Macy’s smashes profit estimates as leaner inventory lifts margins, shares jump By Reuters

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<span>© Reuters. FILE PHOTO: Shoppers are seen outside Macy&#8217;s in the Manhattan borough of New York City, New York, U.S., March 30, 2021. REUTERS/Caitlin Ochs</span><br />
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<p>By Savyata Mishra</p>
<p>(Reuters) -Macy&#8217;s crushed analysts&#8217; estimates for quarterly profit on lower inventories and strong demand for beauty products, sending the department store operator&#8217;s shares surging as much as 14% on Thursday.</p>
<p>The company is the latest U.S. retailer to signal that attempts to trim inventory from 2022 highs were finally beginning to shape ahead of the all-important holiday shopping season. </p>
<p>On Wednesday, Target disclosed a 14% reduction in inventories and forecast a strong holiday-quarter profit. </p>
<p>&#8220;(We are) entering the holiday period in a healthy inventory position,&#8221; Macy&#8217;s (NYSE:) outgoing CEO Jeff Gennette said in a statement.</p>
<p>Merchandise inventories at the Bloomingdale parent were down 6% year-over-year and down 17% compared to 2019.</p>
<p>Gross margins improved 160 basis points in the third quarter, driven by a 110 basis points jump in merchandise margins, bolstered by lower markdowns within the Macy&#8217;s brand and reduced freight costs.</p>
<p>Macy&#8217;s plans to be &#8220;nimble and competitive with promotions as needed&#8221;, executives said on an earnings call.</p>
<p>Still, the company, like Target and Walmart (NYSE:), provided a cautious outlook on consumer spending for the holidays. </p>
<p>&#8220;Looking to holiday outlook, customers across nameplates continue to be under pressure and discerning in how they spend,&#8221; Tony Spring, Macy&#8217;s incoming CEO, said on the call.</p>
<p>Credit card revenues again declined, down 100 basis points year-on-year, indicating its core middle-income consumer faced difficulty in repaying debts as interest rates climbed.</p>
<p>Net sales fell 7.1% to $4.86 billion, the sixth straight quarter of declines. Analysts had estimated a 7.9% drop, according to LSEG data. </p>
<p>&#8220;The retailer is seeing strength in its beauty and off-price offerings, which is helping to offset weakness in other discretionary categories,&#8221; Insider Intelligence analyst Rachel Wolff said. </p>
<p>Excluding items, Macy&#8217;s earned $59 million, or 21 cents per share, against expectations of roughly break-even.</p>
<p>Macy&#8217;s raised the lower end of its full-year profit target and now expects adjusted earnings per share between $2.88 and $3.13, the mid-point of which was above analysts estimates. </p>
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