Macy’s closes books on ‘challenging’ 2015; will expand beauty, off-price chains

Cold weather in January helped Macy’s report a decline in same-store sales for the fourth quarter that was less than analysts had expected. In other news, the chain announced plans to expand its off-price and specialty beauty formats.



For the period ended Jan. 30, Macy's net income fell 31% to $543 million, dragged down by store closings and other costs.



Adjusted profits were $2.09 per share, better than the $1.86 per share estimate from analysts, according to Zacks Investment Research,



Same-store sales fell 4.3%, slightly less than the 4.7% decrease analysts had forecast.



Total sales declined 5.2% to $8.87 billion.



“While 2015 was challenging, our sales trend improved in January as the weather turned colder in northern climate zones and Macy’s and Bloomingdale’s were well-stocked in coats, boots, sweaters, gloves, hats and other seasonal goods,” said Terry J. Lundgren, chairman and CEO of Macy’s. “As the year ended, our inventories were in good shape (up by 0.7% on a comp basis).”



Lundgren said he was encouraged by the way the business responded going into 2016, and believes that the company is “well positioned to stabilize sales levels this year as we lay the foundation for enhanced shareholder value and sustained, long-term profitable growth.”



Moody's VP/senior analyst Christina Boni noted that Macy’s performance was plagued by a ‘perfect storm’ of external factors, as the department store sector faced significant headwinds this holiday season to which Macy’s was vulnerable.



“Both a stronger U.S. dollar, which tempered tourist spending and an unseasonably warm holiday season, particularly in the Northeast, hurt its top line results,” Boni stated. “We expect Macy’s $400 million of planned cost savings initiatives this year combined with more conservative inventory planning in 2016 to enable the company to improve its operating margin in the face its guidance of a 1% comp store sales decline.”



In announcing its results, Macy’s said it registered another year of double-digit growth in its online business, fueled by exceptional increases in mobile traffic and increased conversions.



In looking back on the year, Lundgren pointed out various initiatives.



“We expanded our online capacity with a new state-of-the-art fulfillment center in Tulsa, Oklahoma,” he said. “We announced licensed department arrangements with companies including LensCrafters, Men’s Wearhouse and Best Buy to add new categories to the Macy’s store assortment. We completed the acquisition of Bluemercury, which added capabilities to our signature beauty business. We developed and launched Macy’s Backstage, which will be piloted as an in-store concept this spring. And we began initial testing of online selling in China in a new joint venture with a Hong Kong-based partner.”



Macy’s said it has begun the process of contacting potentially interested parties with respect to partnership or joint venture transactions involving the company’s flagship and mall-based properties. It said there has been a “high degree of initial interest at this preliminary stage.”



Looking ahead, Macy's forecast earnings of $3.80-$3.90 per share for the year ending January 2017. The company expects same-store sales to decline by approximately 1% in fiscal 2016.



In fiscal 2016, the company expects to open a new Macy’s store in Kapolei, Hawaii, and 42 additional Bluemercury locations (24 freestanding and 18 inside Macy’s).



It also expects to open 16 Macy’s Backstage locations (one freestanding and 15 inside Macy’s).



Announced new stores in future years include Macy’s in Murray, Utah (2017); a Macy’s replacement store in Los Angeles (2017); Bloomingdale’s in San Jose, California (2017) and Norwalk, Connecticut (2018). In addition, a new Bloomingdale’s store is expected to open in 2017 in Kuwait, and new Macy’s and Bloomingdale’s stores are planned to open in Abu Dhabi, United Arab Emirates, in 2018 under license agreements with Al Tayer Group.