The Secret to Macy’s Rebound? Cutting Down Inventory

Macy’s Inc. is still on a hot streak, and it has savvy buying to thank for it.

The company reported second-quarter earnings on Wednesday morning, topping analyst estimates across the board.

It said it earned $185 million, or $0.59 per share, when excluding impairment and other costs, settlement charges and losses on the early retirement of debt, as well as asset sale gains. This easily beat the consensus estimate of $0.51 per share.

The company also raised its full-year earnings guidance, anticipating adjusted earnings per diluted share of $3.95 to $4.15 for fiscal 2018.

Macy’s shares have soared in the past year, gaining 106 percent since their November 2017 lows. Last quarter, the retailer topped estimates by 30 percent, boosting its performance on Wall Street. Despite the strong second-quarter results, however, Macy’s shares were down abut 5 percent in premarket trading, putting them again below the $40 mark.

One area the department store is succeeding where some competitors continue to struggle is inventory management. While others like JCPenney have taken hits on markdowns due to excess stock, Macy’s has pared its inventory, resulting in gross margins of 5.7 percent, up from 5 percent last year.

“The combination of healthy stores, robust e-commerce and a great mobile experience is Macy’s recipe for success. We are focused on improving our customer journey every step of the way because we know that our customers expect a great experience whenever and wherever they engage with our brands,” said Jeff Gennette, chairman and CEO. “We also continue to be disciplined with inventory management, which allows us to give our customers more fashion and freshness, while increasing sales and improving gross margin.”

Comparable sales on an owned basis were flat for the quarter, compared with 2017, while on an owned-plus-licensed basis, comparable sales increased 0.5 percent. Net sales declined slightly to $5.572 billion in the second quarter, from $5.636 billion in the second quarter of 2017, a decrease of 1.1 percent.

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