Macy's results disappoint Wall Street, but executives see 'light at the end of the tunnel'

By Bill Peters

'The company indicated better results at the 50 stores where Macy's is testing new initiatives, offering some hope that Macy's can implement change,' analyst says

Shares of Macy's Inc. slid on Wednesday after the department-store chain cut its outlook and said that consumers were still skittish. Positives were hard to find, but management tried their best to highlight some.

In particular, Macy's executives noted that the stores where they're trying out new things based on shopper feedback - known as the First 50 stores - eked out a 0.8% same-store sales increase during the chain's second quarter, compared with declines at its other stores. That marked the second straight quarter of same-store-sales gains for those stores.

Chief Executive Tony Spring, during Macy's (M) earnings call, said the company would expand the number of First 50 stores following the project's initial signs of success.

"Initiatives at these locations continue to gain traction and include improving the customer experience through focused staffing in key departments such as shoes, handbags, ready-to-wear, as well as fitting room and checkout," he said.

A fresher assortment in those stores, with more variety and even community events, have helped make those stores more attractive to customers, he said, noting that the company was adding a "staffing test" in handbag and shoe sections in 100 stores in the fall.

"The company indicated better results at the 50 stores where Macy's is testing new initiatives, offering some hope that Macy's can implement change to eventually support topline stabilization across the chain," Fitch analyst David Silverman said in emailed commentary.

Shares of Macy's were down 11.3% Wednesday. The stock has fallen 21.8% so far this year.

Macy's results arrived after executives in other industries - like fast food (MCD) and coffee (SBUX) - have warned of greater trepidation among consumers, as prices for things that are more essential than clothing remain high.

However, fragrances, along with off-the-rack women's clothing brands like Donna Karan and Avec Les Filles, were still resonating, Macy's executives said on Wednesday. And Spring said the company was "starting to see some light at the end of the tunnel" for handbags by Ralph Lauren, Karl Lagerfeld and Coach.

He said that adding staff in parts of the store that sell pricier items might also help sales.

"We know that having a service model in an environment where you're buying a $300, $400 handbag, you need assistance," he said. "And so, we've seen that impact in the First 50. We're excited to see that impact in both handbags and shoes in the 100 stores that we are expanding this fall."

However, the road ahead is still likely to be difficult, Silverman said.

"Fitch expects the company to continue to contend with near term consumer spending headwinds and ongoing secular shifts in consumer behavior affecting regional malls, somewhat mitigated by Macy's internal efforts to manage expenses and introduce new ideas to drive traffic and loyalty," he said.

-Bill Peters

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08-21-24 1512ET

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