Macy's Inc. (M, Financial) released its third-quarter results before the opening bell on Nov. 19. While the company registered a narrower-than-expected loss, revenue topped projections thanks to robust digital performance.
Quarter in a snapshot
The department store chain recorded a loss of 19 cents per share, which was down from a profit of 7 cents per share in the prior-year quarter but surpassed Wall Street's projected loss of 79 cents per share. Revenue was $3.99 billion, topping expectations of $3.86 billion.
Comparable store sales dipped 20.2%, both on owned and licensed basis. Analysts had projected a 23.3% decrease. The decline was attributable to persistent store recovery coupled with robust digital performance.
Reflecting on the company's performance, Chairman and CEO Jeff Gennette said:
"Our results were driven by disciplined cost management, strong execution by our colleagues and an early start to the holiday shopping season. Customers shopped our brands across all channels in the third quarter and responded well to our expanded fulfillment offerings, such as curbside, store pickup and same-day delivery. Our digital business delivered strong growth and sales in our stores continued to recover."
Digital sales
As a result of the Covid-19 pandemic, customers often refrained from going to the physical stores, which is why digital traffic gained momentum.
Digital sales rose 27% in the reported quarter as more customers visited Macy's app and website. While online sales made up 38% of the company's owned comps, it was not enough to offset the losses.
Efforts for improvement
As a mall-based store, Macy's is under pressure as more and more consumers shop online. The quarterly results are a reflection of the intensifying competition in the apparel and beauty segments from rivals such as Target Corp. (TGT, Financial) and Walmart Inc. (WMT, Financial). Therefore, the company is focusing on upgrading its stores' interiors and enhancing its product assortment.
The department store chain announced a major transformation earlier this year. As per the announcement, the company will close down 125 stores in the coming three years. In addition, it will cut 9% of its corporate staff and shut some offices in Cincinnati and San Francisco. This move will help the retailer save as much as $1.5 billion on a yearly basis through fiscal 2022, part of which will be invested back into its growth initiatives such as launching more of its off-price Backstage locations.
Holiday shopping season
Like most other retailers this year, Macy's began rolling out its holiday sales in early October due to the Covid-19 pandemic. Sales and promotions related to Black Friday will not be restricted to a single day as in the past, but are being spread across multiple days in order to avoid huge crowds.
"We are committed to bringing the joy of the season to America as we do every year," Gennette said. "From next week's Thanksgiving Day Parade to reimagined family gatherings, we will help our customers and their families celebrate in style. We have the right gifting assortment with newness from value to luxury, and our expanded fulfillment options allow customers to shop safely and conveniently, in store or online."
Financials and inventory position
As of Oct. 31, the company had cash on hand of roughly $1.6 billion and about $3 billion of unused capacity under the new asset-based credit facility.
Inventory was down 29% as compared to the year-ago period, reflecting efforts to manage strong e-commerce demand.
Guidance
The company pulled its financial forecast for 2020 as a result of the ongoing pandemic.
Disclosure: I do not hold any positions in the stocks mentioned.
Read more here:
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- Walmart Delivers Another Quarter of Outstanding Growth
- Home Depot Reports Good Numbers
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