(Bloomberg)—Macy’s Inc. has gained some momentum, but the costs of maintaining it are high.
The department-store chain posted same-store sales that beat estimates and boosted its earnings and sales guidance.
Revenues from online sales rose by double digits year over year, but the retailer declined to reveal exact figures. Sales on the company’s mobile app grew 50% for the first half of the year compared with the same period last year.
CEO Jeff Gennette said that Black Friday in July, a counter to Amazon’s Prime day, helped to boost online sales. He expects growth in digital sales will continue to rise in the second half of the year, with holiday sales as a strong point.
Macy’s, No. 6 in the Internet Retailer 2018 Top 500, has been spending to win back shoppers by offering discounts and cutting back on unnecessary inventory. Like its peers, the company is struggling with a broader shift by consumers to online shopping and away from bricks-and-mortar stores. Even as comparable sales unexpectedly rose, net sales in the second quarter fell 1.1%.
While “the quarter is good, on sales and gross margins, expenses were a little on the high side,” said Poonam Goyal, senior U.S. retail analyst with Bloomberg Intelligence.
To lure back shoppers who are defecting from traditional department stores, Macy’s has been pushing its discount-focused Backstage concept, which offers an array of off-price items for bargain hunters. The retailer has opened about 20 locations in existing department stores and plans 100 more this fiscal year. Macy’s also is expanding its Bluemercury cosmetics chain.
Those efforts helped the company report a surprise bump in comparable sales. Same-store sales at owned plus licensed locations rose 0.5% in the quarter, beating the 0.9% drop analysts had expected, according to Consensus Metrix.
That marks the third-straight quarter of positive growth for the key metric. Before that, Macy’s was on a grueling slog—11 straight quarters of declining comparable-store sales—until the crucial retail gauge turned positive in the last holiday season.
The department chain raised its full-year profit outlook to between $3.95 and $4.15 a share, excluding some items. The low point of the new range was the high point of the company’s previous forecast. But that growth comes at a cost, with the company spending about $100 million more in the first half of the year to fund growth.
“Macy’s solid second-quarter results reflects its continued efforts to enhance the customer experience across all points of contact, whether in-store, online or through mobile,”says vice president Christina Boni of financial analyst firm Moody’s. “Its progress is evidenced by an estimated 2.9% comp sales increase when adjusting for calendar shifts. Macy’s also continues to right size its balance sheet with the voluntary reduction of approximately $344 million of debt in the quarter.”