When Macy's (M 3.99%) reported third-quarter 2022 earnings in mid-November, the company's top-line numbers weren't so great. But there's much more to the story here, since the retailer has been working to deal with both the massive long-term shifts within the retail sector and the near-term impact of the coronavirus pandemic on consumer buying patterns. Here's what smart investors took away from the tough quarter.

Important comparisons

Normally, when investors read a company's quarterly earnings release, the comparison point is the same quarter of the previous year. On that score, Macy's third-quarter 2022 results look pretty abysmal. The top line of the earnings statement, sales, was down 3.9% versus the same period of 2021. On the bottom line, earnings, the results were even worse, with a per-share adjusted profit of $0.52 versus $1.23 in the year-ago period.

A person pulling clothing out of a box.

Image source: Getty Images.

The problem here is that 2020, 2021, and 2022 have all been dramatically impacted by the coronavirus pandemic. In 2020, people were socially distancing and physical stores were shuttered for a long time. In 2021, people started to move around again, stores reopened, and it seemed like consumers were making up for the shopping they missed out on in 2020. In 2022, the trends appear to be reverting to a new, lower, normal.

This is why it's instructive to compare sales and earnings to 2019, before the pandemic hit the world and, in this situation, the retail sector. Macy's third-quarter 2022 sales were up 1.1% compared to the same quarter in 2019, a quarter in which the company posted adjusted earnings of just $0.07 per share. That comparison looks much, much better.

Digging in a little on Macy's numbers

However, there's an even more interesting comparison to make here. Notably, the top line advanced over 2019 despite the long-term trend toward increased online shopping, often referred to as the retail apocalypse. For example, Macy's third-quarter brick-and-mortar sales were down 9% relative to 2019. But online sales made up around 31% of the company's total, up from 23%. Around 29% of online sales were fulfilled by the company's stores. While the transition may not be pretty at times, it appears that Macy's is capably shifting along with the world around it since overall sales grew 1.1% compared to 2019 despite the notable drop in sales at physical stores.

The real takeaway, however, is that being a retailer today isn't about being online or brick-and-mortar. It is about being where the customer wants to shop, which includes both online and brick-and-mortar options. In fact, that's a key focus of the company's efforts. During Macy's third-quarter 2022 earnings conference call, CEO Jeff Gennette noted, "Clearly, omnichannel sales is what we're really focused on. And when you look at... wherever we have a store, you have higher concentration of digital sales being done in those ZIP codes."

That's why the company has been opening smaller-format stores, sometimes near locations where the company chose to close a full-size store. There's also an opportunity for Macy's to expand its various nameplates. For example, Macy's has a presence in 49 of the top 50 U.S. markets, but Bloomingdales is only in 13 of them. The company also operates the Bluemercury chain of cosmetics stores. And all of the physical locations help to drive sales in the online space.

It's not one or the other, but both

To be fair, Macy's needs to make sure its stores are well located. So there will likely be more closures. However, with new formats and different nameplates available, there are likely to be more targeted store openings as well. And when combined with investments in the company's online capabilities, the overall result is fairly strong. Right now that's meant keeping sales flat over the last three years or so. Over the long term, however, a company that was once thought to be falling behind might actually prove that it has the omnichannel chops to survive and thrive. And the key factor to watch is the interaction that is taking place between the company's online and brick-and-mortar businesses.