Department store chain Macy’s has posted disappointing third quarter earnings, but tighter inventory controls has helped boost profit margins for the retailer.
Macy’s posted a drop in sales of 6.1 per cent from $5.6 billion to $5.3 billion. Comparable store sales including licensed sales has seen a 3.6 per cent decrease. Gross margin increased from 39.8 per cent in FY 2016 to 39.9 per cent in the current year. Selling cost has remained high and has increased from 37.5 per cent to 37.8 per cent.
Macy’s also reaffirmed its full-year outlook, citing heightened momentum heading into the all-important holiday shopping season.
“We are excited about our plans for holiday, which is when Macy’s truly shines as a gifting destination,” said Jeff Gennette, Macy’s CEO.
“The loyalty program, special in-store experiences and a strong mobile and online presence will help drive holiday sales.”
During its third quarter, Macy’s opened eight new freestanding Bluemercury beauty specialty stores for a total of 135 stores and seven new Macy’s Backstage off-price stores within existing Macy’s stores for a total of 45 locations.
During the quarter, the company announced that it will close the following stores in early 2018: Laguna Hills Mall in Laguna Hills, CA; Stonestown Galleria in San Francisco, CA; and Westside Pavilion in Los Angeles, CA.
Neil Saunders, managing director of GlobalData Retail, said Macy’s has presented a rather mixed bag of results, with gains on the bottom line overshadowed by the continuing slide in sales.
“Admittedly, total sales have been affected by the program of store closures, but the comparable number – which worsened since the last quarter – cannot fall back on the same excuse,” Saunders said.
Saunders said in their view, one of the central issues with Macy’s is the patchiness of its turnaround program.
“While there is no doubt that the company has made progress across some areas, change is far from comprehensive or far-reaching,” he said. “We get the sense that Macy’s fixes issues in a piecemeal way and that it lacks a unified vision for the future of the business.”
Saunders said on the ground, this means it is hard for shoppers to see any material change, which is one of the reasons why Macy’s continues to suffer from customer defections.
“None of this is to suggest that there have not been pockets of advancement: in shoes and jewellery, for example, Macy’s has enhanced its offer. However, on their own, these are insufficient to swing the top-line into growth.”
According to Saunders, as a department store, the reinvigoration of Macy’s business means it must reinvent not only each department but the way in which all of those individual elements fit together.
“In our opinion, the company is a very long way from achieving this and, more worryingly, seems to lack the will or the ability to do so,” he said. “Instead, Macy’s is focusing on smaller scale initiatives like the revamping of its loyalty scheme and improved marketing. As much as these things are valuable, they do not address the fundamental issues facing the business.”
Saunders said all in all, Macy’s has made some progress, especially on the bottom-line where cost-saving initiatives are helping profit. However, the company needs to move further, faster and in a more coordinated way if it is to transform its fortunes.