was brimming with optimism when it reported results for the end of 2017: It had seen positive sales growth for the first time in three years. Yet, with the shares up 18% so far this year, skepticism abounded. Analysts at Morgan Stanley and Deutsche Bank put out bleak notes warning of declining sales and “limited upside.”
Macy’s has done it again, though, reporting first-quarter earnings that smashed expectations. It posted earnings per share of 48 cents compared with a consensus estimate of 37 compiled by FactSet and revenue that rose 3.6% to $5.5 billion, exceeding the estimate of $5.4 billion.
The strong quarter has prompted the retailer to raise its outlook for 2018. Macy’s now expects earnings for the year between $3.75 and 3.95 a share, 5% more than 2017 and a 20-cent increase over its previous 2018 outlook. The shares rose by as much as 9% Wednesday and still were up by over 6% by mid-morning.
The retailer’s momentum reflects Macy’s healthier inventory and willingness to experiment—for instance, with new concept stores like Macy’s Backstage, its off-price business. Yet it was also driven by Macy’s decision to shift its “Friends & Family” sale from the second-quarter to the first. Same-store sales increased 4.2% for the quarter. If one strips out the promotional sale, though, same-store sales would only have risen about 1.7%, according to Macy’s.
That is still slightly better than analysts’ expectations of a 1.4% increase, but it suggests that Macy’s may struggle to maintain its momentum in the sales-free second-quarter.
The company isn’t sitting still as it bets on new ventures. It wants to bring Macy’s Backstage to the West Coast and it recently bought Story, a New York City concept store. Macy’s also has a new brand experience officer in Story’s founder and CEO, Rachel Shechtman. The focus on innovation and agility is smart.
As the recently floundering retailer keeps raising its outlook, though, it also risks creating expectations it can’t meet.
Corrections & Amplifications
Rachel Shechtman is Story’s founder and CEO. An earlier version of this article incorrectly spelled her last name. (May 16, 2018)
Appeared in the May 17, 2018, print edition as ‘Macy’s Results Are a Miracle on 34th Street.’