By Suzanne Kapner and Aisha Al-Muslim
Macy's Inc. lowered its full-year earnings outlook after missing
profit expectations in the latest quarter, as department stores
continue to lose shoppers to newer forms of retailing.
In a troubling sign heading into the key back-to-school and
holiday seasons, the department store chain said inventories of
unsold items swelled in the summer quarter. At the same time, the
company and its rivals face the prospect of tariffs on some Chinese
apparel imports starting next month.
Sales at stores open at least a year rose 0.2% in the three
months ended Aug. 3. Including licensed departments, the measure
grew 0.3%. But net income nearly halved to $88 million from $166
million a year earlier on lower asset sales and higher merchandise
markdowns.
The results sent Macy's shares tumbling, and darkened the
outlook for the broader retail sector as it kicks off its earnings
season. Macy's stock fell 15% to $16.45 in midday trading
Wednesday. Shares are down about 54% in the past 12 months.
Macy's Chief Executive Jeff Gennette said consumer spending
remained healthy, but Macy's wasn't gaining market share in a sea
of tough competition, although it had started to narrow the
gap.
"The customer has more choices than ever," Mr. Gennette said in
an interview Wednesday. "There are new formats emerging every
single day. Brands have their own retail stores and digital
channels. Off-price retailers continue to gain share."
Mr. Gennette has succeeded in reversing several years of
same-store sales declines, creating hope for a broader turnaround
in the business.
But this year got off to a slow start, Mr. Gennette told
analysts on a conference call, leaving Macy's with too much
inventory. That necessitated bigger-than-expected markdowns to
clear unsold goods, which hurt profits, he said, adding that the
company entered the current quarter with the right inventory
mix.
Macy's' latest results weighed on rivals, which are set to
report their latest results in coming days. Shares of Nordstrom
Inc. and Kohl's Corp. fell more than 10% in Wednesday midday
trading, while J.C. Penney Co.'s stock was down over 8% amid a
broader market selloff.
Macy's and other chains have been closing weaker stores in
recent years and spending to expand their e-commerce efforts. The
companies are struggling to capture shoppers despite strong
consumer spending and low U.S. unemployment.
High-end department store chain Barneys New York Inc. recently
filed for chapter 11 bankruptcy protection, with plans to close 15
of its 22 stores. Meanwhile, the owner of Sears and Kmart, which
filed for bankruptcy last fall, said this month it is closing
another two dozen locations. And J.C. Penney said last week that it
was at risk of being delisted from the New York Stock Exchange
because its shares hadn't traded above $1 for 30 consecutive
days.
Nordstrom is under fire, too, with some directors pushing to
bring in an outsider as CEO as the company's financial performance
has deteriorated in recent months.
Macy's has been experimenting with new concepts to draw shoppers
to its stores. Mr. Gennette said on Wednesday that the chain was
joining with resale marketplace ThredUp to sell used clothing and
accessories in 40 Macy's stores. Its Bloomingdale's chain recently
unveiled plans to launch a rental service called My List.
For the current fiscal year that ends in early 2020, Macy's
lowered its earnings guidance by 20 cents. Excluding settlement
charges, and impairment and other costs, the company now forecasts
adjusted earnings per share of $2.85 to $3.05 for the year,
compared with its previous estimate of $3.05 to $3.25.
Despite the expected fall in profit, Macy's reaffirmed its
annual sales guidance. The company still expects net sales to be
roughly flat from the last fiscal year, with comparable sales to be
flat to up 1%. In the recently completed period, net sales fell
0.5% to $5.55 billion.
Despite a rise in same-store sales in the recent quarter, gross
profit dollars fell the most since the third quarter of 2017 and
inventory remains bloated, up 5% a square foot, according to Citi
analyst Paul Lejuez.
Mr. Gennette said rising inventory levels became a challenge
because of several factors, including "a fashion miss in our key
women's sportswear private brands, slow sell-through of
warm-weather apparel and the accelerated decline in international
tourism."
On Tuesday, the Trump administration abruptly suspended plans to
impose new tariffs on about $156 billion in goods from China until
Dec. 15 on items including toys, cellphones and laptop computers
that had been set to take effect Sept. 1. Tariffs on about $13.7
billion of fabrics and apparel were postponed until the end of the
year, but tariffs will still move forward on about $39 billion of
such items.
The tariff delay comes as companies expressed concerns about the
impact an escalating trade fight would have on businesses and
consumers ahead of the holiday shopping season. Retailers' profit
margins have already been under pressure as they spend on upgrading
their digital capabilities and remodeling their stores.
Mr. Gennette said Macy's is assessing the details of the latest
tranche of tariffs, but noted that shoppers have no appetite for
price increases.
The company raised prices in May on some goods, including
luggage, housewares and furniture, but the increases weren't well
received by shoppers, he said. Instead, Macy's is working with
vendors to add details such as beading, rhinestones and other
embellishments that shoppers would be willing to pay more for.
Mr. Gennette added that if tariffs on Chinese imports stay at
10%, they have no significant impact on Macy's business. But if
they rise to 25% on a wider selection of goods, that could lower
full-year earnings by roughly 5 cents.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Aisha
Al-Muslim at aisha.al-muslim@wsj.com
(END) Dow Jones Newswires
August 14, 2019 13:11 ET (17:11 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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