Macy’s Inc. Raises Outlook on Strong Quarter

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Macy’s Inc., seeing more shoppers return to stores, turned profitable in its second quarter amid strong sales gains, motivating the company to raise its outlook for the year.

While the results indicated continued momentum in the business and bolstered the outlook, Macy’s Inc. said there continues to be uncertainty due to the pandemic. This summer, COVID-19 cases have continued to rise again across the country, raising concerns among retailers, particularly those selling “nonessentials.”

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The retailer reported net income of $345 million, or $1.08 a diluted share, for the quarter ended July 31, compared to a loss of $431 million, or $1.39 a share, in the year-ago period.

Operating income was $597 million versus an operating loss of $631 million in the 2020 quarter.

Sales rose to $5.65 billion last quarter, versus $3.56 billion in the year-ago period. Comparable sales were up 62.2 percent.

“Second-quarter results were strong across all three nameplates and surpassed our expectations. Our momentum in the first quarter accelerated in the second quarter as we successfully reengaged core customers and attracted new, younger customers with new brands and categories,” Jeff Gennette, chairman and chief executive officer of Macy’s, said Thursday. “Through the Macy’s Inc. portfolio and our omnichannel approach, we provide a compelling, seamless integration between physical stores and digital shopping to most effectively meet the needs of our customers.

“The Polaris strategy is working,” Gennette added. “We have meaningfully improved the fundamentals and overall health of our business, and we are well underway building a stronger Macy’s Inc. for the future.”

Macy’s Polaris strategy involves efforts to strengthen customer loyalty and personalization; improve the quality of its fashion offerings and sharpen the focus of private brands; accelerate digital sales; close 125 stores from 2020 to 2022 and upgrade the top 250 stores; grow off-price operations, and modernize the supply chain.

To support the momentum for the back half of 2021 and into 2022, Macy’s has begun selling the Toys “R” Us assortment online and will roll out Toys “R” Us to more than 400 Macy’s stores next year. The partnership was made with WHP Global, a New York-based firm that acquires consumer brands and has a portfolio than includes Anne Klein, Joseph About and Lotto, as well as a controlling interest in Toys “R” Us and Babies “R” Us. The partnership, said Nata Dvir, Macy’s chief merchandising officer, “allows Macy’s to significantly expand our footprint in that category, while creating more occasions for customers to shop with us across their lifestyles.”

Macy’s Inc., which operates the Macy’s, Bloomingdale’s and Bluemercury brands, is reinstating its regular quarterly dividend at 15 cents a share on its common stock, resulting in an annual return of cash to shareholders of nearly $200 million. The dividend is payable on Oct. 1 to shareholders of record at the close of business on Sept. 15. The company has authorized a $500 million share repurchase program. Macy’s also operates off-price stores under the Macy’s Backstage and Bloomingdale’s The Outlet names, and scaled down, specialized versions of Macy’s called Market by Macy’s. A scaled-down version of Bloomingdale’s called Bloomies is scheduled to open later this month.

Categories impacted by the pandemic, including denim, luggage, dresses and other occasion-based apparel, came back strong. Categories that were solid throughout the pandemic, such as fragrance, fine jewelry and textiles, continued to perform well.

Macy’s ended the second quarter with about $2.1 billion in cash, allowing the company to execute on its two priorities of investing in profitable growth, while de-levering the balance sheet. The strong cash position will also allow the company to return capital to shareholders through the following actions:

The company’s board has authorized a $500 million share repurchase program.

Additionally, as previously announced, the company voluntarily repaid $1.3 billion in senior secured notes on Aug. 17. Macy’s Inc. now expects to exceed its target leverage ratio and achieve a ratio of no more than 2.5 times by the end of fiscal 2021.

“While there is still uncertainty due to the ongoing pandemic, the increased traction of the Polaris strategy and our strong performance in the second quarter gives us the confidence to materially increase full-year guidance. We are also increasing our long-term adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] margin target to remain in the low double digits beginning next year. We are now well positioned to strengthen our business, enhance our long-term financial stability and return capital to our shareholders,” said Adrian Mitchell, chief financial officer of Macy’s.

Digital sales declined 6 percent versus second-quarter 2020 and grew 45 percent versus the second quarter of 2019.

Digital penetration was 32 percent of net sales, a 22 percentage-point decline from the second quarter of 2020, but a 10 percentage-point improvement over second-quarter 2019. The decline in digital sales compared to the prior year was driven by the shift of omnichannel customers to stores, which are now fully open.

The company brought about 5 million new customers into the Macy’s brand, a 30 percent increase compared to second-quarter 2019.

The company raised its guidance for this year. Sales are now seen reaching between $23.55 billion and $23.95 billion, compared to previous guidance of $21.73 billion to $22.23 billion.

Adjusted diluted earnings per share are seen at $3.41 to $3.75, compared to previous guidance of $1.71 to $2.12.

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