Macy’s Revival Shows No Signs Of Slowing After Company Crushes Estimates Yet Again

Presumed to be on the edge of extinction after the pandemic shuttered brick-and-mortar stores across the country in early 2020, Macy’s (NYSE: M) and other department stores are enjoying a stunning revival this year as shoppers return to malls in large numbers. That comeback was on display again this morning when Macy’s reported 3Q21 results that crushed sales and EPS expectations while also sharply boosting its FY22 (ending January) guidance.

The company’s $0.90 EPS beat immediately jumps off the page, but blowing out bottom-line estimates has become par for the course for Macy’s. Over the past seven quarters, the retailer has surpassed EPS forecasts by an average of $0.80, indicating that analysts are badly underestimating the strength of its recovery. At the core of that turnaround is a shift in consumer behavior, back toward attitudes from pre-pandemic days, when shopping in person was viewed as a desirable, and sometimes as a social, event by many people.

A yearning to return to in-store shopping isn’t the only favorable consumer trend working in Macy’s favor. While contending with stay-at-home mandates, transitioning to a work-from-home setup, and postponing trips, people cut back spending on apparel, accessories, and travel-related items. Now that people are venturing out of their homes more frequently and a sense of normalcy has returned, pent-up demand for those product categories has shoppers scurrying back to Macy’s and other department stores like Nordstrom (JWN) and Dillard’s (DDS).

From a company-specific standpoint, Macy’s continues to solidly execute, especially from an inventory management perspective. Like virtually every other retailer, the company is dealing with supply chain disruptions. However, Macy’s CEO Jeff Gennette stated that the company has enough inventory to meet demand and that he doesn’t anticipate supply chain issues materially impacting Q4 results.

Inventory was up by 19.4% yr/yr, but it’s not just about having more products on the shelves — it’s also about having the right products on the shelves. In that regard, Macy’s has done well to optimize its product assortment as trends change. For instance, during the earlier stages of the pandemic, the company bolstered its inventory of home goods, sleepwear, and leisurewear. While those categories continue to perform well, Macy’s recognized an upswing in demand for occasion and travel-based categories, such as dresses, men’s tailored apparel, watches, and luggage.