“Our customers have responded well to the increased focus on fashion and enhanced quality of the merchandise,” Jeffrey Gennette, chief executive of Macy’s, said in a Tuesday call with analysts. “The consumer was out spending, and that was great.”
Macy’s has for years been dogged by many of the same issues facing its peers: changing shopping habits, excess inventory and a culture of deep discounts and promotions. It also faces increasing competition from Amazon, which is projected to surpass Macy’s this year as the country’s largest apparel seller. (Jeffrey P. Bezos, founder and chief executive of Amazon, owns The Washington Post.)
But on Tuesday there were signs that the retailer’s turnaround efforts were working. Sales of women’s dresses, tailored men’s clothing, winter coats and fragrances all rose during the critical holiday season, helping lift fourth-quarter sales 1.8 percent to $8.67 billion. Profits nearly tripled, to $1.3 billion, or $4.31 per share, from $472 million, or $1.54 per share, a year earlier. Shares of Macy’s stock rose nearly 12 percent Tuesday morning after the news, before closing at 3.5 percent.
“Consumers had the ability to spend,” Dana Telsey, chief executive of Telsey Advisory Group, told CNBC on Tuesday. “Retailers and brands were able to come out with products people wanted. We have a little bit of an apparel cycle: Whether it was fragrances, dresses, active or men’s tailored, it all seemed to work.”
Macy’s said it boosted sales by dialing back discounts, adding exclusive products and investing in its private-label brands. Customers on average spent 3 percent more on each item they purchased during the quarter, according to Gennette.
The company is also adding more exclusive products, which make up about a third of its inventory. Last month, it began selling a line of “modest” clothing, including maxi dresses, jumpsuits and hand-dyed hijabs. Other exclusive brands include lines by Tommy Hilfiger and Martha Stewart.
“Macy’s has realized it needs to focus on its sweet spot: clothing for adults and kids,” said Milton Pedraza, chief executive of the New York-based Luxury Institute. “This is a company that has always been about mainstream apparel, and I think they’ve found a way to make that work for them again.” (That appeal, he added, didn’t necessarily translate to teenage consumers. Indeed, Macy’s executives said sales of junior apparel slipped during the most recent quarter.)
Macy’s has made a number of sweeping changes in recent months. The Cincinnati-based retailer has closed dozens of stores, invested in new businesses and revamped its loyalty rewards program. It is also increasingly looking beyond the mall for expansion. The company opened 36 Bluemercury beauty stores last year, as well as 30 off-price Backstage locations. It plans to add another 100 Backstage stores this year to compete with rivals such as Nordstrom Rack and Saks Off Fifth.
“Macy’s is hot on the heels of a good fourth quarter,” said Stephen Beck, managing partner at New York consultancy cg42. “But there’s still a long way to go before we see a truly healthy turnaround.”