Macy’s shares surge on upbeat earnings, decision to hire AlixPartners to review business

Macy’s on Thursday reported fiscal third-quarter earnings and sales that topped analysts’ expectations, leading the department store chain to raise its full-year forecast ahead of the holidays.

Separately, the company teased the launch of a digital marketplace that’s set to debut in the second half of 2022, and said it had hired consulting firm AlixPartners to review its business structure.

Macy’s shares jumped more than 18% on the news. At one point, the stock hit a three-year high of $37.66.

The announcements come as activist Jana Partners has taken a stake in the business and is pressuring Macy’s to spin off its e-commerce operations from its stores, hoping to fetch a greater valuation. Saks Fifth Avenue pursued a similar split earlier this year. Its e-commerce unit is now reportedly preparing for an initial public offering at a higher valuation than it saw after its spin off from Saks’ stores.

“We also recognize the significant value the market is assigning to pure e-commerce businesses,” Macy’s Chief Executive Jeff Gennette said on an earnings call. “And as we look at the landscape today, we are undertaking additional analysis that could help inform our long term strategy to further unlock value for Macy’s.”

Under Gennette, Macy’s has been trying to woo younger consumers who may have shifted away from shopping at traditional department stores. He said that Macy’s added 4.4 million new customers in the quarter and benefited from an “improved economic environment.”

Gennette also tried to ease concerns about ongoing supply chain issues and said Macy’s doesn’t expect to be hurt by bare shelves during the critical holiday shopping season.

“We expect the supply chain issues are going to continue into 2022,” he said. “Some categories are much better, some [challenges] persist. But I think overall we’ve got a great handle on how we’re mitigating that.”

Here’s how Macy’s did in the three-month period ended Oct. 30 compared with what analysts were anticipating, based on a survey by Refinitiv:

• Earnings per share: $1.23 adjusted vs. 31 cents expected
• Revenue: $5.4 billion vs. $5.2 billion expected

Macy’s reported net income of $239 million, or 76 cents per share, compared with a loss of $91 million, or 29 cents a share, a year earlier. Excluding one-time items, the company earned $1.23 per share, far better than the 31 cents that analysts had predicted.

Sales grew to $5.4 billion from $3.99 billion a year earlier. That came in ahead of estimates for $5.2 billion.

Macy’s reported comparable sales growth, on an owned plus licensed basis, of 35.6% in the quarter. Analysts had been looking for growth of 29.3%, according to Refinitiv estimates.

Digital sales grew 19% year over year and were up 49% on a two-year basis. The company said its online business made up 33% of total sales, up 10% from 2019 levels. And 41% of Macy’s new customers came through digital in the third quarter.

At Bloomingdale’s, comparable sales on an owned plus licensed basis rose 38.5% year over year. The company said shoppers with more money to spend bought up luxury handbags, fine jewelry, men’s shoes and apparel.

“It is super heated right now,” Gennette said in a phone interview about the luxury market. “Customers are ready to put more of their disposable income against brands for the future.”

He said the company also expects to see a rebound in spending among international tourists, as they travel back to the U.S., which should further help its luxury business. The return of foreign shoppers to Macy’s stores will likely be straddled both between 2022 and 2023, he said.

Gennette said the company has successfully brought back old customers and found new shoppers during the pandemic. A tie-up with Toys R Us has helped Macy’s toy sales more than double from 2019 levels, he said. And the company is seeing some crossover from competitors that have closed, according to Gennette.

Macy’s now sees 2021 revenue ranging between $24.12 billion and $24.28 billion, compared with a prior range of $23.55 billion to $23.95 billion.

It expects full-year adjusted earnings per share to hit $4.57 to $4.76, up from a prior forecast of $3.41 to $3.75.

Analysts had been looking for adjusted earnings per share of $3.89 on revenue of $23.78 billion.

Department store operator Kohl’s also on Thursday raised its outlook for the year, sending its shares up about 6%.

Meanwhile, Macy’s planned digital marketplace will allow third-party merchants to sell their items on Macy’s and Bloomindales’ websites. The company said it’s working with tech provider Mirakl to power the platform. According to Gennette, this has been in the works for at least a year.

Macy’s Chief Digital and Customer Officer Matt Baer said the marketplace will help the retailer expand its product assortment at a lower cost. The company has been targeting $10 billion in online revenue by 2023, but this marketplace should add more incremental sales on top of that, Baer said.

Bed Bath & Beyond earlier this month announced it plans to debut a similar marketplace for third parties to sell items on its site. It’s a push to mimic the marketplaces that companies like Amazon, Walmart and Target already have. But it’s unclear if these retailers will be as successful.

According to GlobalData managing director Neil Saunders, the launch of an online marketplace could end up only amplifying the calls for Macy’s to spin off its e-commerce business.

“A possible danger of the marketplace is that it will decrease the overlap between stores and online,” Saunders said.

Jana’s founder and managing partner, Barry Rosenstein, said in an emailed statement that the activist group applauds Macy’s latest results.

“We appreciate Macy’s strong execution in the quarter and commend the board for promptly engaging advisors to undertake a review of ways to unlock the value of its strong e-commerce business,” he said.

Jana’s interest in Macy’s stock has given the retailer’s shares a boost. As of Wednesday’s close, its stock has rallied more than 174% year to date, putting its market value at nearly $9.55 billion.

Find the full press release from Macy’s here.