Macys 2Q15 Earnings Call Notes

Four factors contributed to sales weakness including weak tourist business, slow growth in core categories and challenges with the consumer

We would highlight the following four major factors in no particular order that contributed to our sales weakness in the quarter. Two of these are the same as we mentioned last quarter. The first is our decision to no repeat a friend and family event that we had last year in the second quarter.”

“two, continued weakness in the international tourist business. We estimate this hurt comp growth by approximately 1% as it did in the first quarter.”

“Three, slower growth in some key center core categories. These businesses are still growing well above the total company, but just not at the same level as they had been growing. And four, the continued challenges with the consumer.”

Overall economic growth modest and consumers are spending on other categories

“The overall growth in the economy is modest to best and we are seeing customers gravitating to restaurants, recreational services, healthcare and electronics rather than to traditional general merchandize apparel and furnishing category.”

Category breakdown

“two of our best performing categories in the quarter were in the center core areas; handbags and fragrances. We also had strong sales performance and active furniture and mattresses. The weaker categories included fashion jewelry and watches, petites and large size women’s apparel, men’s tailored clothing, house wares and table top.”

Considered unlocking value of real estate but benefits didn’t justify it

” We have regularly considered ways to realize the value of our own real estate over the years, but each time we did not see enough meaningful economic benefit to justify the added cost and lower flexibility that would come from doing so.”

We’re taking a look now with real estate values at all time highs

“With that said though real estate values clearly are nearing all time highs and so over the past few months, we have been intensely studying this subject again. We have brought on specialized real estate advisors as well as financial, legal and tax advisors to look at a wide range of alternatives from financing to structural that have the potential to create value.”

The economy didn’t do us any favors in the 1st half

“The overall economy didn’t do us any favors in the first half of the year. We look forward to the effects of the stronger dollar beginning to year around in the fourth quarter and to consumers replenishing their closets as their wardrobes require updating heading into the fall and holidays.”

We see opportunities to generate more sales from our customers, but it’s clearly getting harder

“I think the real answer Matt is that we see opportunities of generating more sales from our consumers. It is clearly getting harder. As I said there is a lot of competition for the dollar in categories other than what we sell, but we have confidence in our team to develop — deliver the sales that we’ve talked about and continue to be a market leader here.”

It’s too early to claim victory on back to school, but feel good about the early start

“in terms of back-to-school, it’s way too early to claim victory. So we do feel good based on the early start.”

Higher medical costs pressure sales this year

” One is I think we’ve talked for a long time about the pressure of higher medical cost which I think is probably impacting most companies/ What’s different about this year is we’ve gone to a consumer directed plan and as part of that and this is probably more detail than you need. We’ve helped to fund the HSA accounts for our employees and so there was more expense in the second quarter than it would have been last year. So part of it is timing, but we also expect a big increase in medical expense for the full year as well.’

Macys 1Q15 Earnings Call Notes

Disappointed but not discouraged

“our sales performance fell short of what we had expected. And as a result, so did our earnings. In speaking to our leadership group last week, Terry, our CEO, started his comments by saying, “I am disappointed but not discouraged.” I think that sums up how we all feel. And given the confidence we have in our strategies and the fact that most of the factors contributing to our weaker sales are already behind us or will be shortly, we are still comfortable with our guidance for the full year.”

International tourism impacted sales by a full percentage point

“As we look at the key factors negatively impacting our sales in the quarter, we would highlight the following five. First, international tourism. With the strong dollar, our sales from international tourists are down significantly. Because of our strong flagship stores in key tourist markets like Manhattan, Las Vegas, San Francisco, and Chicago, this has had a big impact on our overall sales. We estimate that roughly 5% of our annual sales come from the international tourists, and our sales from these tourists were down double-digits in the quarter. We estimate that this negatively impacted our comp growth in the first quarter by about one full percentage point. And unfortunately, this impact will likely stay with us at least through the summer vacation period.”

