Macy’s (M) beat muted Q1 expectations, as a buyout bid lingers in the background.
On Tuesday morning, the department store chain reported revenue of $4.85 billion, down 2.7% compared to last year, and slightly higher than Wall Streets’ estimates of $4.81 billion. Its adjusted earnings per share of $0.27 also topped the $0.14 expected.
Same-store sales fell 1.2%, less than the 2.78% decline Wall Street predicted as it new strategy takes effect.
“We do believe that we’re getting traction, it’s still early days, …We’re still practicing the changes in the stores from a staffing and selling and service standpoint, there are a number of changes that are still not implemented in the store. There’s more to come as we get into the summer season than the back half of this year,” Macy’s CFO Adrian Mitchell told Yahoo Finance over the phone.
This is the first quarterly report since CEO Tony Spring, who took the helm earlier this year, rolled out “A Bold New Chapter” initiative. The overall strategy includes plans to close 150 underperforming stores, improving the remaining stores and product assortment, and investing in digital sales.
In the quarter, the remaining focus stores saw same stores sales growth of 0.1%, compared to the 4.5% drop at the closing locations.
Mitchell added, “We feel that we have the flexibility coming out of the first quarter and that’s reflected obviously in us raising our outlook for the year.”
The company now expects to end 2024 with net revenue in a range of $22.3 billion to $22.9 billion. Same store sales are expected to come in between a 1% year over year drop to a 1.5% increase. That’s compared to the previous expectation of a roughly 1.5% drop to a 1.5% increase.
Adjusted earnings also got a boost, expected to end the year in a range of $2.55 to $2.90, compared to the $2.45 to $2.85 in the previous guidance.
This guidance has a stubborn consumer in mind, Mitchell hinted.
“As we think about the sequential improvement in our performance, from the spring season to the fall season, we are not making any assumption for the improvement in the consumer situation, we continue to believe that there’s a lot of uncertainty, inflation continues to remain stubborn,” Mitchell said.
Wall Street remains skeptical of the company’s future.
Prior to the report, UBS analyst Jay Sole said it is “unlikely” that the new initiatives will make a difference.
In a note to clients, Sole wrote, “These initiatives are not part of our base case. However, they are part of our upside scenario.” He identified the three key areas as “Macy’s Backstage, Macy’s small store initiative, and its omni-channel service improvements, both online and in-store.”
Since 2012, Macy’s has lost 25% of its market share “primarily to Off-Price retailers, brands, and Amazon,” per Sole.
CFRA analyst Zachary Warring expects sales to keep dropping, “with a low-single-digit decline over the next five years,” he wrote in a client note.
It’s unclear if the company will be providing any updates about Arkhouse Management and its partner Brigade’s $6.6 billion offer to take the department chain private. In mid-March, both said in an SEC filing that they were working on a confidentiality agreement with Macy’s that would allow the buyers to conduct financial due diligence.
When asked for his response to naysayers who believe Macy’s should go private, he alluded to Macy’s staying the course as a public company, but with a reemphasized focused on sales growth.
“We’re being very disciplined and we’ve been very consistent the last few years of saying what we’re going to do and delivering it…We’re going to be focused on continued simplification of our business to expand margin and invest in the customer experience. But now it’s about growth. And the single metric that matters is comp sales. That’s one of the reasons why we articulated for our go-forward and non-go forward business — that bifurcation that’s happening — because at the end of this transformation journey the go-forward business is the growth business that will be part of our future.”
As of market close on Monday, Macy’s has a market cap of roughly $5.3 billion.
The earnings rundown
Here’s what Wall Street expects from Macy’s, according to Bloomberg data, compared to Q1 2023 results:
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Net sales: $4.85 billion versus $4.81 billion
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Adjusted EPS: $0.27 versus $0.14 compared
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Same-store sales: -1.2% versus -2.78%
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Gross margin: 39.2% versus 39.63%
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Adjusted net income: $77 million versus $39.6 million
Other areas worth of note include its two subsidiaries, Bloomingdale’s and cosmetics business Bluemercury, which both saw same store sales growth, up 0.8% and 4.3%, respectively.
Mitchell considers both the businesses growth drivers.
“There’s a lot of markets where we don’t have a ‘Bloomies’ presence, but you have a luxury or higher income customer that wants our brands and wants that experience,” he said, while he also believes its Bluemercury has a lot of “runway and white space.”
“We’re just leaning into those luxury brands. We’re definitely pleased with the performance and feel there’s a lot more ground there.”
The company’s credit card revenue dropped $45 million to $117 million, which the company alluded to “impact of expected higher delinquency rates and net credit losses within the portfolio.”
Its ad business, Macy’s Media Network, saw revenue jump $8 million to $37 million, from “increased vendor engagement.” Merchandise inventory is also 1.7% higher than last year.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.