts. But GlobalData research shows some share loss since before the pandemic, with revenue down 2.8% compared to Q1 2019.
"While some stores have been closed over this period, this represents an underweight performance against which Macy’s has lost market share," GlobalData Managing Director Neil Saunders said in emailed comments. "This fact takes a little of the shine off an otherwise positive set of results as it underscores Macy’s inability to drive growth in a market where consumer spending has been extremely robust."
The company's growing off-price unit, Backstage, is one way Macy's is able to reach some customers at a time of cautious discretionary spending, Saunders also said. Gennette noted that the company now plans to open 37 new Backstage shop-in-shops at Macy's stores. This month Backstage opened its largest, within the Herald Square flagship in New York City, its 300th location, he said.
Gennette said the retailer "delivered a solid first quarter despite the unprecedented macroeconomic environment, demonstrating our improved operational agility, driven by our Polaris strategy."
But elevated consumer demand and even the department store's own strong numbers don't obviate its need for change, according to Saunders. Moreover, retailers are working to appeal to an increasingly wary consumer. This week, Morning Consult’s daily Index of Consumer Sentiment dropped below previous lows on March 14 this year and April 7, 2020, according to an emailed press release.
"[W]e maintain our view that management is not doing enough to secure the brand’s long-term vitality," Saunders said. "Shop floors, for example, are still extremely messy and, at a time when consumers are returning to physical stores, this is an area Macy’s should have got to grips with. New own-label launches, while welcome and a key part of Macy’s strategy, are underwhelming and lack oomph. As the economy tightens and as Macy’s becomes more dependent on taking market share for growth, these aspects will become significantly more important."