Macy’s CEO Says Store’s Entire Marketing Machine Needs “Re-Engineering”

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Looking to put a charge into what’s been a lackluster performance in a challenging environment, Macy’s is set to roll out a new marketing strategy and fashion campaign next month, a customer loyalty program in October and an expansion of its off-price Backstage concept in coming months.

Jeff Gennette, Macy’s president and chief executive officer, said on a conference call with analysts that the strategy is nothing less than a desire and need to “re-engineer the entire marketing machine at Macy’s.”

“We want to reduce overlapping of discounts and rebuild our credibility as a fashion destination,” Gennette said, adding that Macy’s anticipates that the new initiatives “will further improve our sales trend in the back half of the year.”

“While we have a lot of work ahead of us, we’re starting to get traction on a lot of our new initiatives,” he said. “We saw a notable contribution from the full execution of our new women’s shoe and jewelry models and the continued successful testing of Backstage in stores.”

He said the Backstage format is being tested in four models right now, with a goal of narrowing it down to two models and expanding it into key stores.

“We remain focused on our goals for our brick and mortar stores and the continued growth of our digital program,” Gennette said. “We also know we are operating in an environment of intense and destructive competition, and our customer has more shopping options than ever.”

Sales in the second quarter fell 5.4% to $5.55 billion, compared with sales of $5.87 billion in the year-ago period. The year-over-year decline in total sales reflects, in part, the closure of stores previously.

Karen Hoguet, chief financial officer, noted on the call that the company’s plan to close 100 stores is on track, with 70 either shut down or identified for closure. Comparable sales were down 2.8 percent in the second quarter.

Gennette told analysts that top performing areas included women’s shoes and fine jewelry, dresses and “big ticket” items, while the home goods and beauty sectors were “weighing down the business.”

“Back-to-school has some good signs so far,” he said. “There have been some lifts from Southern states that are already back to school.”

Gennette said as part of the merchandising strategy, Macy’s has spent a lot of time working with its supply chain resources on improving its private brands, with a focus of about 20 brands in the portfolio for the new merchandising strategy.

[Read more on Macy’s strategy: Macy’s New Strategy Overshadowed by Full Year Guidance Update]

The executives both noted that macys.com continues to do well, with double digit gains for the 32nd consecutive month in July, and more editing and newness on the site.

For the year to date, Macy’s sales fell 6.4% to $10.89 billion from $11.64 billion in the first half of 2016.

Topping analysts’ estimates, net income for the second quarter rose to $113 million compared to $9 million in the year-ago period. Net income for the first half increased to $183 million from $124 million year earlier.

Operating income in the second quarter totaled $254 million or 4.6% of sales, compared to $117 million, or 2 percent of sales, for the second quarter of 2016.

“We are working with a mindset of continuous improvement and will adapt our business in order to reach our goal of stabilizing the brick-and-mortar business, while investing for accelerated growth in digital and mobile,” Gennette said. “Key to this strategy is engaging our customers with an improved experience that includes more elevated and exclusive assortments, a better integration of technology both online and in the store, and additional enhancements intended to drive traffic and sales. There is still work ahead of us, however, I’m encouraged by the progress we’re making on overall performance.”

Macy’s also reaffirmed its sales and earnings guidance for full-year 2017. The company expects comparable sales to decline between 2.2% and 3.3%, with overall sales expected to be down 3.2% to 4.3% in fiscal 2017, noting that total sales for fiscal 2017 reflect a 53rd week, whereas comparable sales are on a 52-week basis.

Adjusted earnings per diluted share of between $3.37 and $3.62 are expected in 2017. Excluding the impact of the anticipated fourth quarter gain on the sale of the Union Square Men’s building in San Francisco and anticipated settlement charges and net premiums and fees associated with debt repurchases, adjusted earnings per diluted share of $2.90 to $3.15 are expected in 2017.

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