Macy's surpasses earnings expectations, indicating advancements in turnaround strategy.

• Macy's reported earnings that exceeded expectations, and indicated positive developments in its strategy for recovery.
• The operator of the department store is shutting down approximately 150 stores with the same name and opening new Bloomingdale's and Bluemercury stores.
• During the quarter, Macy's CEO Tony Spring stated that 50 of the company's invested locations outperformed its other stores.

On Tuesday, Wall Street's expectations for fiscal first-quarter earnings were exceeded by the retailer, who reported early signs of momentum in their turnaround strategy.

Despite falling short of expectations, Macy's quarterly revenue was close to the target. The department store operator's net sales were only 3% lower than the previous year, with its namesake website and store remaining the weakest link in the business.

Macy's adjusted its full-year earnings forecast due to the first-quarter earnings beat and the low end of its sales projection. However, the retailer stated in a news release that it anticipates customers will remain cautious with their discretionary spending.

Macy's is closing over 150 of its stores in an attempt to increase sales again. This represents more than a quarter of its namesake locations. The company, which also operates Bloomingdale's and Bluemercury, had already announced five store closures and over 2,300 layoffs in January.

The retailer announced that it will invest in the parts of its business that have performed better, such as the 350 Macy's stores that will remain open. Additionally, it plans to open more Bloomingdale's and Bluemercury locations, as well as smaller Macy's stores in suburban strip malls.

Macy's has concentrated on enhancing the appearance of merchandise and increasing the number of sales staff in its 50 namesake stores.

In a news release, CEO Tony Spring stated that the first 50 Macy's stores had the strongest performance in the quarter, which could be a positive sign.

"Our investments in product, presentation, and experience are gaining traction, reinforcing our belief that Macy's, Inc. can return to sustainable, profitable growth in the long term," he said.

Based on a survey of analysts by LSEG, Macy's reported for the three-month period that ended May 4 was different from what Wall Street expected.

• Earnings per share: 27 cents adjusted vs. 15 cents expected
• Revenue: $4.85 billion adjusted vs $4.86 billion expected

In the first quarter, Macy's net income dropped by 60% to $62 million, or 22 cents per share, compared to $155 million, or 56 cents per share, in the previous quarter.

Net sales fell from $4.98 billion in the year-ago period.

Macy's now anticipates net sales of between $22.3 billion and $22.9 billion, which would still represent a drop from $23.09 billion in 2023. The company expects comparable sales, which take out the impact of store openings and closures, to range from a decline of about 1% to a gain of 1.5% on an owned-plus-licensed basis and including third-party marketplace sales. Previously, Macy's had expected comparable sales to decline as much as 1.5%.

The company now expects adjusted earnings per share to fall between $2.55 and $2.90, an improvement from its previous forecast of between $2.45 and $2.85.

The company's news release stated that the updated outlook reflects both its first-quarter results and an evolving economic environment. It added that it still views 2024 as a transition and investment year.

In the first quarter, the performance of Bloomingdale's and Bluemercury surpassed that of the company's namesake brand. At Bluemercury, comparable sales rose by 4.3%, while at Bloomingdale's, comparable sales increased by 0.3% on an owned-plus-licensed basis, including third-party marketplace sales.

On an owned-plus-licensed basis, including the third-party marketplace, Macy's experienced a 0.4% decline in comparable sales.

The underperforming Macy's stores, which will close by early 2027, negatively impacted the company's results.

The 350 Macy's stores that will remain open saw a 0.1% increase in comparable sales on an owned-plus-licensed basis. In the first 50 of these stores to receive additional investment, comparable sales were up 3.4% on an owned-plus-licensed basis.

Macy's has attempted to increase its customer base, particularly among Millennial and Gen Z shoppers, by introducing new exclusive brands and revamping its existing ones, in addition to closely examining its store layout.

Macy's has faced another challenge: a takeover bid by an activist investor. Arkhouse Management and Brigade Capital have made a bid to buy Macy's and take the company private. Arkhouse also waged a proxy fight, but settled the fight in April when Macy's agreed to add two new board members.

On Monday, Macy's shares closed at $19.10, resulting in a market value of $5.26 billion. Despite a 5% decline in stock value so far this year, Macy's has underperformed the S&P 500's 11% gains during the same period.

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