Getting up the reorg learning curve

“The second factor I would highlight is what we call the learning curve….

Ports issue #3

“The third factor is the slowdown in the West Coast ports. This disruption in our receipt flow impacted sales throughout the quarter…From a sales perspective, this should be behind us.”

Issue #4 growth in general merchandise sales was slow

“The fourth factor is growth in general merchandise, apparel and furniture, GAF sales, as we call it, which are our lines of business, was slower than we had expected during the quarter.”

Issue #5 is weather

“The fifth factor, which we’ve all talked about, would be weather.”

Headwinds behind us

“I think if you think about the first quarter, the weather is, obviously, better and the port slowdown will be behind us. The hope is that the disruption from the new omnichannel restructure is lessening as we get into the second quarter. What will continue with us is likely the impact of the strong dollar on the international tourists. Hopefully, as we get through fall that will begin to improve.”

Saw a jewelry/watch slowdown

“Obviously, I called out the fashion jewelry and watch business being slow, and that’s a part of Center Core. We were up against some major handbag promotions in the first quarter, so it’s kind of hard to read until we get through that, what’s happening there. But that growth continues to be very strong, absent the impact of that promotion. Shoes has done well, beauty is doing quite well, fragrances, in particular, is very strong. So hopefully there’s no major change in Center Core as the total. And, again, we’re looking for ways of offsetting that jewelry/watch slowdown. That would be the only call out.”

Pockets of higher inventory

” obviously, there are pockets where inventory is higher than others based on the port situation and also based on weakness in sales. And so, we have plans to make sure that we enter the third quarter fresh and we don’t take forward any of this inventory.”

Macys 4Q14 Earnings Call Notes

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

1.8% sales growth, 2.5% comp

“Our fourth quarter sales were $9.364 billion, up 1.8% over last year. As we announced on February 3, our sales increased 2.5% on a comp own-plus-license basis in the quarter.”

Tourist stores hurt by strong dollar

“Our tourist stores for both Macy’s and Bloomingdale were heard in the quarter driven by weaker international tourist spending in light of the stronger dollar. ”

Gross margin decline on omnichannel delivery expense

“Gross margin in the fourth quarter was 40.3%, down 30 basis points from last year. Merchandise margin was down by approximately the same amount. The growth in delivery expense due to the Omni transaction was offset by the increase in income from the license businesses and other miscellaneous factors.”

Focused on accelerating growth

“as we look forward we are focused on accelerating growth. The changes made to our organization in January and in early February were made with this in mind. We reorganized our merchant and marketing organizations to make them faster, more nimble and better connected between the stores and the digital world. While we now have Omni buyers and planners who span both channels, we also have digital merchants who are 100% dedicated to working with the Omni merchants to drive digital growth. Just to be clear, we did not eliminate .com merchants at Macy’s.”

Wage rates are something we’re looking at

“obviously wage rates are subject we studied quite closely, and currently our wage rates are above the state minimum wages, and we tend to provide first jobs for many of our associates and we move these entry level associates up the wage scale as they gain experience. Having said that, we’re constantly studying what’s happening and, by the way, its market-by-market and what we need to do to be competitive in terms of our hiring. So I think this will be an ongoing area of attention.”

Weather obviously hasn’t been helpful in February

“e don’t comment on the month, I mean, obviously the weather has not been helpful, but hopefully it will be fine by the time we get through the quarter.”

Having inventory close to the customer is an advantage

“I think you are right about the same day deliver particularly in the bigger markets like Manhattan and San Francisco that’s where you are going to see that, but I do think people want to receive their orders quicker and, frankly, that’s where our store network is been so helpful. If you need something day and you are in a market it doesn’t have same day deliver yet the online pick-up and store helps with that or even next day. And by having inventory closer to the customer that’s a huge competitive advantage for us in terms of satisfying what the customers are looking for.’

