Macy’s Inc. CEO and Chair Jeff Gennette weighed in on consumer caution this year as he outlined opportunities for the business in a challenging landscape for retail.
The executive was ultimately upbeat in a call with analysts Thursday as he defined the core areas of focus for the business, even as consumer spending is expected to face continued pressure this year.
“On the surface, the consumer’s in better shape than 2019,” Gennette said. “Jobs and wages are strong and savings levels are elevated relative to historic levels. But prices for services and goods are higher. Inflation has surpassed wage growth and revolving credit is rising.”
He echoed the sentiment of many other retailers in saying spending is expected to continue to shift towards essential goods and services.
Macy’s Inc.’s portfolio of stores, ranging from full- to off-price, gives the retailer a broad view of consumers and it would appear no segment is immune to the macroeconomic challenges this year.
“I think when you look at it from off-price to luxury, when you look at our nameplates and our brands, what we’re seeing is that the consumer is pressured,” Gennette said.
Opportunities
Despite the challenges, the CEO noted traffic as being “relatively good” and that trend is expected to continue, driven by purchases in response to hybrid work models and more traveling.
Macy’s Inc. will look to capitalize on that momentum around occasion-based purchases and gifting.
More broadly, the retailer is focused on five key growth areas: a private brand refresh at Macy’s, off-mall store growth for Macy’s and Bloomingdale’s, marketplaces, luxury, and increased personalization.
“This year, we will be testing, besting, and scaling for sales and margin expansion,” Gennette said.
Inventory
The retailer’s inventory fell 3% last year and the company remains focused on tight control of those levels, along with markdowns this year.
“Looking back on 2022, we began to see signs of consumer weakness and a shift in category demand later in the first quarter,” Gennette said. “We adjusted the timing, amount, and composition of receipts by channel category and brand. As macro pressures mounted and industry-wide inventory built on easing supply chain constraints, we bought closer to need, held open-to-buy reserves, and bought into areas of strength.”
Gennette went on to say Macy’s Inc.’s fiscal fourth quarter ended Jan. 28 ultimately benefited from the company’s “measured” use of promotions and markdowns and the decision to “not chase unprofitable sales.”
Demand for remaining winter and early spring products was more robust than originally expected following the holiday selling season, allowing for fewer markdowns than the company originally estimated, Gennette added.
Q4 Brand Highlights
Macy’s Inc. capped the fiscal year ended Jan. 28 with 722 locations. The Macy’s brand and its sub-concepts, including Macy’s Furniture and Backstage, accounted for about 70% of the overall retail portfolio. Bloomingdale’s banners totaled 55, while the luxury beauty chain Bluemercury ended the year with 160 locations.
The top performers for the company during the fourth quarter on a comparable sales basis included beauty, followed by Bloomingdale’s:
Bluemercury
- Same-store sales up 7.2%
Bloomingdale’s
- Same-store sales up 1.2%
Macy’s
- Same-store sales down 3.3%
The categories Gennette pointed to as outperformers in the quarter included beauty, dresses, tailored clothing, luggage, and giftable items.
Meanwhile soft home, active, and casual sales – which are viewed as pandemic categories – faced headwinds in the quarter. Although, Gennette told analysts, those categories are expected to see pick up in the second part of the year.
Q4, Full-Year Results
Fourth-quarter net sales fell 4.6% from the year-ago period to $8.3 billion, with declines seen in both the digital and physical store channels. Net income in the quarter fell to $508 million, compared to $742 million in 2021. Meanwhile, company-wide same-store sales fell 3.3%.
For the full year, Macy’s Inc. reported net sales of $24.4 billion. That was down 0.1% from the prior year. Sales in the digital channel were down for the year, while physical store sales ticked up.
Full-year net income totaled $1.2 billion, a decrease from $1.4 billion in 2021. Same-store sales for the year increased 0.3%.
Macy’s Inc. cited continued macroeconomic uncertainty in its 2023 guidance, with sales projected to be in the range of $23.7 billion to $24.2 billion. The estimate reflects a decline of between 1% and 3% from last year.
Adjusted diluted earnings per share for the current year are expected to be in the range of $3.67 to $4.11.
