NEW YORK (AP) — Macy's wrapped up a weak fiscal year on an encouraging note, but the nation's largest department store retailer still sees challenges ahead.
Macy's, which also operates Bloomingdale's stores, reported a 31 percent decline in fourth-quarter profits, dragged down by store closings and other costs. But the adjusted results beat Wall Street estimates and sales picked up in the final weeks of the holiday quarter as winter finally arrived, driving sales of coats and boots higher. A very warm winter early on plagued retailers during the most critical selling period of the year.
But the company says that it doesn't expect to see a key revenue figure turn positive until the fourth quarter.
The retailer had been a stellar performer since the recession, but over the last year or so, it has stumbled, including through the crucial holiday shopping season. And weather wasn't the only factor.
Like many department stores, Macy's faces increasing competition from online retailers like Amazon.com. It also has acknowledged that customers are spending more of their money on restaurants, spas and vacations, or sprucing up their homes, rather than buying clothes. And when they do spend money on clothing, they have increasingly walked through the doors of discount stores like T.J. Maxx.
The spending trends are playing out in retailers' earnings. Last week, upscale department store chain Nordstrom Inc. reported fourth-quarter results that came short of analysts' expectations, sending shares down in after-market trading. J.C. Penney Co. and Kohl's Inc. are slated to report fourth-quarter results later this week.
But Home Depot Inc., the nation's largest improvement chain, reported better-than-expected profit and revenue for the fourth quarter, as it benefits from an improving housing market. A key revenue metric jumped nearly 9 percent in the U.S.
Macy's is making a lot of changes to reinvent the company. And investors are banking on improvement. Shares of Macy's Inc. fell 36 percent over the past 12 months, but have begun to climb back this year. Tuesday the stock rose more than 3 percent, or $1.25 per share, to $42.31.
"I have reminded my team that our setback last year is a setup for our comeback," said Chairman and CEO Terry Lundgren in a statement Tuesday.
Lundgren has closed 40 stores and trimmed staff in corporate offices and in stores to become more nimble. The retailer has strived to expand online and has pursued other avenues of growth. It acquired Bluemercury, the upscale beauty products and spa company. Last year it opened Macy's Backstage to go head to head with T.J. Maxx on its home turf.
Macy's opened six Backstage pilot stores last fall and plans to open just one this year as it learns from the tests. The company, however, is also carving out areas devoted to Backstage merchandise at 15 full-price stores. Karen Hoguet, chief financial officer at Macy's, told investors on a conference call that it was a good way to drive shoppers to Macy's stores and offer new products like baby gear and toys that the department store doesn't normally carry.
It's also simplifying discounting. The Cincinnati company is taking deeper markdowns in the second and third round and eliminating coupons for those offerings. It's creating separate areas in the store for those clearance goods, which be rolled out throughout the chain.
"I think what happens is customers want simplicity. And when you are looking for deep clearance goods, you could just see the price of the item and not have to do the math in your head," said Hoguet. "Our hope is that regular price selling will improve. There's less clutter on the floor, by moving clearance merchandise into a separate area."
Antony Karabus, CEO of HRC Advisory, a retail advisory firm and unit of Hilco Global, said that Macy's move to test Backstage merchandise in the stores is a good one but it's crucial that it's separate from the rest of the store.
"If you think about what's growing. It's fast fashion and off-price," he said. He said not to discount Lundgren. "He is such a great operator," he added.
Hoguet also said Macy's, facing pressure from investors, is moving to unlock value from some of its real estate and said that the demand has been "very high."
Macy's fourth-quarter results underscore the company's big challenges.
Macy's earned $544 million, or $1.73 per share, in the quarter ended Jan. 30. That compares with $793, or $2.26 per share, in the year-ago period.
Adjusted profits were $2.09 per share, better than the $1.86 per share estimate from analysts, according to Zacks Investment Research,
Total revenue fell 5.2 percent to $8.87 billion, but that's still higher than the $8.84 billion projection from analysts.
While comparable-store sales declined 4.3 percent, given the terrible holiday season it was better than Wall Street had expected.