Macy's (M) received a reality check in the fourth quarter as the company adjusts to changing shopper behavior and creates a more efficient business model.
CEO Terry Lundgren called the company's performance "disappointing," in Macy's fourth quarter earnings report out Tuesday, as sales at the department store fell for both the year and the quarter ended Jan. 30. The company's profit fell more than 31% compared to the year-ago quarter.
But online sales continue to grow in the double digits and mobile traffic is spiking — mobile sales more than doubled last year as more people both browsed and purchased on their phones. Lundgren acknowledged that "2015 reminded us that retailing is a dynamic business that requires continuous reinvention as the customer evolves."
Macy's already hinted early this year that it had a rough holiday season due to unseasonably warm weather that kept customers from flocking to stores for winter coats, sweaters and boots. As a result, same-store sales for the quarter fell 4.3% from 2014. Although Lundgren said that Macy's regained some of the sales it lost early in the quarter once it started getting colder in January. Cosmetics, fragrances, furniture and mattresses performed particularly well for the company.
The company's financial performance beat analyst forecasts. Profit fell from $793 million in the fourth quarter of 2014 to $544 million, or $1.73 a share. But Macy's reported earnings per share adjusted for one-time costs of $2.09. That was above analyst expectations for $1.88, according to S&P Global Market Intelligence. Revenue came in at $8.87 billion, down 5.3% from $9.36 billion in the year-ago quarter. That was still above analyst estimates for revenue of $8.83 billion.
Shares are up 1.7% in early trading on the report.
Macy's is already taking several steps toward realigning its business to cater to online shoppers and looking at ways to unlock the value of its considerable real estate. After facing months of pressure from an activist investor to sell stakes in its properties to raise cash, Macy's said Tuesday that it has started contacting potential partners regarding real estate deals for its flagship store and mall properties. Macy's said "there has been a high degree of initial interest," but didn't comment further.
As it attempts to become a leaner business more focused on online services and bringing digital capabilities in stores, Macy's has been slashing its store count and staff. The company will close 36 stores by spring and announced last month that it would eliminate more than 4,500 positions in a bid for more efficiency and productivity.
At the same time, Macy's has started testing an off-price brand called Macy's Backstage that caters to what's proved to be a steady desire from shoppers to buy discounted goods. Macy's opened six stores last year and will start testing the concept within approximately 15 full-line Macy's stores too, said Karen Hoguet, Macy's Chief Financial Officer, on a conference call Tuesday. She said that putting Backstage inside regular Macy's stores will help drive traffic and display products Macy's wouldn't normally have, such as toys and baby goods.
