Is Macy's Cheating?

There's an interesting nugget buried several paragraphs deep into the quarterly report from Macy's (NYSE: M  ) today.

Long after the financial morsels have been spooned out, Macy's explains that sales through macys.com and bloomingdales.com rose by a healthy 9.4% during the period. That's a welcome break from the 9.5% dip in same-store sales.

So far, so chic.

However, right after that, the press release states: "Online sales positively affected the company's second quarter and first half 2009 same-store sales by 0.5 percentage points. Online sales are included in the same-store sales calculation for Macy's, Inc."

So wait a minute. The average store didn't ring up 9.5% fewer sales at the register. Instead, comps actually fell by 10% at the bricks-and-mortar level. Macy's simply goes on to assign its dot-com transactions across its department-store chain.

I hear what you're saying: "It's no big deal, Rick!"

  • Real-world stores are brand ambassadors that drive traffic to the websites.
  • As far as numbers go, a boost of 0.5 percentage points is practically a rounding error, given the steep drops that many retailers are reporting.
  • If the floats are inflated during Macy's Thanksgiving Day Parade, why not in the comps?

This seems to be a relatively new practice at Macy's. The disclaimer of bundled comps didn't begin showing up in the retailer's quarterly releases until February. Two months earlier, it issued a press release titled "Macy's, Inc. Online Selling Sites Enhance Integration with Bricks-and-Mortar Stores," in a creepy foreshadowing of the now-publicized practice.

If a retailer installs Web-connected terminals in its stores -- as Best Buy (NYSE: BBY  ) and Sears Holdings' (Nasdaq: SHLD  ) Sears stores have done -- it is perfectly legitimate to score those online sales as store-based. I just don't see how a random online order -- from anywhere in the world -- should be padding comps at the real-world level.

It doesn't seem like a problem now, but it's one that will grow in time. Online sales continue to outpace physical retail, and not just at Macy's. However, the distortion of store-level results will only intensify.

Macy's is also scaling back. It has roughly 10 fewer stores today than it had a year ago. Won't this practice reward chains that are closing stores?

By the same mathematical standards, this is the kind of practice that would punish chains that are aggressively adding stores -- the way Buckle (NYSE: BKE  ) and lululemon athletica (Nasdaq: LULU  ) are -- if they should ever adopt Macy's practice.

Ultimately, this move cheats investors. When comparing monthly comps, how many are even aware that some of the chains are padding results this way?

Save the helium for Thanksgiving, Macy's.   

What do you think of retailers baking online and mail-order sales into their comps? Let us know by posting your thoughts on this "tricks and mortar" practice in the comment box below.

Best Buy is a Motley Fool Stock Advisor recommendation. Best Buy and Sears Holdings are Motley Fool Inside Value selections. The Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz is still bummed that Macy's killed the Burdines brand in Florida. He owns no shares in any of the companies mentioned in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 06, 2014, at 7:11 AM, longjcptoppick wrote:

    NEW YORK (AP) -- Shares of some top department store retail companies were up at the close of trading:

    Kohl's Corp. rose $.74 or 1.5 percent, to $49.83.

    Macy's Inc. rose $.38 or .7 percent, to $51.35.

    Nordstrom rose $1.72 or 3.1 percent, to $57.10.

    J.C. Penney Co. rose $.14 or 2.8 percent, to $5.22. heading to $45.00 beating est in few qtrs.

    Sears Holdings Corp. rose $.36 or 1.1 percent, to $34.35.

    TJX Companies rose $1.76 or 3.1 percent, to $57.79.

  • Report this Comment On February 06, 2014, at 7:11 AM, longjcptoppick wrote:

    NEW YORK (AP) -- Shares of some top department store retail companies were up at the close of trading:

    Kohl's Corp. rose $.74 or 1.5 percent, to $49.83.

    Macy's Inc. rose $.38 or .7 percent, to $51.35.

    Nordstrom rose $1.72 or 3.1 percent, to $57.10.

    J.C. Penney Co. rose $.14 or 2.8 percent, to $5.22. heading to $45.00 beating est in few qtrs.

    Sears Holdings Corp. rose $.36 or 1.1 percent, to $34.35.

    TJX Companies rose $1.76 or 3.1 percent, to $57.79.

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