Department store chain Macy's (NYSE:M) announced its second-quarter results this morning. Revenue increased 3.3% from the same period in 2013, while earnings per share were up 11% to $0.80. However, that missed analysts' expectation of $0.86 per share, and the stock closed today down about 5.5% from yesterday's close. The company also announced that it was reducing its full-year forecast for comparable sales growth from 2.5%-3% to 1.5%-2%.
Macy's sales and operations
Comparable sales increased 3.4% from the second quarter of last year. Including its third-party distributors, which sell goods from kiosks in Macy's stores, comparable sales were up 4%, indicating some strength in the brand.
The real hit came at the gross income level, where Macy's margin fell six-tenths of a percentage point from last year. The U.S. retail environment continues to be heavily promotional, and Macy's is feeling the pinch, citing in a press release an "uncertain economic environment" that is dampening spending as one of the contributing factors to its quarter.
That sentiment is in line with other retailers. The government today reported that July's retail sales figures were flat, as consumers continue to hold back on smaller purchases. Stale wage growth has been blamed for the current weakness in sales at many retailers, and the promotional environment seems likely to remain until wages rise.
Macy's had better luck at its operational level, with cost savings allowing the business to increase its operating margin from 8.8% in 2013 to 9.1% in the latest quarter. The company said it had "sharpened our merchandising and marketing" operations in the quarter.
The long-term trend for Macy's
While the quarter's results caused a sell-off in the stock, the company's long-term plans still seem to be in line. Macy's reaffirmed its second-half guidance at comparable-store growth of 2% to 3%, while it reduced its annual earnings forecast due to weakness in the first quarter.
Macy's looks set to continue profiting from its revised selling program that focuses on omnichannel sales, localization, and its "MAGIC Selling" system that involves interacting with customers. Its investment in omnichannel has the potential to pay dividends soon, as online-to-store sales could result in a significant decrease in operational costs. The company has also completed half of its New York City flagship store renovation, which could boost the brand in one of the county's most influential fashion markets.
Macy's long-term outlook remains solid, and the second quarter's failure to erase the weakness of the first quarter is not a reflection on the business's five-year prospects. Macy's brand revamp seems to be working, and a 3.4% increase in comparable sales is nothing to scoff at in this difficult retail environment.
Editor's note: This story has been updated to correct Macy's estimated full-year 2014 comparable sales increase to 1.5% to 2%.
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