Tough Retail Conditions Didn’t Hurt Macy’s Last Quarter

Macy’s (NYSE:M) was not fazed by tough retail conditions. The company’s first quarter earnings report released Wednesday morning showed profit jumped 20 percent for the three-month period, soaring above the consensus estimate of Wall Street. While margins remained flat at 38.3 percent as input costs rose, the department-store chain also posted strong revenue.

Economic conditions have not been the best for retailers. The U.S. Commerce Department reported earlier this week that retail sales grew an unexpected 0.1 percent in April after a revised 0.5 percent decline the previous month. The gain was slight, and by no means proof that the American consumer is spending at pre-recession levels, but it did indicate that the impact of the payroll tax hike is “hurting the economy less than analysts had cared to previously factor in,” as Miller Tabak chief investment strategist Andrew Wilkinson told USA Today Tuesday.

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Riding on a slightly stronger wave of consumer sentiment, Macy’s boosted quarterly profit to $217 million, or 55 cents per share, from $181 million, or 4 cents per share, in the year ago quarter. Growth also extended to the company’s top-line results; revenue for the quarter rose 4 percent to $6.9 billion. Analysts polled by Thomson Reuters had expected per-share earnings of 53 cents on revenue of $6.39 billion.

To increase sales in the tough retail climate, Macy’s employed a three-pronged strategy: tailoring merchandise to local tastes, improving staff training, and focusing on “omnichannel” selling,” which refers to the use of the Internet, stores, and its warehouses to provide merchandise to customers. Same-store sales grew 3.8 percent in the first quarter.

While the results showed that Macy’s successfully navigated the difficult financial headwinds, they did not give analysts as much information as usual. As analysts at Barclays noted ahead of the quarterly report, the figures offered much less insight into top-line trends than usual because Macy’s did not include monthly same-store sales for the first time. “We believe major themes facing the retailers this quarter included cool weather and mixed consumer sentiment given higher taxes and delayed tax refunds,” the analysts said, according to The Wall Street Journal.

In the earnings press release, Chief Executive Officer Terry Lundgren said that “sustained, unseasonably cool spring weather” as well as decreased spending from some of the company’s more budget-conscious consumers and its higher-income Bloomingdale’s customers posed challenges in the past quarter. However, he added that the first quarter demonstrated “our ability to continue to build on our success over the past few years in growing sales and earnings.”

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Macy’s also raised its quarterly dividend by 25 percent to 25 cents per share and unveiled a $1.5 billion increase to its share-buyback plan.

The retailer’s competitor, J.C. Penney’s (NYSE:JCP), will report earnings Thursday, and the results will likely be grim. Analysts polled by Thomson Reuters predicted the company to post sales of $2.74 billion, a 13 percent decline from the year-ago quarter, but J.C. Penney has said it expects to posts significantly lower sales of approximately $2.64 billion, representing a 16 percent decrease from a year ago.

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