On Sep. 16, the U.S. Department of Commerce released retail sales data for August. The figures revealed a consumer with a healthy appetite for spending, and overall sales increased from the prior month and the previous year.
And in some great news for Macy's (M 0.16%) spending on clothing and accessories grew faster than the overall rate. August being the first month in Macy's fiscal third quarter -- which the company is yet to report -- the Department of Commerce sales numbers indicate another solid quarterly report for Macy's shareholders.
Image source: Getty Images.
Updating the wardrobe
Macy's business was devasted when the COVID-19 pandemic swept across the globe last year, and it had to close its stores temporarily. However, the retailer has been recovering nicely in 2021, and management expects to deliver between 36% and 38% of net sales growth this year compared to 2020.
Interestingly enough, the advanced sales report showed spending on clothing and accessories increased by 38.8% in August from last year. That means the overall clothing market is growing faster than Macy's estimates for its yearly revenue growth. If this scenario continues for the rest of the year, all Macy's needs to do is match the market growth to beat its annual revenue growth target. In other words, it does not need to gain market share to meet its revenue goals.
Although it's unclear if shopping for clothing will continue at this pace, August is a usually brisk month for the category as parents prepare to send their kids back to school. This year could have created a strong need for back-to-school shopping as many kids had been out of classrooms for over a year. Parents reading this are aware of the miraculous speed at which kids' feet grow, and school shoes from a year ago have close to a zero percent chance of fitting this year.
Still, other catalysts can boost sales throughout the rest of 2021. The mass return to office work is yet to take place. Millions of workers are commuting virtually, and corporations large and small are planning to bring employees back to the office for at least part of the week. The return could increase the need for new business attire.
Moreover, consumer savings have the ammunition to sustain spending increases. Personal savings rate at the end of July was 9.6%. Excluding all the months since the pandemic onset, it's at the highest level since December of 2012. With money in the bank, folks are more likely to splurge on a more expensive sweater or an extra pair of shoes.
Significantly, global supply shortages are hindering companies' ability to stock shelves. Fortunately, Macy's prepared and its inventory level at the end of its second quarter was 20% higher than the same time last year. When customers show up ready to spend, they can find something to buy.
Investor takeaway
Undoubtedly, the retail sales report from the Department of Commerce is good news for Macy's. The stock responded by a 3.8% gain after the release. This is yet another step in the right direction for Macy's. Management can be commended for its leadership at the pandemic onset and throughout its evolution.
The stock is trading at a reasonable forward price-to-earnings ratio of 11. Still, Macy's needs to sustain this momentum at least a few more quarters before it should be considered for adding to portfolios.
