Macy’s in big Q2 earnings miss; to test apparel resale and subscription

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Macy’s in big Q2 earnings miss; to test apparel resale and subscription

By Marianne Wilson - 08/14/2019
Macy’s income plummeted in the second quarter as the company took markdowns to clear unsold spring merchandise.

On the chain’s quarterly call with analysts, Macy’s discussed two initiatives designed to appeal to younger customers: resale and apparel rental. The company said it started a pilot earlier this month with ThredUp, which bills itself as the world's largest online thrift store, at 40 Macy’s stores, devoting about 500 sq. ft. in each location to the program. The digital native enjoys a strong following among millennials.

“This partnership gives us the opportunity to reach a new customer and keep them coming back to shop an ever-changing selection of styles, and brands, that we don’t typically carry,” Macy’s chairman and CEO Jeff Gennette said on the call.

Also on the call, and as previously reported, Macy’s said its Bloomingdale’s unit is working with CaaStle on the rollout of an apparel rental service.

“Learning from Bloomingdale’s will inform the development of a similar rental service at Macy’s in the near future,” Gennette said.

The nation’s largest department store retailer on Tuesday reported net income of $86 million, or 28 cents per share, down from $166 million, or 53 cents per share in the year-ago period. Analysts were looking for earnings per share of 45 cents. Macy’s also lowered its profit outlook for the year. It now expects to earn between $2.85 and $3.05 a share, down from a range of $3.05 to $3.25.

Macy’s second-quarter sales edged down to $5.546 billion from $5.572 billion last year. Same-store sales growth on an owned basis rose 0.2%, and rose 0.3% on an owned-plus-licensed basis. It marked the seventh straight quarter of same-store sales increases.

“Rising inventory levels became a challenge based on a combination of factors: a fashion miss in our key women’s sportswear private brands, slow sell-through of warm weather apparel and the accelerated decline in international tourism,” said Gennette. “We took markdowns to clear the excess spring inventory and are entering the fall season with the right inventory to meet anticipated customer demand.

Gennette added that notwithstanding the spring inventory challenges, many areas of the business are performing well, including its digital business, which posted its fortieth consecutive quarter of double-digit growth. Mobile remains the company’s fastest-growing channel.

“We continue to see healthier sales within our brick and mortar business, led by our Growth50 stores and Backstage expansion,” Gennette said.

In comments, analysts Neil Saunders, managing director of GlobalData Retail, criticized Macy’s for the “terrible environment” of many of its stores.

“These stores, which have suffered years of underinvestment, increasingly resemble 1980s throwbacks – and not in a trendy retro way,” he said. “Admittedly, it would be hard for Macy’s to revitalize all of these stores via extensive capital investment, but some of the issues can be resolved by ensuring basic shop keeping standards – cleanliness, layout, neatness – are up to scratch. Macy’s all too often fails on these basic retail disciplines and the ultimate impact is declining footfall and a loss of share within its trade areas.” (Click here for more analysis.)

At the end of the quarter, Macy’s operated approximately 680 department stores under Macy’s and Bloomingdale’s banners, and approximately 190 specialty stores that include Bloomingdale’s The Outlet, Bluemercury, and Macy’s Backstage.

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