Store fulfillment is an important part of strategy

“as I said a little while ago its obviously very important to us to be full filling from stores because we can get gods to the customer a lot faster that way and also we don’t have to build as many mega centers. Now there is obviously a lot of analysis and complicated algorithms to decide the right way of shipping what from what place but store fulfillment is a very important part of our equation going forward and we’ll continue to grow aggressively.”

Macys 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

We were disappointed with our sales

“we were disappointed with our sales. We assume that we were not immune to the weaker than anticipated consumer spending which has been acknowledged or reported by other retailers.’

Comps were negative because strong comp last year

“Sales in the quarter were $6,195 million down 1.3% versus last year. And on a comparable basis including license businesses sales were down 0.7% excluding the license businesses comp sales were down 1.4%. Remember that last year our comp sales including the license businesses were up 4.6% so on a two year basis we were up 1.9% per year. And this is about the same as the spring season trend.'”

We did not maintain a strong start to back to school

“We were disappointed however that we did not sustain the momentum of the strong start to our back to school business in Kids.”

Bloomingdales also fell short of expectations

“Bloomingdales also fell below expectations to top line sales in the third quarter.’

Bad top line, but better bottom line

“So overall, I would say that this third quarter was disappointed on the top line but strong in terms of the bottom line.”

There are positives in the economy but consumers are spending on other categories

“As I said earlier we have optimism surrounding our strategies and the strength in our execution capabilities we also see positive factors in the economy, lower gas prices, lower unemployment and healthy financial markets. We are however balancing these factors with the reality of the recent trend caused in part by customer spending more their disposable dollars on categories we don’t sell like cars, healthcare, electronics and home improvement.”

Not further pickup in promotional activity

“In terms of promotion, this business has been very promotional for a while and you are not going to see big increases in promotions quarter to and then in any given time period. So I would say your statement on the third quarter it’s essentially true which there is not lot more promotional activity.”

September and October were not as good as August

“as we look at the quarter August was great, September and October were less so. So that’s really the trend there. We started November on a great path but again the fourth quarter is made up from the week in November. So I want to be careful there.”

Consumers are spending their dollars in different ways

“I believe we have seen some relationship in terms of discretionary spending gas prices. But I think customers are choosing to spend their disposable dollars in different ways that’s part of the reason why we are not more optimistic about the lower gas prices.”

Retailer Inventory Comparison

There have been a few comments on retail/apparel earnings calls suggesting that retailers are currently managing their inventories relatively tightly.  Fossil, for instance, said this:

What we discovered or what we experienced in the second quarter was that both with department stores and some of our boutiques, they were really focusing on managing their inventories tightly. And relative to our expectations, we saw some compression on sales because they were reducing their inventory level.”

TJX echoed that sentiment on its call yesterday

we are very clean in the stores. In fact, our inventory, well, it’s been lean off season and, given the second quarter with sales picking up, our clearance levels are very under control. No real liabilities there.”

If this is true, it’s a good sign for retail that inventories are under control.  Lean inventories are not only more efficient from a working capital standpoint, but also could help signal that the highly promotional environment that retailers have been complaining about is about to let up. If retailers are more conservative with their inventories, they don’t have to take as many markdowns to clear it.

If retailers are running their ships more tightly it’s not really showing up in financial statements quite yet though.  Below is a chart of a few important retailers’ days of inventory on hand (365/COGS/Inventory) since 2000.  If anything it looks like retail inventories have been trending slightly higher as of late.  For what it’s worth, the Census Bureau’s data shows that retailers’ inventory to sales ratio is above its recession low, but below where it was at the beginning of the year.

WMT AMZN TGT Inventory

M TJX KSS Inventory

Source: Factset

Macys 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

4% comp

“The key metrics for the second quarter performance include a 4% comp sales increase on an owned-plus-licensed basis, a 30 basis point increase in EBIT as a percent of sales, and an 11% increase in earnings per share on a diluted basis. Those together make for a good quarter and we’re in line with what we expected.”

