Despite incurring the full brunt of the tariff impact in the second quarter, Macy’s (NYSE: M) shares were up 13% in overnight trading after the department chain delivered the biggest same-store sales jump in 12 quarters (up 1.9%) on the back of ambitious turnaround plans.
Underscoring the company’s turnaround is the closure of unprofitable stores while investing heavily in modernising Macy’s locations, and there are signs this is working.
The reversal in same-store sales, up 0.8%, underpins the department chain’s efforts to entice shoppers to buy in the face of consumer anxiety over President Donald Trump’s trade wars.
However, despite the better-than-expected turnaround, management warned the market that customers remain choosy about what they are buying, while executives remain unsure how tariffs will affect spending for the remainder of the year.
“We’re celebrating the second quarter but we’re being prudent in our guidance for the third quarter and the remainder of the year because we want to see how the tariff environment plays out in totality,” said Spring.
Around 20% of the department store’s products came from China at the end of its last financial year, while private brands sourced around 27% from China, down from 32% last year.
Spring also told investors that the company is trying to take a “surgical approach” when it comes to price increases.
The department store has already raised some prices and, in some cases, cut back on orders of items to reflect those increases.
Easily topping Wall Street’s expectations, Macy’s delivered earnings per share of 41 cents adjusted versus 18 cents expected, while revenue came in at $4.81 billion versus $4.76 billion expected.
After being slashed in the last quarter due to tariffs, the department store operator also raised its full-year earnings and sales guidance and now expects adjusted earnings of between $1.70 and $2.05 per share, compared with the previous projection of $1.60 to $2 per share.
Revenue is now expected to come in between $21.15 billion and $21.45 billion, compared with the previous projection $21 billion to $21.4 billion.
Commenting on the second quarter earnings update, CEO Tony Spring told the market the company is well positioned right now for the environment it’s in to take share, to deliver for customers and provide a better experience.
It’s understood that the 125 stores the company has chosen to focus on with higher staffing and renovations outperformed the broader Macy’s brand, with same-store sales growth of 1.4%.
Meanwhile, the other two brands within the department store’s stable, Bloomingdale’s and Bluemercury, both outperformed the broader Macy’s brand with same-store sales growth of 3.6% and 1.2% respectively.
As of 2 August, there are 449 total Macy's stores, compared to 506 in the second quarter of last year.
At the start of the year, Macy's planned to close 66 unprofitable stores this year and 150 total over the next three years.
"While rightsizing the store base should improve long term profitability, near-term visibility for sales and profitability growth remains limited amid macro pressure, traffic and tariff headwinds, and a competitive and potentially promotional retail landscape," noted Telsey Advisory Group's Dana Telsey.
Key numbers for the three-month period ending 2 August:
- Net income was $87 million, or 31 cents per share, compared with $150 million, or 53 cents per share, the year prior
- Net sales dropped from $4.94 billion in the year-ago period to $4.81 billion
- Adjusted earnings per share were 41 cents
- $28 million increase in credit card net revenue to $153 million
