Inventory Liquidation

Macy's announced a disappointing second quarter result.  EPS was $0.64 vs. consensus estimate of $0.78.  This shortfall was due primarily to a 2.6% decline in sales compared to the comparable quarter last year.  The company attributes the shortfall to the lack of a friends and family sale event in the quarter and a stronger US dollar which curtailed international tourist spending in US stores. 

Two pieces of information are particularly interesting for those of us in the secondary market interested in Macy's returns and overstock inventory.  First, sales were short of projections.  This will typically be a precursor to a surge in liquidation overstock inventory hitting the market.  So this is great news.

On the other side, they have been investing in the launch of a new off-price outlet concept called Macy's Backstage.  It isn't clear whether they will push returns through this off price channel, if they will manufacture for it, or if they will use it to move their new, overstock inventory.  There is some chance that this new channel will begin to reduce the inventory made available in bulk liquidation lots.  Time will tell as they roll this concept out more widely.

Back on Macy's financial performance...one interesting thing to note is that several of their competitors reported quite healthy quarters.  Nordstrom, for instance, reported 9.1% sales growth over prior year.  To me this suggests Macy's issues are bigger than simply a strong dollar.  Again, time will tell.