Customers shop more once buy-online pick up in store

” Internet-generated demand continues to grow rapidly. And we believe that will continue, particularly now that we have rolled out Buy Online Pickup in Store or what some people refer to as click and collect to all the Macy’s and Bloomingdale’s stores.

We haven’t even marketed this capability yet, and we are already finding that many customers like this option. And once in the store, these customers are often buying other items as well.”

environment improving very gradually

“As Terry said in today’s news release, our outlook for the fall season reflects our confident optimism tempered with the reality that many customers still are feeling the impact of an economic environment that at best is improving very gradually.”

Back to school off to a strong start

” the end of the second quarter back-to-school was extremely strong at the start. We’ll see as it goes through the season, but we feel very good about it.”

Retail is always promotional

“I can’t remember a time when it wasn’t promotional. So, I don’t see anything different in the second quarter or the fall season. This is a very promotional business. Our customer very much wants value and very much responds to promotions. So, I don’t see a change happening there….But it’s very promotional.”

Spring was what we expected, it just got shifted

“the spring season was consistent with what we had expected. The timing just changed a little bit.”

Omni channel can improve the performance of the business in a lot of dimensions

“That’s a lot of questions there. I think the omni opportunity is first and foremost sales growth. But what we’re also finding is that there’s gross margin opportunity as well as turnover opportunity from again better coordinating across the company and looking at inventory across channels as well as marketing across channels. So, I actually see it as a huge opportunity across the whole P&L and balance sheet and very exciting.”

Big ticket sales improved. I don’t think it was weather, but they improved

“And in terms of the businesses that improved, I don’t think it’s weather-related. I just think that – and again, I can’t tell you what happened to big ticket in the first quarter. But, it certainly rebounded in the second and we feel better about that going forward.”

Macys 1Q14 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Things got better at the end of April

” we were pleased both with our earnings in the quarter and also with the momentum change towards the end of April when the weather finally warmed up in the northern part of the county.”

Not sure that everything was weather related, but whatever

“While we aren’t sure that all of the weakness in the quarter was weather-related, we continue to believe that the underlying customer demand is strong enough to enable us to achieve our annual guidance for comp sales of 2.5% to 3%”

Comps negative

“Comp sales were down 1.6% and on an owned plus license basis comp sales were down 0.8% versus last year.”

Weather clearly played a major role

“we were expecting sales to be stronger than they were at both Bloomingdale’s and Macy’s, and as I just stated, the weather clearly played a major role in the weakness.”

The comp is weak in 2Q

“Remember that we had a disappointing second quarter last year and we concluded at that time that our marketing support was insufficient. We then reacted with renewed and strength in promotional strategies in the third quarter.”

We didn’t expect the consumer to be strong, turns out they haven’t been great

“when we gave our guidance at the beginning of the year. We were not expecting the consumer to be all that strong. So that really hasn’t changed with anything we’ve seen in the first quarter. Obviously, could make it a little more challenging but we still think that the consumer is okay but not great.”

You have to keep investing to stay ahead of the curve online

“I don’t know how a retailer could compete going forward without a really strong online presence and investing heavily to keep up with all that’s happening technologically in that world.”

Bloomingdales also did better regionally

“Bloomingdale’s had a tough first quarter as did Macy’s and again did better in their Southern stores and the Northern stores. So that would be the case again”

Weakness in home surprised us because had been so strong for so long

” it stood out for us too because as you know, home has been so strong for so long. So I’m hoping it’s just an outlier and by the second quarter that would no longer be the case. Early May is making us feel a lot better. But there’s really nothing we’re seeing on the competitive front that would lead us to be concerned about home longer term.”

We’ll tell you South doing better than North, but not going to quantify it

“We don’t split it out but the gap — the South has been growing faster than the North, separate from the weather. So that’s — the gap has closed quite a bit but there’s still going to be a gap as there was all last year. But the gap has closed significantly since late April.”

