Macy’s Looks To Expand Pop-Ups After Weak Holiday Sales

After announcing in early January that holiday season sales had failed to live up to their potential, Macy’s chopped its 2018 forecast for same store sales growth to 2 percent from its original predictions of 2.3 percent to 2.5 percent comparable sales growth. The retailer noted that the holiday sales season had started well but fell off in mid-December.

“The holiday season began strong — particularly during Black Friday and the following cyber week — but weakened during the mid-December period, and did not return to expected patterns until the week of Christmas,” Macy’s Chairman and CEO Jeff Gennette noted in a release at the time.

Investors were disappointed, and punished Macy’s stock price for it, sending shares dropping by 16 percent in a single day.

As earnings came out in the adjusted expectation environment Tuesday (Feb. 26), the firm managed to beat expectations on sales and earnings (though same-store sales missed) and investors were happier for the good news — sending the brand’s stock up 4 percent in pre-market trading.

For 2018, Macy’s announced total income of $740 million, or $2.37 a share, down from $1.35 billion or $4.38 a share the year before. For the quarter, earnings per share clocked in at $2.73, ahead of the $2.53 predicted by analysts pre-release. Sales came in at $8.46 billion, down from $8.67 billion last year, but ahead of the $8.44 billion the Street was looking for. Same store sales, on the other hand, missed the 0.9 percent increase analysts forecast, clocking in at 0.7 percent during Q4 2018.

Macy’s also noted that online sales growth had grown by “double digit” percentages — but did not specify which two digits, leading one to infer that it was likely lower double-digit growth.

Gennette, in his call with analysts, said a fire at a distribution center in West Virginia impacted Macy’s fulfillment capabilities during Cyber Monday. He also noted that a holiday promotion open to all customers in 2017 was limited to rewards customers in 2018, and that this limitation may have had a negative effect on sales. Macy’s also pointed to women’s sportswear, sleepwear, fashion jewelry, fashion watches and cosmetics as underperforming categories during the holiday season. Gross margins have also remained an ongoing issue as Macy’s continues to investigate new management strategies.

Pushing forward from a 2018 that started fairly strong, but in which Macy’s evidently failed to stick the landing  during the holiday shopping season, so to speak, Gennette spent much of his call with analysts pushing the next steps in its reinvention process.

Macy’s announced it is attempting $100 million in annual cost savings, starting in fiscal 2019, with its new restructuring plan. That plan will involve, among other elements, reorganizing upper management and cutting 100 vice-president level or above roles as part of an effort make operations more efficient and “to increase the speed of decision making.”

“The steps we are announcing to further streamline our management structure will allow us to move faster, reduce costs and be more responsive to changing customer expectations,” Gennette said.

CFO Paula Price reiterated that notion, telling investors that “2019, like 2018, will be a year of investment.”

Macy’s announced it will be pushing its pop-up efforts — doubling the number of pop-up shops in its stores. The brand will also be opening 45 more Backstage locations and upping its presence in categories where it believes it can gain market share: dresses, fine jewelry, women’s shoes and beauty. Gennette also reaffirmed Macy’s commitment to experiment with new tech, including VR headsets, in stores.

Despite the turn-around initiative, however, some market-watchers remain distinctly skeptical.

“While Macy’s company specific sales drivers (i.e. Backstage, Growth 50, Vendor Direct, etc.) look good on paper … they failed to manifest when it mattered most, leaving us more skeptical that they can deliver upside in 2019,” said Gordon Haskett analyst Chuck Grom, noting that if Macy’s performance was a disappointment during a holiday season where there was a strong consumer environment with favorable trends on both the tourism and weather fronts, it would be in trouble if the retail environment ever takes a serious turn.

And it seems Macy’s is taking a cautious approach to forecasting 2019, calling for same-store sales to be flat to up 1 percent. Earnings are expected by the company to fall between $3.05 and $3.25 a share — below the $3.29.

And Macy’s already has a bit of a hole to crawl out of. Despite today’s gains on a better than expected result, Macy’s stock price is still down 18 percent in 2019.