For the last 12 months, Macy's (M -1.05%) has basically been tracking the S&P 500 in terms of growth. Yesterday, for the first time in a long while, the company was in the driver's seat. Earnings jumped on strong sales, and the department store's stock rose 9%, pushing the S&P up along with it. Success isn't new to Macy's, but in the third quarter, everything just seemed to line up perfectly for an extra-special earnings release.
Sales at Macy's
Of course, to have such a strong quarter, the company needed to deliver on its sales growth. That was no problem, with Macy's posting a 3.3% increase in sales on a 3.5% jump in comparable-store sales. While that's not a world beater, it's fantastic for Macy's, which was putting up strong growth at the end of last year and then started to lag this summer.
In fact, while this one was a winner, Macy's also had some amazing growth earlier this year, like its 11.7% comparable-sales growth in January. That all stalled out in the middle of the year, however, and through the first six months, comparable sales were only up 1.5%.
This quarter's growth was driven by some core categories for Macy's, which is a good sign of sustainable growth as opposed to one-hit-wonder success. Housewares, cold-weather gear, and women's apparel all had a good run. The company managed to bring in more customers and sell more to them as well. That pushed margins up, with operating margin rising slightly over last year.
Why Macy's is winning
One of the things driving Macy's growth has to be the collapse of J.C. Penney (JCPN.Q). The companies have overlapping -- though not identical -- customer bases and product sets. J.C. Penney has hemorrhaged sales for most of the year, with comparable sales down 14.3% through the first six months of its fiscal year, and gross margin fell as well. Customers who are fleeing J.C. Penney may be coming to Macy's instead.
The business also got a boost from its new marketing campaign, which moved away from dull images and messages in favor of stronger, cleaner advertising. The company has also partnered with a range of third-party sellers who have set up shop in Macy's stores and helped get foot traffic rising. North Face, Nike, and Under Armour are just some of the brands that are being rolled out in stores.
Macy's continues to roll
The company is looking good going into the holiday season, and it should benefit from the head of steam it's built up. Unfortunately, Macy's is also one of the many brands that decided to open on Thanksgiving, cutting into the holiday time for employees. Still, the business is unlikely to suffer for doing so; it's just a bit sad to see. Look for more good fiscal news from Macy's at the end of the holiday season.