That leads back to the weather discussion…

“as I said, both Bloomingdale’s and Macy’s had tough quarters, if that helps you to get some insights into that and our weakness was across price points and our opening price points were better. So, again, that leads back to the weather discussion that was opposed to the consumer. So, I think until we see the second quarter with the warm-up in weather, it’s going to be hard to really judge the answer to your question.”

Millenials like to shop both online and in store

“There is sort of assumption that many people have that it’s all online, is actually not the case. Millennials love shopping in stores as well as online and browsing in one channel and shopping in another, so both have been doing well.”

Better once warmer

“once the weather warmed up, there was a significant change in the trend. So, again, a couple of weeks doesn’t a quarter or a year make. But it is encouraging to see that and particularly in the northern climate. So that’s part of why we’re feeling confident.”

Key items playing well both online/in store

“home has been where online started first, and so now we’ve been seeing outsized growth in the apparel areas. But again that’s just because of where they started, but our strategies online are actually quite comparable in terms of growth plans to what’s happening in the store. A key item tends to be a key item in both channels and also brands. ”

Trying to change ad budget

“I’m not really the marketing expert, but as you might imagine, we are spending a lot more of our budget on digital and all kinds of ways. Particularly, as you talk about the millennial customer, he or she is getting their information differently than perhaps I am. So there is a lot of change happening. But still much of what we spend is in the traditional media.”

Have a lot of teams working on stuff

” I don’t know the specific answer on the FedEx change, but as you might imagine, we have a team of people doing everything we can to lower delivery expense. So understanding how those changes impact that, I don’t know how, but I guarantee you, we have a team working on it.”

Part of the secret sauce is having the right size/color mix

“part of our secret sauce there is not only finding the right items but it’s assorting them appropriately, size, color, et cetera, store by store, which is the whole My Macy’s strength.”

Apparently there was bad weather over Easter

“as you think about Easter, I would say hard to judge because of weather. But clearly did a lot of business in those categories which tend to go with the holiday.”

Macys 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Comps up 1.2-2.4%

“Sales in the fourth quarter were $9,202,000,000, up 1.4% on a comp basis and up 2.3% on a comp basis together with sales and license department”

Clearly some was weather

“Clearly, much of this weakness resulted from the bitter cold temperatures and the frequent snow events in January, but we’d not attribute all of the weakness to the weather.”

3% comp feeling good compared to our competitors

“3% is feeling like a good performance compared to our competitors.”

Best sales in South where not weather effect

“Geographically as you may suspect, our strongest sales performances were across the South, where weather was not as much of a factor.”

Bloomingdales did better than Macys

“Bloomingdale’s had a better fourth-quarter than Macy’s, in part because we experienced less weakness in January in these stores”

Looking for 10%+ EPS growth on 2.5%-3% comp sales growth in 2014

“Our guidance for 2014 sales and EPS is unchanged. For comp sales growth, we are assuming 2.5% to 3% and we are guiding for earnings per share on a diluted basis of $4.40 to $4.50.”

There was some weakness even in non-weather affected areas in January, but post Valentines day things have been trending better

“in November and December our business was strong really across the country, whilst that continue to strengthen this out. In January there was much more of a difference between sort of the north and the south. There was some weaker business in the non-weather impacted areas, that’s why I said during the call that I don’t think its all weather in January but the good news is starting in Valentines Day our boats are rising and so we’re feeling very good about the trend.”

Retail gets some positive seasonality in 2014 with a later Easter

“I do think the later Easter is good for retail, so that could be helpful. And I had said earlier, we do expect the second quarter comp to be higher than the first quarter. Beyond that I think that really is all I can say.”

What makes you successful online is the same thing that makes you successful in store: Having the right product

“If I think about things that are making us successful online, frankly it’s very similar to what’s making us successful in-store, which is merchandizing strategies and without the right assortments and the right service levels, it almost doesn’t matter if you have sexy technology and I think that’s what’s driving our Omnichannel business today.”

