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Macy's beats low Q1 estimates as it weighs between a turnaround and a buyout

Macy's (M) beat muted Q1 expectations as a buyout bid lingers in the background.

On Tuesday morning, the department store chain reported revenue of $4.85 billion, down 2.7% compared to last year and slightly higher than Wall Street's estimates of $4.81 billion. Its adjusted earnings per share of $0.27 also topped the $0.14 expected.

Comparable sales fell 1.2% at company-owned stores, less than the 3.01% decline Wall Street predicted.

"We do believe that we're getting traction, it's still early days ... We're still practicing the changes in the stores from a staffing and selling and service standpoint, there are a number of changes that are still not implemented," Macy's CFO and COO Adrian Mitchell told Yahoo Finance over the phone.

This is the first quarterly report since CEO Tony Spring, who took the helm earlier this year, rolled out the "Bold New Chapter" initiative for the company. The overall strategy includes plans to close 150 underperforming stores over the next three years, improve the remaining stores and product assortment, and invest in digital sales.

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In the quarter, the remaining focus stores saw same-store sales growth of 0.1%, compared to the 4.5% drop at the closing locations.

In a call with investors, Spring said the addition of "new brands like Donna Karan or the expansion of brands like French Connection, Free People, and Karl Lagerfeld and Hugo Boss" helped boost sales at those focus stores. The 50 stores that received investments so far saw a 3.3% lift in sales.

The company now expects to end 2024 with net revenue in a range of $22.3 billion to $22.9 billion. Same-store sales are expected to be between a 1% year-over-year drop to a 1.5% increase. That's compared to the previous expectation of a roughly 1.5% drop to a 1.5% increase.

Adjusted earnings also got a boost, projected to end the year in a range of $2.55 to $2.90, compared to $2.45 to $2.85 previously.

"We are not making any assumption for the improvement in the consumer situation," Mitchell said of the difficult consumer backdrop. "We continue to believe that there's a lot of uncertainty, inflation continues to remain stubborn."

NEW YORK, NEW YORK - MARCH 24: Guests attend the Macy's Flower Show 2024 at Macys Herald Square on March 24, 2024 in New York City.  (Photo by Noam Galai/Getty Images for Macy's, Inc.)
Guests attend the Macy's Flower Show 2024 at Macy's Herald Square on March 24, 2024, in New York City. (Noam Galai/Getty Images for Macy's, Inc.) (Noam Galai via Getty Images)

Wall Street remains skeptical of the company's future.

Prior to the report, UBS analyst Jay Sole said it is "unlikely" that the new initiatives will make a difference.

In a note to clients, Sole wrote, "These initiatives are not part of our base case. However, they are part of our upside scenario." He identified the three key areas as "Macy's Backstage, Macy's small store initiative, and its omni-channel service improvements, both online and in-store."

Since 2012, Macy's has lost 25% of its market share "primarily to Off-Price retailers, brands, and Amazon," per Sole.

CFRA analyst Zachary Warring expects sales to keep dropping, "with a low-single-digit decline over the next five years," he wrote in a client note.

The company did not provide any updates on Arkhouse Management and its partner Brigade's $6.6 billion offer to take the department chain private. In mid-March, both said in an SEC filing that they were working on a confidentiality agreement with Macy's that would allow the buyers to conduct financial due diligence.

"We're going to be focused on continued simplification of our business to expand margin and invest in the customer experience. But now it's about growth," said Mitchell, who alluded to Macy's focus on staying the course as a public company.

As of market close on Monday, Macy's has a market cap of roughly $5.3 billion.

Here's what Macy's reported, compared to Wall Street's estimates, according to Bloomberg data:

  • Net sales: $4.85 billion versus $4.81 billion

  • Adjusted EPS: $0.27 versus $0.14

  • Same-store sales: -0.30% versus -2.78%

    • Licensed stores: 0.90% versus 0.30%

    • Company-owned stores: -1.2% versus -3.01%

  • Gross margin: 39.2% versus 39.63%

  • Adjusted net income: $77 million versus $39.6 million

Other areas of note include its two subsidiaries, Bloomingdale's and cosmetics business Bluemercury, which both saw same-store sales growth, up 0.8% and 4.3%, respectively.

"We're just leaning into those luxury brands. We're definitely pleased with the performance and feel there's a lot more ground there," said Mitchell, who also identified beauty as a top category for customers.

The company's credit card revenue dropped $45 million to $117 million due to the "impact of expected higher delinquency rates and net credit losses within the portfolio."

Mitchell said the team is monitoring the situation "very closely."

"Our credit card customer tends to be a relatively healthy customer within the portfolio ... But what we're seeing is not outside of the ordinary in terms of what our projections are," he said.

He added that more promotions or discounts could come in Q2 as Macy's looks to lure in value-focused customers.

Merchandise margin dropped 1% in the quarter due to markdowns on warm weather products, while merchandise inventory was 1.7% higher than last year, Warring wrote in a separate note.

Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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