Macy's Achieves 14% EBITDA, Mulls Off-price Channel

2/25/2015
Macy's Inc. is riding high after notching a "long-term profitability target" of 14 percent EBITDA for fiscal year 2014, CFO Karen Hoguet revealed in the company's Q4 earnings report.

Sales for the quarter edged up 1.8 percent year-over-year to $9.364 billion, driven in part by categories including dresses and men's and women's footwear, in which Macy's piloted a single view of inventory initiative for bricks-and-mortar and DTC warehouses. The retailer is now expanding this inventory approach to other lines of business, along with key learnings such as analyzing demand not just for stores in a given geography but also dot-com demand for the same area for what it now calls "trade area demand." However, Hoguet emphasized that Macy's maintains both omnichannel merchants, who buy for all channels, as well as digital merchants who work with the former to fuel ecommerce growth.

Appointed chief stores officer in 2012, Peter Sachse oversees Macy's efforts in innovation and is the first senior executive to focus fully on growth initiatives, eyeing international opportunities for both on- and offline, Hoguet noted.

Macy's also expanded its CapEx by $100 million to $1.1 billion, a figure it expects to remain level as investments in stores, technology and growth initiatives, including its Bluemercury acquisition, continue.

The retailer is exploring a move into the off-price channel as a potential means of introducing a whole new customer to the Macy's brand. Hoguet pointed out that the company learned from its experience opening Bloomingdales outlet stores; initially it was reluctant to position these locations near its full-prices stores but realized that they were a "great entry point" for new customers who eventually graduated to Macy's stores, she said. The company is considering "traditional" off-price stores instead of outlet locations, in order to avoid direct competition with its Bloomingdales outlets, and cited marketing prowess, strong vendor relationships and its own private brands as competitive advantages in the new channel.

While the recently resolved West Coast port saga didn't affect Q4 results, Macy's inventory holdings, especially in apparel and accessories, have taken a hit in the first quarter of this year. "Approximately 12 percent of our first quarter merchandise receipts are being delayed and this will have some impact on our sales, gross margin and expense in the first few months of the year," said Hoguet.

 
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