Mixing together store and e-commerce teams. Collaboration

“The other thing that we’re doing which I think is important is that we’re moving people around so that they get different experiences, whether it be store merchandizing or dot-com and that’s helping also to enhance really this collaboration. So I would say we are at the very early stages of that and that’s why I’m so excited about the growth going forward because I think the combination of these teams working together is going to be very powerful.”

Online can be a good testing ground

“ften we can use online for extended sizes, often we use online to test and if the test is successful we’ll put it into the stores. Or if we find that the online sales of lets say extended sizes does very well we’ll bring that assortment into stores. So it’s really very interesting to see how the two can interrelate.”

Retailer Square Footage Comparison

With some retail quarters starting to trickle in, I wanted to put together a comparison of some of the US’ largest multi-line retailers based on square footage.

It’s always amazing to think about just how large $WMT is compared to its competitors.  Partially because it has more international locations than the rest of its peers, it has nearly four times the amount of real estate that $TGT does: 1.1 Billion Square Feet!  That’s 39 square miles, or about 1.7x the size of Manhattan.

Even more amazing perhaps, the company generates a respectable $116 gross profit dollars per square foot on all that space.  That’s higher than everyone else on this list besides $COST and $JWN.  Costco and Nordstrom do a great job of generating gross profit relative to their size, but also have the highest valuations per square foot to go along with that.

Retail Square Footage Comparison

 

Sources: Most recent 10-k, Compustat Data

Macy’s 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

“Sales in the third quarter were $6,276,000,000, up 3.5% on a comp basis.”

“at the end of the second quarter, we felt we had to intensify our marketing and enhance our value offering to drive the business in the current economic environment. We did both and we are happy to say it paid off. The customer responded well to the cleaner and bolder look to our sale advertising, some new promotional handles and great values on fresh merchandise. We also improved graphics and visual merchandising in the stores and on our website in order to make our sales and values more obvious.”

“We also saw broad-based strengthening across all major categories of business. There are lots of good news stories and only a few weaker ones.”

“we are particularly encouraged by 3 trends that bode well for the fourth quarter. One, the traditional gift categories are trending very well. This would include businesses, such as fine jewelry, cosmetics, cashmere, handbags and housewares. The second encouraging trend is that the cold-weather businesses were all strong…the third encouraging trend was the stronger growth in women’s apparel businesses, including that of the older millennial customer, which is always great for our business.”

“Net income in the quarter was $177 million, 22% above last year’s $145 million. Average diluted share count in the quarter was 380.2 million shares, down 7% from last year’s 407.9 million shares. And earnings per share on a diluted basis was therefore $0.47 or $0.31 — 31% above last year’s $0.36 per share.”

“we are very excited about what we see for the holiday season”

“I think what we did is when the second quarter started, we looked at some of our promotional events and decided that, perhaps, they had become a bit stale. So we changed some of the promotional handles. For example, added Doorbusters and Deals of the Day as opposed to morning specials. We looked at the actual items that we had been promoting and decided some of them needed to be changed or freshened. And we spent a lot of time analyzing which items drove other business, what we call radiated sales, so that we could do this intelligently. We also worked in the stores to make the visual better for the customers in the stores, to see the values that we were offering. So as I said, it was a complete team effort.”

“there’s a lot of focus on October. I’m not quite sure why. The whole quarter was very strong and October did get stronger.”

“it’s no surprise that active has become an important part of what customers are wearing and needing. Sometimes it’s for athletic endeavor, sometimes it’s just to run errands. And we’ve solid big opportunity here and, in fact, that’s what is happening in terms of performance in the stores.”

“the online business, as we said, when we stopped reporting it separately, is getting just so hard to measure because so many customers are shopping online, going in the store to buy and vice versa. ”

“August-September period was strong as was October. So I don’t have the traffic patterns or the transactions by-month in front of me. But it wasn’t like business have been weak and suddenly got strong in October.”