Macy’s ended its quarter with inventory levels up 7% and plans additional markdowns to end the year with inventory at appropriate levels.
Despite a strong quarter, the department store retailer cuts its full-year forecast, now expecting net sales of $24.3 billion to $24.6 billion for fiscal 2022, a drop of $120 million on both ends of the range from its prior guidance.
While Macy’s inventory is up, it could have been worse. Inventory turnover for the trailing 12 months of Q2 improved 15% compared to 2019, while remaining relatively consistent with 2021 levels. The retailer expects more than 55% of its offerings during holiday 2022 will be new, an increase of over 30 percentage points from holiday 2019.
“The improved use of data analytics enabled the team to respond quickly and adjust our inventory flow accordingly,” said Jeff Gennette, Macy’s chairman and CEO, during the company’s earnings call.
“We acknowledge that we still have opportunities to improve our inventory balance by channel and store and mix of merchandise categories and brands. We are targeting appropriate inventory levels by the end of the year and plan to be aggressive in taking the necessary markdowns to drive faster sell-throughs in our aged inventory in seasonal goods, private brand merchandise and pandemic related categories.”
“Inventory management is and will continue to be a key focus as we leverage our data science capabilities,” said CFO Adrian Mitchell. “An example of this is using our analytics to determine the optimal time to take markdowns at the style and location level in order to increase full-price sell-throughs and AURs. Its investments like this that will allow us to maintain healthy margins and strong cash flows over time.”
As mentioned, Macy’s is also leveraging its pricing science to deliver competitive market prices, including location level pricing.
“This is something that we’ve spoken about earlier, and we’re continuing to refine the mathematics and the technology around this, which just gives us much better precision around how we’re actually managing at a local store level or by channel the pricing that helps us to remain competitive in this marketplace,” said Mitchell.
Mitchell noted the retailer is continuing to invest in initiatives it believes are high return, whether it’s strengthening pricing capabilities, Macy’s media network capabilities, or building new sales capabilities with things like marketplace.
“We’re being very disciplined on inventory management to position ourselves for healthy and profitable growth next year,” he said.
“During the second quarter, we delivered solid results, despite the challenging environment,” said Gennette in a press release. “Our teams have consistently responded to the dynamic landscape with disciplined, data-driven actions to ensure the health and stability of our business. We believe that we are well positioned to respond to changing consumer behaviors. Despite inflationary pressures, consumers continued to shop Macy's as a style source and leading gifting destination.”
“We expect to come out of this uncertain period in a strong position with a healthy balance sheet, new capabilities and a talented team ready to capture renewed demand,” Gennette continued.