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What Brought Down Macy’s Margins in 2Q15?

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Aug. 25 2015, Updated 6:10 a.m. ET

Margins in 2Q15

Macy’s (M) gross margin declined to 40.9% in 2Q15 from 41.4% in the comparable quarter of the previous year. The company’s operating margin was also down considerably at 7.1% in 2Q15 compared with 9.1% in 2Q14.

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Markdowns impact gross margin

Gross margin in 2Q15 was affected by markdowns associated with shipment delays caused by the West Coast ports dispute in early 2015. As well, the company had to make additional markdowns to fight the weaker sales in the quarter.

Operating margin down in 2Q15

Macy’s margins in 2Q15 were affected by a 150 basis point increase in selling, general, and administrative expenses, or SG&A, as a percentage of sales. This significant increase was related to growth investments discussed in Part 1 of this series and higher medical benefit expenses. Operating margin was also affected by a $7 million increase in depreciation expense.

Macy’s constitutes 0.5% of the portfolio holdings of the First Trust Consumer Discretionary AlphaDEX Fund (FXD) and 0.1% of the iShares Russell 1000 Growth ETF (IWF).

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Margins elsewhere

Nordstrom’s (JWN) operating margin increased to 10.2% in 2Q15 from 9.8% in the comparable quarter of the previous year. The company benefited from higher revenue and a gain of $51 million associated with the company’s credit card transactions. Kohl’s (KSS) operating margin declined to 9.9% in 2Q15 from 10.6%. The company was unable to bring down its fixed expenses relative to a modest increase in its sales. Also, operating margin was affected by higher amortization. Dillard’s (DDS) operating margin declined to 3.9% in 2Q15 from 4.5% due to higher selling payroll and insurance expense.

Outlook for margins

Macy’s expects its gross margin to be flat in the second half of fiscal 2015. The company’s SG&A expenses in the second half should be favorably influenced by gains from the sale of its property in downtown Brooklyn.

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