5 Things Macy's Management Wants You to Know

After announcing a reduced forecast for the year, Macy's (NYSE: M  ) stock took a tumble last week, falling over 5% Wednesday, when quarterly results were announced. Even though the report had a bleak tone, management was, unsurprisingly, upbeat on the second-quarter earnings conference call. Here are five things that Macy's management wants investors to think about when they consider the upside to the retailer.

Macy's is in the dark, but the lights are still on. Photo source: Macy's.

1. The worst has passed

CFO Karen Hoguet:

[We] weren't able to make up the sales shortfall from the first quarter. However, given the improved trend in the second quarter and our fall holiday strategies, we feel good about the back half of the year and did not change our sales expectations for the fall. 

Macy's first quarter was dismal this year. Comparable sales fell 1.6% compared to the first quarter in 2013 and revenue was down 1.7%. That put the company on the back foot, but it still had hopes that it would be able to make up the difference, keeping its full-year targets in place. The second quarter wasn't enough to cover the first-quarter weakness, though, and Macy's this week dropped its forecast for annual comparable sales, down from 2.5%-3% to 1.5%-2%. 

The issues in the first quarter aren't likely to come back up, though, so the drop in guidance is purely based off that first-quarter weakness. The first quarter suffered from a combination of bad weather and a shift in promotions that helped out second-quarter comparable sales this year. Bad winter storms kept shoppers inside and cut down on in-store sales in Q1. The promotion was a sale shifted from the first quarter into the second, hurting comparable sales to last year's first quarter while providing a boost to this year's second-quarter comparable sales.

2. Licensed sales are helping to bulk out the numbers


We are expecting comp sales of 2% to 3% for the fall and the license businesses should add twenty basis points to thirty basis points to their comp growth in the back half of the year. 

Comparable sales are a great metric for investors to watch as they can help illuminate just how strong a brand is. Most companies can make more revenue by opening more locations, but by comparing sales at the same locations over a year, investors can see how much more each locations is generating, on average. 

Apart from its own comparable sales, Macy's has been starting to count the contributions of its licensed stores. These are retailers who set up shop inside Macy's locations and who pay a commission to Macy's based on their sales. Including these sales, Macy's is expecting its full-year comparable sales to grow between 2% and 2.5%. 

3. Omnichannel sales are still the future


I think the omni opportunity is, first and foremost sales growth. But what we are also finding is that this gross margin opportunity, as well as turnover opportunity from, again, better coordinating across the company and looking at inventory across channels, as well as marketing across channels. So I actually see it as a huge opportunity across the whole P&L and balance sheet and very exciting. 

Macy's has been pushing its omnichannel operation heavily, investing in store pickup, mobile shopping, and ship from store. It's a system that is meant to fight the showrooming and online-only shopping that has plagued brick-and-mortar locations over the years, and Macy's has gone all-in. CEO Terry Lundgren has said that omnichannel is one of the keys to Macy's outperforming the competition.

4. Big names are the key to bringing in new customers


We continue to grow our business with major, most wanted brands through increased collaboration and innovation. I am talking about brands like Ralph Lauren, Tommy Hilfiger, Michael Kors, Calvin Klein, Estée Lauder and INC.

Macy's is trying to make itself "America's destination for handbags," which is reflected in the list that Hoguet rattled off. The retailer has a portfolio of private brands, including INC denim, but it still relies on major fashion lines to get people through the door. By focusing on highfiyers like Kors, Macy's can ride the coattails of other brands' successes. That certainly helped in the second quarter, as comparable sales, including licensed departments, increased 4%.

5. Cash is still coming in


Cash provided by operating activities, net of investing activities, in the first half of the year was $358 million, which is $10 million higher than last year. We issued $500 million of debt earlier this year and repaid $454 million of debt in the second quarter. We also bought back 8.9 million shares of common stock for approximately $517 million in the quarter and we have repurchased 16.3 million shares for approximately $949 million year to date.

Macy's ended the quarter with $1.6 billion in cash and cash equivalents on its balance sheet, a 14.5% increase from this time last year. The business has continued to generate cash even in weaker periods, and has been engaged in stock buybacks and dividend payments along the way. On the call, management said that it was exploring options to consolidate some of its more expensive debt, but that it has yet to find a profitable way to do so.

Top dividend stocks for the next decade
Macy's has been paying out a dividend, but it's not the best payer on the market. The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (0) | Recommend This Article (3)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3074132, ~/Articles/ArticleHandler.aspx, 9/4/2015 12:13:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Andrew Marder

Andrew Marder worked in retail for years, holding jobs ranging from bookseller to bank strategy analyst. He has worked for the Motley Fool since 2012, and loves coffee.

Today's Market

updated 2 hours ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 -16.48 -0.35%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 4:00 PM
M $59.28 Up +0.66 +1.13%
Macy's, Inc. CAPS Rating: **
EL $79.27 Up +0.53 +0.67%
The Estee Lauder C… CAPS Rating: **
KORS $44.92 Up +0.41 +0.92%
Michael Kors Holdi… CAPS Rating: ****
RL $110.96 Up +1.46 +1.33%
Polo Ralph Lauren… CAPS Rating: ***