In our previous updates about Macy's "Bold New Chapter", we’ve pointed to Dillard’s and Abercombie as relevant examples of successful retail turnarounds. Macy's New Chapter has started favorably in Q1 2024 and results were ahead of Dillard’s.
As a reminder, 350 Macy’s locations are to be “recrafted” and 150 will be closed. Within the 350 go-forward locations are the "First 50" locations that have been most touched by new initiatives, namely more localization of and enhancements to the merchandise, strengthening the merchandising displays (i.e. storytelling), and improved service levels. While it’s still early, the First 50 produced +3.4% increase in comparable-sales and their customer NPS score improved by +500 basis points. The increase was above the +0.1% comparable-store sales increase for the remaining go-forward locations. (The locations set to be closed saw a -4.5% decrease in comparable-store sales; no locations have yet to close.) Bloomingdale’s comp to 2019 accelerated +230 basis points to +14% and Bluemercury improved by +210 bps to +15%. We attributed these improvements to the continued momentum of the beauty category, intensified focus by the brand’s operators and strengthened execution, and an improving consumer backdrop for its customers, which we have flagged in our commentary on monthly retail sales. Management also nudged up their annual guidance for sales and profits.
On the First 50, Macy's CEO Tony Spring said, “Full price and planned promotional sell-throughs of new and expanded assortments has been strong. Importantly, our vendor partners are embracing our journey. They are joining with us and helping us raise the bar in both the quality and the differentiation of our assortments, and we truly appreciate their commitment and support. During the quarter, we also piloted new marketing and animation, bringing retailer theater to life, activations included personal styling sessions, fashion shows, beauty services such as fragrance bottle engraving and craft stations. Our customers were engaged, and these events serve as strong traffic and sales drivers...During the quarter, we shifted store staffing to key merchandise departments into the checkout area and added visual merchandise staffing. These changes were well received by our customers.”
The chart below of our estimate of 15 locations in Texas, that we believe to be part of the go-forwards, strongly outperformed the total locations in Texas (30) and nationwide.
Regarding the consumer, Spring said, “With regard to the different income levels, we're certainly seeing at the high end, the Bloomingdale's consumer is interested in purchasing, but she's being very thoughtful in the category she's purchasing in. So I think we said that luxury handbag and shoe business is much softer than it was, still up strong to 2019, but she's investing now in advanced contemporary. She's investing now in parts of the beauty business. She's investing now in aspects of the home...The customer at the lower tier has to make choices based on rent and family obligations. The customer at the higher tier is going to do it based on where she has interest or they have interest and passion and something that we are doing, I think that creates the motivation to buy.”
Unfortunately, not all was positive in the results. As we feared, credit card revenue and profits substantially declined due to higher delinquencies and credit losses. (However, the result was better than planned.) That, plus the lower retail results, led to EBITDA declining to $358M from $464M. Nevertheless, the business generated cash and strengthened the balance sheet, and gross margin remained healthy and slightly above pre-pandemic levels.
