Macy’s said Tuesday it will cut about 100 management jobs as looks trim costs and improve profitability amid declining sales.
The department store chain was able to top lowered expectations for its fourth quarter. But same-store sales came up short of expectations, as tourism spending weakened toward the end of 2018. Macy’s was forced to cut its 2018 outlook last month, after dealing with a lull in December where the number of holiday shoppers dropped off at its stores. Gross margins also remain under pressure, as Macy’s is looking for ways to better manage its inventory.
Macy’s is targeting $100 million in annual cost savings, starting in fiscal 2019, with its new restructuring plan. It said part of this plan consists of reorganizing upper management, cutting 100 vice-president level or above roles, “to increase the speed of decision making.”
“The steps we are announcing to further streamline our management structure will allow us to move faster, reduce costs and be more responsive to changing customer expectations,” CEO Jeff Gennette said.
Macy’s shares were rising about 2 percent Tuesday morning on the news.
Here’s what the retailer reported compared with what analysts were expecting, based on Refinitiv data:
- Earnings per share, adjusted: $2.73 vs. $2.53 expected
- Revenue: $8.46 billion vs. $8.45 billion expected
- Same-store sales: up 0.7 percent vs. growth of 0.9 percent, on an owned plus licensed basis, expected
Macy’s reported net income for the fourth quarter ended Feb. 2 of $740 million, or $2.37 a share, compared with $1.35 billion, or $4.38 per share, a year ago. Excluding one-time items, Macy’s earned $2.73 cents per share, ahead of expectations for $2.53, according to Refinitiv data. This quarter was one week shorter than the fourth quarter of 2017.
Revenue fell to $8.46 billion from $8.67 billion a year ago, but came in ahead of the $8.45 billion analysts were expecting.
Sales at stores open for at least 12 months, on an owned plus licensed basis, were up 0.7 percent, short of expected growth of 0.9 percent. Macy’s said online sales grew a double-digit percentage.
Gennette told analysts and investors that a fire at a distribution center in West Virginia impacted Macy’s fulfillment capabilities during Cyber Monday. And the fact that a holiday promotion was restricted just to Macy’s loyalty members, when a year ago it was open to everyone, also hurt sales, he said.
Macy’s had already said it had a weak holiday season. Last month, the department store chain said traffic at stores softened during the middle of December and didn’t pick back up like Macy’s was anticipating until Christmas week. Macy’s called out categories including women’s sportswear, sleepwear, fashion jewelry, fashion watches and cosmetics as underperforming through the holidays.
Looking to 2019, Macy’s is calling for same-store sales, on an owned plus licensed basis, to be flat to up 1 percent. It says net sales will be about flat. Earnings are expected by the company to fall between $3.05 and $3.25 a share. Analysts were calling for earnings per share of $3.29.
“2019, like 2018, will be a year of investment,” CFO Paula Price said.
Analysts and investors have been skeptical Macy’s investments to grow sales will ultimately pay off. Macy’s has added pop-up shops for online brands in its stores, experimented with virtual reality headsets to sell furniture, rolled out a mobile checkout option, revamped its mobile app, and grew its off-price business, Macy’s Backstage. The department store chain has also said it plans to start downsizing some locations, as it doesn’t need as much real estate.
In 2019, Macy’s says it will double the number of pop-up shops in its stores, open 45 more Backstage locations and invest in categories where it believes it can gain market share: dresses, fine jewelry, women’s shoes and beauty. It also says it will continue to add new tech, like the VR headsets, to stores. The basket sizes of shoppers who use the headsets to buy furniture are up 44 percent, and return rates are 25 percent lower, Macy’s said, explaining the success of this initiative.
Still, Macy’s faces the same challenges as struggling rivals Sears and J.C. Penney. It must find ways to keep its stores relevant as shoppers are increasingly steering clear of department stores in favor of shopping with brands — like Nike, Coach or Canada Goose — directly. The shopping malls where Macy’s is positioned as an anchor are, likewise, trying to lure people in. With e-commerce sales on the rise, foot traffic has dropped.
“While Macy’s company specific sales drivers (i.e. Backstage, Growth 50, Vendor Direct, etc.) look good on paper … they failed to manifest when it mattered most, leaving us more skeptical that they can deliver upside in 2019,” Gordon Haskett analyst Chuck Grom said ahead of Tuesday’s report.
Macy’s weak holiday sales “came despite a strong consumer environment with favorable trends on both the tourism and weather fronts,” he added.
Including Tuesday’s gains, Macy’s shares are down roughly 18 percent so far this year, bringing the company’s market cap to about $7.8 billion.