Macy's credits speedy vaccinations, pandemic relief for Q1 rebound
Macy's on Tuesday signaled recovery from the pandemic, reporting a 56% year-over-year first quarter sales bump to $4.71 billion and a revised outlook that CFO Adrian Mitchell said reflects "cautious optimism." E-commerce grew 34% over 2020 and 32% over 2019.
The company benefited from the comparison to a year defined by the pandemic. Comp sales soared 63.9% on an owned-plus-licensed basis over last year, but dropped 10% compared to 2019, according to a company press release.
Thanks in part to its pullback on expenses, net income in the quarter was up more than 100% to $103 million, from its brutal $3.6 billion loss in the year-ago quarter.
Dive Insight: As previously noted by several observers, some people are ready to leave behind the sweatpants they embraced while stuck at home during the pandemic. Macy's is benefiting. The department store's apparel sales expanded by eight percentage points compared to the fourth quarter, and the sequential improvement continued through the first quarter, CEO Jeff Gennette said during a conference call with analysts. Sales of dresses in the quarter were up some 29 points and of men's clothing were up 13 points in the same period, he also said. The company expected to benefit from the federal government's direct relief to consumers, but the speed of vaccine distribution was something of a surprise, Gennette also said. It was Macy's swing into the black in the quarter that took many analysts by surprise. Margins also expanded: Gross margin was 38.6%, up 40 basis points from 2019, thanks to leaner inventories and expense cuts. Inventory was down 23.1% from first quarter 2019. Last year's store closures forced an inventory write-down of some $300 million from markdowns on fashion merchandise, the company noted in its release. E-commerce in the quarter contracted by six points to 37% of sales, but was a 13-percent point expansion compared to 2019, per the company release. That meant higher fulfillment costs, with delivery expense down about 20 basis points year over year, but up 230 basis points compared to Q1 2019, the company said. The company now expects net sales for the year to rise between 25% and 28% over 2020 to between $21.7 billion and $22.2 billion, e-commerce to reach some $8 billion and gross margin rates to expand by up to eight percentage points year over year. The company previously said it expected net sales to rise 14% to 20%, reaching between $19.75 billion and $20.75 billion, according to its Q1 presentation. "In all, Macy's appears to have managed through the challenges of the pandemic, but continues to face what we see as structural traffic headwinds in the channel," Telsey Advisory Group's Dana Telsey said in a Tuesday client note.
GlobalData Managing Director Neil Saunders cautioned that the more realistic comparison would be to Macy's pre-pandemic results, which reveals a retailer "in long term decline." He went beyond the traffic slowdown in the department store sector to lay much of the blame on Macy's own doorstep. Comparing the quarter to the same period two years ago, overall revenue is down 14.5%, meaning that the company took in $798 million less, and net income is down 24.3%, Saunders noted in emailed comments. "The underpinning factor for our hopelessness around a long-term recovery at Macy's comes down to the lack of clarity and effort in the proposition," Saunders said. "Across most stores merchandising remains poor, assortments are undifferentiated, the shopping experience is lackluster, and service is mediocre. These are simply not the right ingredients for sustainable growth, and the problems are further exacerbated by store locations which are, in many cases, sub-optimal. Online provides some respite from this, and it may reduce the pace of decline, but without remedying the other areas it is something of a Hail Mary pass." Noticeable store upgrades in some locations, plus merchandise improvements and the lean inventories do bode well, as does the company's expansion of its off-price Backstage operation "even if it does little for the development of the Macy's brand," according to Saunders. "On the shop floor this is all a bit hit and miss, but it is a step in the right direction," he also said, adding, "Whether all these developments translate into a newly found energy from management remains to be seen but, if nothing else, they keep a small glimmer of hope alive."