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(Reuters) -Macy’s on Thursday crushed analysts’ estimates for quarterly profit as the department store operator’s margins benefited from better inventory management and lower freight costs, sending its shares up about 8% premarket.
The company became the latest U.S. retailer to signal improved margins from efforts to bring down inventory from 2022 highs. On Wednesday, Target disclosed a 14% reduction in inventories and forecast a strong holiday-quarter profit.
“(We are) entering the holiday period in a healthy inventory position,” Macy’s (NYSE:M) outgoing CEO Jeff Gennette said in a statement.
Merchandise inventories at the Bloomingdale parent were down 6% year-over-year and down 17% compared to 2019.
“The retailer is seeing strength in its beauty and off-price offerings, which is helping to offset weakness in other discretionary categories,” Insider Intelligence analyst Rachel Wolff said.
Gross margins improved 160 basis points in the third quarter, driven by a 110 basis points jump in merchandise margins, also bolstered by lower markdowns within the Macy’s brand.
The company’s net sales fell for the sixth straight quarter, declining 7.1% to $4.86 billion.
Analysts had estimated a 7.9% drop, according to LSEG data.
Excluding items, Macy’s earned $59 million, or 21 cents per share, in the quarter ended Oct. 28, while analysts had expected the company to roughly break-even.
Macy’s raised the lower end of its full-year profit target and now expects adjusted earnings per share between $2.88 and $3.13, the mid-point of which was above analysts estimates. The company had earlier estimated a profit of $2.70 to $3.20 per share.
“The fact that Macy’s raised its full-year guidance is an encouraging sign for its business, but at the same time, consumers are showing clear signs of wanting to trade down to cheaper retailers this holiday season,” Wolff said.
Rivals Nordstrom (NYSE:JWN) and Kohl’s (NYSE:KSS) shares rose more than 1% each before the bell.
