Macy's (M 2.88%) shareholders can breathe a sigh of relief as the worst of the COVID-19 pandemic appears to be behind the retailer. The department store chain reported fiscal 2021 first-quarter results on Tuesday, May 18, that soundly beat expectations.
In a stark turnaround from the tone during the devastations of the pandemic, Macy's management was optimistic for what the rest of 2021 holds — understandably so as consumers spend more bravely with a little extra stimulus in their pockets.
Image source: Macy's.
Customers are returning to Macy's
Net sales in the first quarter increased by 56% from last year. The first quarter in 2020 included the time where nearly all of Macy's stores were forced to close for in-person shopping due to COVID-19. Therefore, a more informative comparison would be against the same quarter in 2019. Compared to the same quarter two years ago, net sales were down by 14.5% in 2021 — which is a remarkable bounce back considering how sales cratered in the depths of the pandemic.
Here's what Macy's CEO Jeff Gennette had to say about the revival of the business in the company's first-quarter conference call:
The stimulus encouraged more customers to use cash and debit cards instead of credit, and the increased level of vaccinations boosted store traffic, all encouraging signs as consumers move toward a post-pandemic lifestyle and start to spend more for in-person activities, travel, and events. One of our most improved categories in the quarter was luggage, clearly, our customer is ready to get on with life.
In some ways, Macy's is in better shape than it was before the pandemic. The company welcomed 4.6 million new customers in the quarter, a 23% improvement compared to 2019. And in the first quarter, there was a 5% increase in the number of people visiting its stores compared with the same quarter in 2019. That trickled down into better profits: Macy's adjusted EBITDA margin of 10.1% in the first quarter was 200 basis points better than in the same quarter two years ago.
With more money in their pockets and an increase in vaccinations, consumers are leaving their homes and likely need updates to their wardrobes. It's no surprise then that Macy's raised expectations for the rest of 2021.
What this could mean for investors
In the conference call following the first-quarter earnings release, Macy's CFO Adrian Mitchell gave the good news to analysts:
We expect Macy's Inc., 2021 net sales to be between approximately $21.7 billion and $22.2 billion, with digital contributing about $8 billion of sales to the total. This is a significant increase on our top line of more than $1.7 billion at the midpoint compared to our prior fiscal year guidance. ... And we expect our adjusted diluted EPS to be between $1.71 and $2.12. That midpoint is nearly three times better than that of our prior guidance.
The robust growth in the short term as Macy's bounces back from the pandemic is great for shareholders, but keep in mind that this level of growth is not sustainable in the long run. Investors can realistically look for Macy's to grow revenue in the low single digits over the long run while maintaining double-digit EBITDA margins.
