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What's Behind Macy's Splendid 4th-Quarter Performance?

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·3 min read
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- By Mayank Marwah

Macy's Inc. (NYSE:M) released its fourth-quarter and full-year 2020 earnings results before the opening bell on Feb. 23.

The company registered higher-than-anticipated earnings and revenue for the quarter thanks to robust digital performance. Additionally, effort to slash inventories coupled with less dependency on deep discounting during the holiday shopping season lifted the company's overall results.

By the numbers

The department store chain recorded earnings per share of $0.80 for the quarter, which was down 62% from the prior-year quarter but surpassed Wall Street's projected EPS of $0.12. Revenue was $6.78 billion, topping expectations of $6.50 billion.

Comparable store sales dipped 17.1%, both on an owned and licensed basis. Analysts had projected a 21.3% drop in comps.The lesser decline was attributable to persistent store recovery coupled with robust digital performance.

Reflecting on the company's performance, Chairman and CEO Jeff Gennette said:

"Macy's, Inc.'s fourth quarter results exceeded our expectations across all three of our brands, as we showed continued quarter-to-quarter sales performance improvements and returned to profitability. Performance was driven by the home, beauty, jewelry and watch categories, growth in digital sales and by acquiring new customers."

Digital sales

As a result of the pandemic, customers often refrained from going to the physical stores, which is why digital traffic gained momentum during the quarter.

Digital sales rose 21% in the reported quarter as more customers visited company's app and website. In fact, online sales made up 44% of company's total sales. During the quarter, the company gained 7 million new customers with a majority of them shopping online. Gennette commented:

"We anticipate annual digital sales to reach $10 billion within the next three years, and that digital will become an even more profitable contributor to our business."

Efforts for improvement

As a mall-based store, Macy's is under pressure as more and more consumers shop online. The quarterly results are a reflection of the intensifying competition in the apparel and beauty segments from rivals such as Target Corp. (NYSE:TGT) and Walmart Inc. (NYSE:WMT). Therefore, the company is focusing on upgrading its stores' interiors and enhancing its product assortment.

The department store chain announced a major transformation in early 2020. As per the announcement, the company will close down 125 stores by 2023. In addition, it will cut 9% of its corporate staff and shut some offices in Cincinnati and San Francisco. This move will help the retailer save as much as $1.5 billion on a yearly basis through fiscal 2022, part of which will be invested back into its growth initiatives such as launching more of its off-price backstage locations.

Financials and inventory position

For the fiscal quarter, which ended on Jan. 30, the company had cash on hand of roughly $1.68 billion and about $3 billion of unused capacity under the new asset-based credit facility.

Inventory was down 27% as compared to the year-ago period, reflecting efforts to manage strong e-commerce demand.


For fiscal 2021, the company anticipates adjusted earnings per share to be in the $0.40 to $0.90 range. Revenue is projected to be around $19.75 billion to $20.75 billion. Analysts are expecting revenue of $20.13 billion for the period.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.