Despite Lower Q3 Sales, Macy's Optimistic On Holiday Spending

Macy’s Inc. told investors Wednesday that it expects comparable store sales to rise an annual 2 to 3 percent in the fourth-quarter 2014 holiday shopping season, which can account for up to 40 percent of retailers’ annual sales. Lower gas prices and a better national employment picture will help boost spending in Macy’s and Macy's-owned Bloomingdale's stores, Chief Financial Officer Karen Hoguet said. So too will new strategies to customize products to local preferences and provide options for same-delivery service and in-store pick-up for online orders.

Retail trade groups expect the industry to drive sales about 4 percent higher than last year's holiday season, which would be a three-year high.

“We are doing what I think will be a much better job of having the right gifts in the right stores,” Hoguet said. “The importance of having the most wanted items by location cannot be overlooked.”

A Macy's store in the Northeast, for example, may carry more cashmere sweaters, even in different color pallettes, than a store in the South that may sell more nylon sweaters.

The department store chain reported mixed third-quarter earnings Wednesday morning, with a 1.4 percent decline in sales but a nearly 30 percent rise in profit due to lower expenses. The company lowered its full-year guidance on the weaker-than-expected quarter but remains optimistic about the fourth quarter.

Shoppers who buy online and pick up items in stores tend to shop around the store and add to their shopping cart before they reach the cashiers to pick up items bought online, Hoguet said. In-store pick-up will help Macy's reduce delivery expenses, expected to rise in the fourth quarter from last year with the new same-day delivery service offered in eight major U.S. cities. Macy's expects its margin in the fourth quarter to remain flat or decline from last year, due mainly to delivery costs.

Although other retailers offer in-store pick-up, Macy’s believes its store footprint in major markets nationwide gives it an advantage over competitors. New vendors in Macy’s like designer brands Kate Spade, Marc Jacobs and Kiehl’s are also expected to drive more sales.

Efraim Levy, retail analyst at S&P Capital IQ, said in a note last week that he expects Macy's to benefit from its customization strategy, known as My Macy's, and from improved consumer sentiment, especially among the wealthier.

“We’re not counting on a lot of help from the U.S. economy this holiday, but every bit will help,” Hoguet said. Customers have more disposable cash, but they’re spending it on cars, electronics and home improvement, categories that Macy’s doesn’t sell. When asked if Macy’s would try to sell more technology products, a category millennials are spending more on than clothes, Hoguet said the store is looking at what categories it could expand to with credibility.

Macy's stock was trading at $61.38 on the NYSE Wednesday afternoon, up 2.8 percent.