A year ago, many of us wondered whether foot traffic would ever return to malls and department stores. If second quarter earnings are any indication, people are not ready to give up shopping in department stores. Macy's (NYSE: M) enjoyed a strong second quarter and is laying the plans for bringing back another beloved brand from near death. While Macy's is still closing stores, its turnaround strategy is starting to pay off.
Polaris is working
So far, Macy's rebound strategy -- dubbed Polaris, a reference to its star logo -- appears to be successful. The company reported comparable sales were up 61.2% on an owned basis year over year and up 5.8% against 2019. Adjusted diluted earnings per share of $1.29 beat analysts' expectations, as well as Macy's own projections. Even better news for investors is that Macy's reinstated its dividend and has launched a $500 million stock buyback program.
Macy's saw strong customer growth both in terms of in-person shopping and online spends in Q2 2021. Digital sales were up 45% and represented 30% of Q2's net sales. The company also saw nearly five million new customers in Q2, and spending was up 10% compared to 2019. Much of this appeared to be rebound spending in clothing, jewelry, and beauty as people plan to return to school and work.
Customers are going to stores and either buying later or buying in-store but from their device. Macy's has seen greater strength in its suburban stores, while city stores that rely on tourism and traffic from workers in nearby office buildings have been slower to bounce back.
For Q3 2021, the company is forecasting net sales between $5.0 and $5.2 billion and adjusted diluted earnings per share to come in between $0.17 and $0.26. Macy's has upped the guidance on total year net sales from between $21.73 billion and $22.23 billion to between $23.55 billion and $23.95 billion.
One thing Macy's and other retail brands are learning is that shopping isn't a case of either in person or online, but rather it's truly omnichannel. That phenomenon makes brand loyalty even more important. On the earnings call, Macy's CEO Jeff Gennette noted that omnichannel customers shop more often and make three times as many trips as single-channel customers.
Bring in Geoffrey
In 2018, Toys "R" Us shut down its retail stores. Earlier this year, we reported on a potential comeback for the brand -- and now, it looks like that comeback will get a big boost courtesy of Macy's. Next year, Toys "R" Us will be featured in 400 Macy's stores, and Macy's will power the toy company's website.
This holiday season, Toys "R" Us merchandise will also be featured on Macy's website. Beefing up toys is just part of Macy's strategy to cater to millennials and their families.
Can a digital strategy be good news for real estate?
Macy's plans to up its capital spend to over $1 billion in the next few years, and the bulk of that investment will go toward its online strategy. As online shopping becomes a bigger part of its sales, the company may allocate fewer dollars toward physical real estate. There are still significant tailwinds, however, including supply chain issues, problems finding retail staff, and concerns over the impact of the delta variant.
A shift to more of a digital strategy doesn't have to doom physical retail. It's clear that Macy's sees value in its stores and their potential for helping prospective customers experience its brands. That physical space also has value in another way.
On the earnings call, chief financial officer Adrian Mitchell noted that the company is testing out online fulfillment inside stores. This may help keep some of the company's delivery expenses under control and Macy's stores in malls and other locations for years to come.