Feeling flush after a restructuring and promising a strong first quarter, Macy's (M) raised its earnings targets for 2010 and says it will focus on refreshing its product lines to take sales from specialty retailers this year.
The parent company of Macy's and Bloomingdale's department stores raised its guidance for the full year to forecast comparable sales -- in stores open at least a year -- to grow 3% to 3.5%, better than the 1% to 2% range it had previously estimated, and earnings of $1.75 to $1.80 per share, bettering its previous forecast of $1.55 to $1.60.
The first quarter is coming in much better than expected, said Chief Financial Officer Karen Hoguet. Sales grew faster than planned, thanks to the mix of an economic recovery and market share gains against the competition, she said.
5% Sales Growth Seen in First Quarter
Macy's expects to post comparable sales growth of 5% in the first quarter, about the same it had forecast when it reported March sales on April 8. But Hoguet updated the quarterly earnings guidance to call for the company to break even, a sharp improvement over a 16 cents-a-share loss in 2009.
Macy's has set longer-term financial targets of raising its pre-tax earnings rate to between 14% and 15% of sales, closer to its historic levels, said Hoguet. She noted the ratio was only 11.3% in 2009, but it was 12.9% in 2007, so the target is within reach, mainly by increasing sales per square foot at stores.
Macy's is also expecting to regain its investment grade credit rating by using its cash to pay down debt, said Hoguet. When pressed, she said the company is working toward a BBB rating.
At a meeting with investors in New York, Macy's executives sought to reassure analysts the retailer can deliver on those lofty goals.
Restructuring Teams, Refreshing Products
CEO Terry Lundgren said Macy's still hasn't cashed in on all the benefits of its My Macy's reorganization strategy, which went into full effect in May of last year. "Most of the benefits are only beginning to be felt," said Hoguet.
The restructuring spread responsibility for running stores to local teams in charge of smaller groups of stores -- about a dozen now, down from 200 stores in one division -- which allowed for more flexibility in stocking and marketing each location. The program has helped Macy's improve sales, collaborate better with vendors and reduce expenses by nearly $500 million a year.
With the restructuring done, the new priorities are refreshing products, improving stores and marketing, said Lundgren. Macy's has agreements to become the exclusive retailer for several designer brands including Kenneth Cole Reaction and a new fashion line being developed with Madonna, both of which will be in stores in fall.
Macy's will also step up its Every Day Value initiative, after its research found shoppers were only becoming aware of Macy's promotions after the fact, said Lundgren.
Steal Sales From Specialty Stores
Macy's expects to steal sales from rivals, not just other department stores, but the specialty stores favored by younger shoppers, said Lundgren. Despite Macy's rising sales, he said management isn't factoring increased consumer spending into the plans.
"I'm not counting on everybody winning," said Lundgren. "I'm counting on us taking market share." He noted that many of the new apparel lines, especially the Madonna brand, are aimed directly at specialty store shoppers, and Macy's cosmetics departments will be more aggressive in courting younger, "impulse beauty" consumers who typically shop specialty stores.
"We know that we need that demographic," said Peter Sachse, chief marketing officer. "We're definitely following where they are."
The company also has plans to add a new loyalty program that will reward shoppers for purchases in store and online, install 50,000 registers with the ability to order products online if a customer doesn't find them in the store, and delve into social media and more mobile and online marketing to better reach younger shoppers.
"We didn't waste a good economic crisis in 2009," said Lundgren " We made every change we could think about."
Bloomingdale's Outlet Chain Kickoff
Another value initiative will kick off this summer with the launch of the Bloomingdale's Outlet chain. The first store in Potomac, Md., will open at the end of July, followed by Bergen, N.J., a week later and Miami and Sawgrass in Florida later in the fall. Another four to five stores will follow in the next five years, said Bloomingdale's Chairman Michael Gould.
"We're a little late to the party, but the party is still going on," said Gould. The stores are an opportunity to draw new customers who think the Bloomingdale's brand is out of reach, he said. "The receptivity in the marketplace is beyond your wildest imagination."
But the company is being careful to avoid cheapening Bloomie's just as the luxury market begins to come back. Gould noted the outlets will be run by a separate organization and buying group, and he expects no more than 20% of the merchandise to come from Bloomingdale's stores. Rival retailer Saks (SKS) found a bright spot during the recession in its Off 5th chain, which now stocks mainly merchandise made expressly for the outlets.
"We're the custodians of the brand, so we're not going to do something in the outlet that will hurt the brand," said Gould. "The look of the stores will feel Bloomingdale's."
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