Macy’s looks to thin upper management as sales fall
Retailer unveils new cost cuts, expects earnings to be mostly flat for fiscal 2019
Macy’s Inc. signaled 2019 would be a challenging year, predicting sales wouldn’t grow at all and announcing another round of cost cuts.
The Cincinnati-based retailer said Tuesday it would streamline senior management as part of a plan to save $100 million a year. Macy’s chief executive Jeff Gennette said in an interview that the restructuring would eliminate 100 jobs.
This is the sixth year in a row Macy’s has announced a restructuring in its year-end quarter. Last year’s actions were expected to save $300 million annually, which Citi analyst Paul Lejuez said “may be a sign savings are getting harder to find.”
Macy’s net sales for the period ended Feb. 2 fell 2.5% to $8.46 billion. Analysts polled by Refinitiv had forecast net sales of $8.45 billion.
Sales at stores open at least a year grew 0.4% for the fourth quarter, less than the FactSet estimate of a 0.8% increase. Including licensed departments, same-store sales rose 0.7%. Comparable sales would have been up 2%, including licensed departments, were it not for a calendar shift that resulted in one less week this year, the company said.
While the retailer’s reported sales and profits were above analysts’ expectations, the results were lower than Macy’s internal projections and illustrated how the holiday shopping season was mixed for retailers.
The nation’s largest retailer, Walmart Inc., reported strong sales growth for its year-end quarter. But Home Depot Inc.’s sales grew less than expected and the chain tamped down ex- pectations for this year. Commerce Department figures out earlier this month showed December retail sales declined at their fastest pace since 2009.
“Things did slow down a little bit,” said Mr. Gennette. The CEO said he was trying to parse how much of the slowdown resulted from broader pressures like the government shutdown versus problems specific Macy’s, such as a fire at a distribution center and changes the re- tailer made to a key holiday promotion. Overall, though, Mr. Genette said “the consumer is healthy.”
Macy’s has been investing in a group of stores it calls magnets, upgrading lighting and fixtures, merchandise assortments and technology, while trying to shrink other, less promising locations. The company plans to expand its remodeling efforts to an additional100 magnet stores this year, up from 50 last year.
Macy’s also plans to focus on improving its supply chain and inventory management. The retailer wants to double down on categories where it already has a strong market share such as dresses, fine jewelry, furniture, men’s tailored clothes, women’s shoes and beauty.
Profit fell to $740 million from $1.35 billion a year earlier. Adjusted earnings were $2.73 a share, above the $2.53 a share analysts polled by Refinitiv had expected. Mr. Gennette said that Macy’s was exploring options for its Herald Square flagship that could involve adding complementary uses to the location. The company is circulating a plan to city officials, and while Mr. Gennette said that “everything is on the table,” he stressed that Macy’s would continue to operate in the space.
He added that the pace of asset sales, such as the divestiture of its Union Square store in San Francisco for $250 million, would slow going forward. “We’ve cycled through some of the low-hanging fruit,” Mr. Gennette said.
The CEO said that when the company has cut costs in the past, it looked to eliminate sales associates in stores, rather than senior management. “We figured out how precious those sales associates are,” he said. In fact, Macy’s has added sales associates to some of its magnet stores, which has helped drive improvements at those locations, the company has said in the past.
Macy’s shares were largely unchanged in morning trading, up 0.45% to $24.47. The shares are down about 11% in the past year.
For the current fiscal year, the company expects net sales to be roughly flat. It expects comparable sales to be flat to up 1%. Excluding settlement charges, impairment and other costs, the company forecasts adjusted earnings per share of $3.05 to $3.25, compared with analysts’ estimates of $3.29 a share.
The retailer operates about 680 department stores under the Macy’s and Bloomingdale’s names, and nearly 190 specialty stores that include Bloomingdale’s The Outlet, Bluemercury, Macy’s Backstage and Story.