The department store retailers are hit the most when the middle class customers cut on their spending. Macy's (M, Financial) too is finding it difficult to attract customers and boost its top line. It reported its third quarter numbers which were mixed. However, a healthy bottom line delighted the investors to a large extent. Let's dig in deeper.
The numbers
Revenue for the quarter dropped 1% to $6.2 billion, over last year. Thus, the company failed to meet the analysts' estimate of $6.34 billion. Also the same store sales declined 0.7% during the quarter. This was mainly due to the warm weather which affected sales of winter wears, such as coats and boots.
Moreover, sluggishness in the overall consumer spending has been one of the key reasons for the decrease in demand. In addition, the launch of Apple (AAPL, Financial) iPhones has made people shift their discretionary spending to the new phone and forgo other expenses. Macy's cater to the middle class section of the society. Thus, economic headwinds affect the retailer's sales significantly. However, it also has some upscale brands such as the Bloomingdale brand which offers premium products.
The earnings of the company jumped to $0.61 per share from $0.47 per share in the previous year. Also, it is much higher than the earnings estimate of $0.50 per share. Macy's managed its costs efficiently and its margins too expanded as the retailer got rid of its excess inventory.
A few thoughts to consider
Department stores such as Macy's face tough competition from online retailers who have become very popular among customers because of the convenience they provide. Therefore, the company has undertaken measures to strengthen its online presence. It has enhanced its several services such as buying products online and picking it up at Macy's stores nearby. This service has gained a lot of popularity since it saves shipping charges of the customers.
Furthermore, it is in plans to test same day delivery service in some of the regions. The same day delivery service, for the goods purchased online and through mobile, should attract more customers. Also, this service will help in keeping pace with online giants such as Amazon (AMZN, Financial). Amazon too offers same day delivery to its customers. Thus, it will be interesting to see how things will take shape in the future.
Macy's has strengthened its services and is focussing on its product assortment as the peak winter season sets in. It expects the winters to get better. Therefore, it increased the expectation for same store sales during the fourth quarter to a range of 1.8% to 2.8%. It was expecting the comp sales to increase by 1.4% earlier. However, it lowered its earnings estimate to a range of $4.25 per share to $4.35 per share from its earlier estimate of $4.40 and $4.50 mainly because it will increase its promotions for the fall, which might affect the bottom line.
Key takeaway
Macy's seems to be taking the right steps to improve its performance. Ramped up promotions and efficient management of costs are some of the primary reasons why Macy's future looks attractive. Also, higher demand during the peak season should give a boost to its top line. Therefore, strategic efforts and an upgraded guidance make this retailer an interesting pick.
