Macy’s Tops Profit Expectations in Jeff Gennette’s Swan Song on Wall Street
Updated Nov. 16 4:20 p.m.
Jeff Gennette bid adieu to Wall Street on Thursday, logging in for one last earnings report and conference call with analysts before passing the reins of Macy’s Inc. over to Tony Spring in February.
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Gennette has been chief executive officer of Macy’s since March 2017, and while he acknowledged in an interview with WWD that “really consistent profitable growth” eluded him during his tenure, he did have a little something for investors in his last go round.
The retailer’s adjusted earnings per share came in at 21 cents in the third quarter, well ahead of the breakeven performance analysts had penciled in according to FactSet, if still below the 52 cents logged a year earlier. Net income fell 60 percent to $43 million, or 15 cents a diluted share, from $108 million, or 39 cents, a year earlier.
Revenues for the three months ended Oct. 28 decreased 7.8 percent to $5 billion from $5.5 billion a year earlier.
Investors — who are well aware of the difficult consumer economy right now — appreciated the earnings beat and sent shares of Macy’s up as much as 14.4 percent in morning trading. The stock settled some and ended the day with an increase of 5.7 percent to $13.33.
While the quarter came in better than expected, its contours were familiar. Sales were tough — as consumers wrestled with inflation, the restart of student loan repayments and geopolitical uncertainty — but inventory was in check and the company is working hard to gin up excitement, for instance, with its new On 34th private brand.
Gennette isn’t retired yet, but he did take a moment for reflection, hitting on several points of pride, including how Macy’s weathered the pandemic, the evolution of the company’s culture with its Mission Every One program and the transition to Spring, who he’s known for 20 years.
“He has those great instincts,” Genette said of Spring, who also participated in the interview. “He’s not going to be shy about making bold moves where he sees it as appropriate. He’s a seasoned fashion department store leader and he knows what it’s going to take for us to be successful. I don’t think we’re going to be satisfied until we have consistent profitable growth. He’s got a great game plan and he’s the type of leader that people will follow.”
Spring, the former CEO of Macy’s Bloomingdale’s division, will continue to serve as president until getting the top job in February.
It’s a perch that lets him do that final bit of preparation after a 36-year career in the broader Macy’s business.
Spring remains, as would only be expected, a big believer in department stores — a form of retailing that for decades has been subject to various death watches only to survive each new challenge, often with some big changes.
“I sometimes use the word marketplace when I hear the word department store too often, just to remind people we’re not defined by predetermined spaces and allocation of inventory and allocation of marketing and allocation of people and brand partnerships alone,” Spring said.
“We catch people when they’re getting their sweet 16 dress and we get people when they have to wear some cream to take care of the wrinkles,” he said. “Department stores are intended to be a part of a community where people can actually connect with people they know, find things that they love, discover things that they’re unaware of and, ultimately, walk away with a greater sense of possibility. And when we are at our best, we are into the latest trends. We’re offering a new color, we’re showcasing how something can fit. We’re exposing you to the reason a product may command a premium or how you get an incredible deal on something you’ve always loved but couldn’t afford. That’s the department stores at their best.”
Soon, Spring will be responsible for making sure Macy’s — the largest remaining department store — is at its best.
Part of that will mean maintaining the merchant’s eye that helped make Macy’s a powerhouse, while continuing to layer in more data analytics.
“We have to embrace science,” Spring said. “You can’t be a modern retailer, you can’t be a modern business if you don’t take advantage of what technology can offer. That brings efficiency to your operating model. That brings convenience to your consumer….Conversely, taste and style and the tactile elements of our business have never been more important. And so we believe in the importance of a strong merchandising team. We believe in the importance of creativity and imagination in our visual teams and in our marketing teams. And I don’t think those two things fight one another. They’re salt and pepper, they go together.”
Now consumers just have to regain their appetite.
The Macy’s division logged a 7.6 percent comparable sales decline on an owned basis in the quarter and a 6.7 percent drop when the licensed businesses were included. Bloomingdale’s fared better with a 3.2 percent owned comp decline and a 4.4 percent drop with the licensed businesses. And the Bluemercury beauty business comped up 2.5 percent on an owned basis.
Inventories at the end of the quarter were down 6 percent from a year earlier and down 17 percent compared with 2019.
Macy’s narrowed its guidance for adjusted EPS for the full year and is now looking for profits to range from $2.88 to $3.13, where the outlook previously stood at $2.70 to $3.20.
Gennette said the consumer remains under pressure.
“There’s no difference from what we’ve talked about in previous quarters,” he said. “The flavor of the headwinds are changing, but also we’re seeing some emerging tailwinds too.”
One of those potential tailwinds is international tourism, which is showing some early signs of a comeback, boding well for Macy’s stores in gateway cities like New York.
“That’s going to be a big tailwind when that comes, particularly for the Macy’s and Bloomingdale’s brands,” Gennette said. “That’s going to come back. We’re not anticipating that it’s going to be meaningful in the fourth quarter in terms of a shift, but in ‘24 and beyond, that would be an emerging tailwind.”
The business of retail is so often driven by optimism and it’s clear that, even headed for the door, that it’s a trait Gennette still has down to his core.
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