Macy's expanding beauty, discount chains

Macy’s says cold weather in January helped the retailer report a better than expected decrease in same store sales for the fourth quarter even as the company explores an expansion of its off-price and beauty formats.

For the period ended Jan. 30,same store sales fell 4.3%, slightly less than the 4.7% fall it had estimated. Total sales declined to $8.87 billion.

"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 clearly not immune,” said Moody's VP/Senior Analyst Christina Boni.“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. 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.”

Net income at Macy's decreased 31.5% to $543 million in the fourth quarter. EPS was $2.09, beating analysts' estimates of $1.89.

“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. As the year ended, our inventories were in good shape (up by 0.7 percent on a comp basis),” said Terry J. Lundgren, chairman and chief executive officer of Macy’s, Inc. “We are encouraged by the way the business responded going into 2016, and we believe we are well positioned to stabilize sales levels this year as we lay the foundation for enhanced shareholder value and sustained, long-term profitable growth. Given our determination to rise above our disappointing 2015 performance, I have reminded my team that our setback last year is a setup for our comeback."

For the full year 2015, adjusted earnings were $3.77 per diluted share.Same store sales declined by 2.5%.

“Moving ahead, Macy’s remains rooted in the M.O.M. strategies that have resonated with customers seeking fashion, value, quality and convenience as customers shop us in stores and digitally. But we are redefining, updating and redirecting our efforts in each letter of M.O.M. to carry us forward – with My Macy’s evolving from localization to personalization, Omnichannel now focused on providing Omni Choices for customers, and engaging customers by making Magic Connections,” Lundgren said. “After the previous six consecutive years of cumulative success, 2015 reminded us that retailing is a dynamic business that requires continuous reinvention as the customer evolves. Today, we are examining every aspect of our business so we can grow profitable sales and re-attain our goal over time of an EBITDA rate as a percent of sales of 14 percent."

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. There has been a high degree of initial interest at this preliminary stage, the retailer says.

“We should not lose sight of the investments we made in 2015 that will help us down the road. We registered yet another year of double-digit growth in our online business, fueled by exceptional increases in mobile traffic and increased conversions, with exciting new offerings from macys.com and bloomingdales.com. We expanded our online capacity with a new state-of-the-art fulfillment center in Tulsa, OK. 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,” Lundgren added.

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, as well as approximately 42 additional Bluemercury locations (24 freestanding and 18 inside Macy’s) and 16 Macy’s Backstage locations (1 freestanding and 15 inside Macy’s). Announced new stores in future years include Macy’s in Murray, UT (2017), a Macy’s replacement store in Los Angeles, CA (2017), and Bloomingdale’s in San Jose, CA (2017) and Norwalk, CT (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.