The Secret to Macy’s Q3 Earnings Win: Digital, Off-Price & Loyalty

Macy's
Macy's store in Rancho Cucamonga, Calif.
Courtesy of company

Macy’s Inc. shares are enjoying a modest nudge in early-morning trading on the heels of better-than-expected third-quarter performance. At market open, the stock was up more than 3 percent to $18.11.

The department store said today that its Q3 net income rose more than 50 percent to $36 million, or 12 cents per diluted share. On an adjusted basis, earnings per share were 23 cents, handily topping forecasts for diluted EPS of 19 cents.

Sales declined 6 percent to $5.3 billion, reflecting previously announced store closures and roughly in line with forecasts. Comparable sales on an owned basis were down 4 percent and 3.6 percent on an owned-plus-licensed basis.

Macy’s CEO Jeff Gennette was upbeat on the struggling department store’s improved profitability during the quarter — noting that digital and the newly revamped loyalty program, announced in October, were a boon to business.

“Overall, we’re pleased with the results for the third quarter, and we remain on track to meet our full-year sales and earnings guidance for 2017,” Gennette said. “Importantly, we also saw better gross margin performance primarily due to our tightly controlled inventory position. A highlight of the third quarter was the launch of the new Star Rewards loyalty program — our best customers are responding positively. We also saw continued double-digit growth in digital and are encouraged by the potential of Backstage in Macy’s stores.”

The Macy’s flagship store in New York’s Herald Square. FN Archives.

The company reaffirmed its full-year guidance.

Following a lackluster holiday performance last season, this time around, Gennette said Macy’s is banking on several new-and-improved strategies to boost business and lure in tepid shoppers.

“The loyalty program, special in-store experiences and a strong mobile and online presence will help drive holiday sales,” Macy’s chief said. “We are bringing our fashion authority to bear on holiday trends and have a strong product assortment. Our best customer will also find the convenience she expects and the holiday experiences she loves.”

He added, “Macy’s remains intensely focused on executing all aspects of our North Star Strategy. We expect continued improvement in our trends in the fourth quarter, including a solid lift from loyalty and digital, and intend to head into 2018 with momentum,” continued Gennette.