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My Macy's Gaining Ground

Macy's soft home offerings — "what we call our non-big ticket home items" — improved their performance during the first quarter at Macy's, the retailer said during its first quarter earnings call last week.

Soft home has shown "some strength" and housewares was a particularly good performer, evp/cfo Karen Hoguet told analysts. "I think with the economy as it is, I suspect people are staying home more and therefore things like cookware and tableware and things like that are doing better. I also think our offering is very strong."

She added that the Martha Stewart Collection is "doing very well."

Another bright spot for Macy's during the period, Hoguet pointed out, was e-commerce. Both www.macys.com and www.bloomingdales.com were up over 16% in the quarter.

"We remain very excited by the possibilities for our direct-to-customer strategy and how it is becoming integrated with our stores," she said. "We know that our best customers, both at Macy's and Bloomingdale's, shop both in the store and online. And in fact, customers who shop online buy more in the stores than our customers who buy only in store."

But the focal point of the conference call was the company's new My Macy's district stores rollout, which now comprises 69 sites as of earlier this month, up from 20.

The topic even prompted chairman, president and ceo, Terry Lundgren, who does not typically participate in Macy's quarterly calls, to pipe in with his own remarks. Lundgren said he expects positive results from My Macy's start to show up in the fourth quarter.

"We're really trying to make sure that we're being responsive, particularly to the initial 20 district stores," he said. "We are not cutting off anything that is being requested by the initial pilots that have the talent there and are close to the customer. We're really focused on the currency of our inventory and the level of our inventory being at a planned rate, and both were accomplished."

He admitted that "we haven't really effectively communicated this yet" but offered that "when this gets done there just isn't going to be any competitor who will have this ability to be locally responsive in the way we are and it will not be copied. It cannot be copied because they will not have the 1,600[-spot] job availability to fund, and secondly they wouldn't have the talent. [We are in] a very unique situation that we've been able to take complete advantage of that."

At the opening of the call, Hoguet addressed the status of the My Macy's rollout and the creation of the company's new unified structure with a brief update for analysts.

"The short answer is that most of the actual transition is now behind us," She said. "Over 95% of the new positions have been filled and almost all of those people are now in their new positions. We were able to attract the talents that we wanted. In fact, approximately 96% of our internal offers were accepted and we are very excited about the new team."

She added that last weekend, most of the systems were converted "without any major glitches," and that a comprehensive training has now begun for both the new My Macy's district and regions and the new central organization.

"We feel great about what we've accomplished," she said. "Although we all know the hard work is still ahead of us."

Lundgren later emphasized that as "happy" as he is with the pilot [My Macy's stores], "I'm just not satisfied at all with our minus-nine [-9.0% comp sales] results."

Macy's loss widened to 21 cents per share for the first quarter vs. a loss of 14 cents per share in last year's first quarter, but that performance beat expectations.

Excepting $138 million in restructuring charges (5 cents per share), the company loss would have been 16 cents per share for the quarter ended May 2. Macy's had issued guidance for a loss of 19 cents to 21 cents per share, not including the restructuring charges.

Sales fell 9.5% to $5.2 billion, with comps dropping 9.0%. Combined sales of macys.com and Bloomindales.com jumped 16.2% and are included in same-store sales with a positive contribution of 0.5%.

Lundgren said the My Macy's initiative will translate into approximately $400 million of annual expense savings beginning in 2010 and $250 million in the partial year of 2009. The company expects to see an improvement in sales trend from My Macy's beginning in the fourth quarter of 2009, "and especially in spring 2010," he said.

Macy's Inc. maintained its previous annual guidance for fiscal 2009 sales to be down between 6% and 8%, and for earnings of 40 cents to 55 cents per diluted share, excluding division consolidation costs. The company expects to book approximately $230 million in division consolidation costs in the final three quarters of 2009.

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