Macy's earnings top estimates, retailer says it won't spin off e-commerce from stores

Macy’s on Tuesday reported fiscal fourth-quarter earnings and sales that outpaced analysts’ estimates and said that a strategic review has prompted the retailer to accelerate its turnaround plans.

It is rejecting calls from activist Jana Partners for it to split its e-commerce operations from its stores, following a similar move by Saks Fifth Avenue. Macy’s had been working with consulting firm AlixPartners to consider the best path forward for the business.

Macy’s shares rose more than 7% in premarket trading following the news.

During the holiday period, the department store chain said it brought in roughly 7.2 million new customers. Chief Executive Jeff Gennette said the department store chain was able to deliver the solid results despite Covid-19 related disruptions, supply chain issues, labor shortages and elevated inflation.

Here’s how Macy’s did in its fourth quarter compared with what analysts were anticipating, based on a survey compiled by Refinitiv:

• Earnings per share: $2.45 adjusted vs. $2 expected
• Revenue: $8.67 billion vs. $8.47 billion expected

Net income for the three-month period ended Jan. 29 grew to $742 million, or $2.44 a share, from $160 million, or 50 cents per share, a year earlier. Excluding one-time items, the retailer earned $2.45 a share, better than the $2 that analysts were looking for.

Revenue grew to $8.67 billion from $6.78 billion a year earlier, beating expectations for $8.47 billion.

Same-store sales, on an owned-plus-licensed basis, rose 27.8% year over year. Analysts were looking for same-store sales growth of 24.25%, according to Refinitiv. The metric was up 6.1% on a two-year basis.

Digital sales rose 12% year over year and increased 36% on a two-year basis. E-commerce represented 39% of net sales.

The company cited strong performance in categories including home, fragrances, jewelry, watches and sleepwear.

Macy’s also offered an upbeat outlook for fiscal 2022, calling for sales to range between $24.46 billion and $24.7 billion, which would be flat to up 1% compared with 2021. Analysts had been looking for revenue of $24.23 billion, which would have been a slight decrease from the prior year.

Macy’s sees adjusted earnings per share for the year to be between $4.13 and $4.52. That’s better than the $4.04 analysts were looking for.

The company said in a press release it anticipates positive momentum and strong consumer demand in the months ahead. However, it said macro challenges such as inflation, supply chain pressures and labor shortages will persist. It said its annual outlook takes this into consideration.

Key to Macy’s turnaround has been winning back customers who had left the department store chain over the past decade for rivals such as Nordstrom and big-box chains like Target, or to shop directly from brands like Nike.

To maintain share of consumers’ wallets, Macy’s has invested in launching more of its own private labels, revamping its loyalty program, overhauling its website and opening smaller, off-mall shops with a more modern look. It has one concept called Market by Macy’s, and it’s also testing a smaller Bloomingdales store, Bloomie’s.

Gennette said Tuesday that Macy’s will accelerate all of these initiatives, and more.

“We are more confident in our path forward as one integrated company,” he said.

According to data from M Science, Macy’s had 18.6% of department store market share as of January, trailing Kohl’s at 21.6% and Nordstrom at 33.6%. Kohl’s has notably been losing share, however, M Science noted. And Macy’s is up slightly from the 18.1% of market share it commanded back in July, according to the report.

Also on Tuesday, Macy’s announced a new $2 billion share repurchase program.

Macy’s shares are down about 2% year to date, as of Friday’s market close. Its market cap is $7.7 billion.

Find the full earnings press release here.