Macy's has raised its sales and earnings expectations for the year as it reported initial progress in its turnaround plan of investing in promising namesake stores and closing low-performing locations.
The New York City-based retailer said the first quarter of fiscal 2024 showed its turnaround strategy is gaining traction with customers. Macy's launched the strategy in February after it decided to close a handful of stores as part of a broader plan to shut 150 locations in the next three years to cut costs and generate up to $750 million from property sales. The company plans to invest in the 350 Macy's stores it plans to keep open with sales at the first 50 stores where the investment was made performing better than other locations.
The retailer has not publicly disclosed the addresses of the 150 namesake stores it plans to shut, but locations that serve as mall anchors in California, Florida, Hawaii, Virginia and Georgia have been slated for closing. Other Macy's stores in Texas are among the ones already being marketed by brokers to potential investors. Since Macy’s owns many of its locations, rather than leases them, the company can generate revenue from property sales.
For the Macy's stores being kept open, the company is investing in products, presentation and so-called customer experience, but it didn't reveal further details.
"We're going to be very discerning in terms of what we decide to do and where," Tony Spring, chairman and CEO of Macy's, told investors during an earnings call Tuesday. The retailer no longer is investing in stores set for closing beyond essential repairs.
"We need more variety. We need less redundancy," Spring said about the first 50 stores Macy's poured money into during that quarter, which will set the tone for the company's real estate portfolio. "We need more interest within the assortment, and I think that's making a difference in the customer reception to the stores."
Raising Expectations
Macy's raised its net sales expectations for fiscal 2024 to $22.3 billion from $22.2 billion. Adjusted earnings per share expectations for the year also were increased to $2.55 to $2.90 per share from February's range of $2.45 to $2.85 per share.
The move comes amid what Spring called "early innings" of turning around its namesake stores. The retailer also is planning to add to its real estate portfolio 24 new small-format Macy's stores by year's end.
Macy's plans to open a Bloomingdale store as well as 15 new Bloomie's and Bloomingdale's outlet locations through fiscal 2026, including three locations that will be up and running by the end of this year. The retailer is also looking to add Bluemercury stores with at least 30 new locations expected and a remodel of about 30 other stores already underway.
"For both [Bloomingdale's and Bluemercury] nameplates, we are evaluating new store opportunities that will strengthen our ability to accelerate omni growth," Spring said.
Macy's customers "continue to be discerning in their discretionary purchases," the company said, with its revised outlook for the year capturing a so-called competitive retail landscape.
Neil Saunders, managing director of GlobalData who tracks and reviews Macy's financial performance, said the retail environment has been challenging for companies that sell discretionary products, making the retailer's first-quarter results "not terrible" despite reporting a year-over-year quarterly loss.
Macy's declined to comment to CoStar News beyond the earnings call and press release.
The retailer's net sales were down 2.7% to $4.8 billion, compared with the first quarter of fiscal 2023. It invested an undisclosed sum in the first 50 stores of its 350 namesake locations it plans to keep open with new merchandising efforts and brands boosting comparable year-over-year sales by 3.3% during the quarter.
The financial performance of those 50 stores is encouraging, Saunders said, but the stores chosen for investment are in stronger locations with "generally better retail performance," compared with other Macy's stores.
"The forward challenge is to ensure that this investment and focus [is] continuous across the balance of the year," Saunders said. "In our view, there is still a significant amount of work required to right all the problems in stores."
The increased outlook for results assumes customers will continue to be discerning on discretionary purchases, Spring said. Macy's financial performance reflects the retailer's customers feeling "under pressure" and are going to "wait to buy the things they love," Spring said, adding that "we accept the challenge, and we'll respond to it appropriately."