Macy’s raises earnings forecast after seeing strong luxury sales, bringing in fresh holiday inventory

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Macy’s flagship store in Herald Square in New York, Dec. 23, 2021.
Scott Mlyn | CNBC

Macy’s on Thursday raised its earnings forecast for the year after the department store operator said it has fresh merchandise and is ready for the holiday shopping season.

The company stood by its revenue guidance as it faces a tougher sales backdrop during the retail industry’s most crucial quarter. The updated outlook came after Macy’s reported third-quarter revenue and earnings that topped Wall Street expectations.

Shares of Macy’s were up 7% in pre-market trading.

In an interview with CNBC, Macy’s CEO Jeff Gennette said company can hold the line on prices because it has fresh merchandise. That has allowed it to bring in new apparel, home goods and other gift-giving items. He said it is not seeing customers trade down to cheaper brands.

However, he said Macy’s did see a drop in sales in the final weeks of October and early November. Store and website visits remained the same — but the browsing did not lead to buying. In the past week, he said, Macy’s has seen a return to a better performance.

“Is that a slowdown in the consumer confidence that we are going to take all the way through the fourth quarter?” he said. “Or is it going back to the 2019 buying patterns when those weeks I’m quoting were actually consistent with the trend we had before ramping into Christmas this year? Right now, we are watching it very carefully.”

Here’s how Macy’s did in its fiscal third quarter compared with what analysts were anticipating, based on Refinitiv estimates:

  • Earnings per share: 52 cents adjusted vs. 19 cents expected
  • Revenue: $5.23 billion vs. $5.2 billion expected

Comparable sales on an owned plus licensed basis fell 2.7% from a year ago. But Macy’s said the figure was up when compared to the the third quarter of 2019, before the pandemic.

Macy’s has seen a shift in what people are buying in the past few quarters. That pattern held in recent months, as shoppers bought dressier attire instead of the pajamas, workout clothes and home goods like bedding that they loaded up on earlier in the pandemic, Gennette said.

Shoppers turned to its beauty chain, Bluemercury, and higher-end department store chain, Bloomingdale’s, to buy new clothing, shoes and makeup. Those banners outperformed the rest of the company.

At Bloomingdale’s, comparable sales on an owned plus licensed basis were up 4.1%, as shoppers bought dressy clothing, women’s shoes and luggage.

At Bluemercury, comparable sales on an owned plus licensed basis rose 14%.

Gennette said the company benefits from having a wide array of price points — so shoppers can choose a high-end fragrance and then a lower-priced shirt from a private label.

Heading into the key holiday shopping season, however, Macy’s is facing inflation that’s hovering at a near four-decade high. The company cut its full-year revenue and earnings per share forecast in August, saying it anticipates shoppers may spend less on discretionary merchandise like apparel as they pay more for groceries, housing and gas.

For the three month period ended Oct. 29, Macy’s said Thursday that its net income fell to $108 million, or 39 per share, from $239 million, or 76 cents per share, a year earlier.

Macy’s stood by its revenue guidance from August, saying it still expects a range of $24.34 billion to $24.58 billion for the fiscal year. It raised its annual adjusted earnings per share forecast to $4.07 to $4.27 per share, up from its previous range of $4 to $4.20. 

Earlier this week, industry-watchers got fresh clues about the health of the consumer. Both Walmart and Target reported a noticeable pullback of sales in categories like apparel, electronics and home goods as shoppers spent more on necessities. Target slashed its forecast for the holiday quarter, saying weaker sales have continued into November.

As of Wednesday’s close, Macy’s shares are down about 25% so far this year. Shares closed Wednesday at $19.71, down about 8%.

This story is breaking. Please check back for updates.

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