Macy's is trying to listen to its customers more. The efforts are showing signs of working.

By Bill Peters

Same-store sales at Macy's 'First 50' stores were up 3.4% in the first quarter

Starting sometime in its last fiscal year, amid a prolonged stretch of weaker demand, Macy's Inc. began using a handful of stores to try out new ideas based on feedback from shoppers. In February, after encouraging results, executives said they had expanded that trial run to 50 stores - part of a program they began calling "First 50" - bringing in more appealing displays and adding staff in its women's and off-the-rack sections and store checkout areas.

And on Tuesday, Macy's (M) executives said those efforts, while still in their early days, offered more signs of hope for the department-store chain, even as its customers continue to struggle with higher prices.

Executives on Tuesday said sales trends at its First 50 stores were positive during Macy's first quarter, compared with depressed results at the company's other stores. Same-store sales at those locations were up 3.4%, compared with a 1.2% dip in same-store sales overall.

"The First 50 serve as pilots to test new ideas that are based on customer feedback," Tony Spring, Macy's new chief executive, said during Macy's earnings call on Tuesday. "Results are encouraging, as they are an early indicator for the go-forward Macy's fleet and ultimately the entire Macy's, Inc. go-forward business's ability to return to growth."

Shares of Macy's were up 3% on Tuesday. Some analysts, however, approached the gains with caution.

"It isn't surprising that [Macy's] generated significant gains in its 50 namesake stores, where it has rolled out fresh merchandising, displays and customer service, given that the Macy's in-store experience has been lacking for some time," Zak Stambor, a senior analyst at Emarketer, said in emailed commentary. "Those changes offer Macy's a blueprint for success that it should be able to use in other locations."

He continued: "That said, it is easy to read too much into the results. They're only three months of results from just 50 Macy's stores."

Sales fell during Macy's first quarter, as they did in the prior seven quarters, but were better than what Wall Street expected. Bloomingdale's and Bluemercury, Macy's higher-end chains, helped results.

Macy's reported the quarterly results as its customers, still grappling with higher-priced groceries and other necessities, remain selective about the clothing and home goods that they buy. The company's rivals are still cutting prices to spur demand.

Macy's is weighing a bid to be taken private by Arkhouse Management and Brigade Capital Management.

Even as it invests in dozens of new stores, Macy's is shutting down 150 underperforming stores over the next three years and cutting staff and costs. Executives in February said those underperforming stores, in the last fiscal year, made up about a quarter of Macy's gross square footage but less than 10% of its sales.

During Macy's earnings call on Tuesday, the company said new clothing assortments, or an expanded selection of the apparel already on its shelves, helped demand. Its new Donna Karan offerings, it said, had seen lots of interest from customers with "no price resistance." It is also offering a wider assortment of clothes from Free People, French Connection, Karl Lagerfeld and Hugo Boss.

"Positive customer response to fashion newness was partially offset by weakness in select warmer-weather categories," Spring said.

Macy's meanwhile, is trying to boost sales in its luxury items, where demand for handbags is still weak but women's shoes and jewelry have been bright spots. But Spring said higher-income customers had become a choosier bunch.

"With regard to the different income levels, we're certainly seeing at the high end, the Bloomingdale's consumer is interested in purchasing, but she's being very thoughtful in the category she's purchasing in," he said. "So, like we said, that luxury, handbag and shoe business is much softer than it was, still up strong to 2019, but she's investing now in advanced contemporary. She's investing now in parts of the beauty business. She's investing now in aspects of the home."

Spring added: "So there's just a difference, I think, as you look at income tier. The customer at the lower tier has to make choices based on rent and family obligations."

-Bill Peters

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05-21-24 1544ET

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