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Macy’s beats earnings expectations but plans to cut upper management jobs

Macy's executives said the company is focusing on brick and mortar, e-commerce and mobile investments in 2019. (Bebeto Matthews/AP)

Macy’s fourth-quarter earnings topped analysts’ expectations despite a bumpy holiday season. But the legacy retailer also announced plans to cut jobs as part of a restructuring plan to generate $100 million in annual cost savings.

The company said it will scale back on upper management roles “to increase the speed of decision making, reduce costs and respond to changing customer expectations."

Still Macy’s finished stronger than it had in years. Last year marked Macy’s first full-year of positive comparable sales since 2014. Looking ahead to the rest of 2019, executives said the company would have to make an equal push in brick and mortar, e-commerce and mobile to keep customers coming back.

Macy’s reached another quarter of double-digit growth in digital sales and saw strong returns on its brick and mortar initiatives. The company’s Growth50 stores — which take test projects, like mobile checkout, from one store to 50 — outperformed other locations, for example.

“We are a stronger company than we were a year ago,” said Jeff Gennette, Macy’s chairman and chief executive, on an earnings call Tuesday morning.

Fourth-quarter revenue hit $8.46 billion — just over the expected $8.45 billion. Macy’s is projecting that in 2019, same-store sales, on an owned plus licenses basis, will be flat to up to 1 percent. Net sales will also be about flat.

Macy’s stock was up 1.15 percent Tuesday afternoon. This year, Macy’s shares are down about 18 percent.

Gennette pointed to a slate of initiatives that Macy’s is betting on in 2019. The department store will expand its Growth 50 program to 150 locations. And Macy’s Backstage, the company’s off-price concept, will expand to 45 stores. Backstage stores that have been open more than a year saw double-digit increases, Gennette said. Macy’s will also focus on its mobile division and expand its unique vendors and SKUs.

“Investments on those three main platforms is important as an omnichannel brand,” Gennette said.

In the third quarter for 2018, Macy’s beat analyst’s expectations, offering some optimism for a strong holiday season. Same-store sales were up 3.3 percent, and the company’s third-quarter net income hit $62 million. Macy’s said digital sales grew by a double-digit percentage, largely off of sales from mobile devices.

In January, Macy’s stock plunged after the company slimmed its earnings outlook for 2019. Macy’s chairman and chief executive, Jeff Gennette, said at the time that though the 2018 holiday season started off strong, particularly during Black Friday and through the rest of Cyber Week, sales fell off in mid-December “and did not return to expected patterns until the week of Christmas.”

The retailer saw strong sales in fine jewelry, women’s shoes, dresses and outerwear. But that momentum was undercut by lackluster performance in women’s sportswear, cosmetics and seasonal sleepwear. In November and December, sales at stores operating for a least a year — including online sales — climbed 1.1 percent.

On Tuesday, Gennette pointed to a fire at a distribution center in West Virginia as one reason sales fell short on Cyber Monday. He also said that shoppers soured at a holiday promotion that used to be open to everyone, but was restricted to Macy’s loyalty members last year.

In its earnings report, Home Depot missed fourth-quarter expectations. Sales at stores open for at least a year were up 3.2 percent, though Wall Street had expected growth of 4.5 percent. Many shoppers have pulled back on housing projects and renovations.

Macy’s plans for 2019 include a hefty investment in some of its highest-performing stores. But that could do little for hundreds other locations left behind, said David Swartz, equity analyst at Morningstar. On an earnings call Tuesday morning, Macy’s executives said that only one-quarter of its stores produce two thirds of its physical retail sales. Swartz said the company didn’t offer a clear answer for how it will boost sales in scores of locations in lower-tier malls, many of which have cavernous Macy’s showrooms — if not more than one.

Swartz pointed to the Growth 150 strategy as one example of Macy’s’ focus on stores already churning out top sales.

“Those are the stores that are doing well,” Swartz said. “That’s not really the problem. The problem is the other stores that are not doing so well.”