Macy’s has issued another profit warning after it was forced to offer hefty discounts to shed merchandise, intensifying concerns on Wall Street over how department stores are coping in the age of ecommerce.
Quarterly results from Macy’s on Wednesday showed its earnings almost halved from a year ago, putting shares in the S&P 500 company on track for their lowest close in nine years after dropping 14 per cent in morning trading.
The unexpectedly weak update brought to the fore questions about the underlying health of bricks-and-mortar retail, just a day after the sector received a much-needed boost from the White House’s decision to delay tariffs on Chinese imports. It sent shares in both Nordstrom and Kohl’s, which report results next week, down about 10 per cent. JCPenney, expected to post another quarterly loss on Thursday, was down 8 per cent.
Jeff Gennette, Macy’s chairman and chief executive, said the company had struggled to recover from a “very slow” May. He blamed in part the weather, saying it had been particularly cold and wet across the country. Sales of summer clothing were weak.
Women’s sportswear was the focus for many of the unplanned discounts. The company acknowledged mis-steps in the division, prompting a management change and “a deeper examination of all aspects of this business”.
the decline in Macy’s shares since the start of the year
Macy’s also cited a drop in tourists visiting the US. Sales from overseas travellers declined about 9 per cent in the quarter, hurting Bloomingdale’s, which the company also owns.
Overall, sales in the 13 weeks to the start of August ticked up only 0.2 per cent on a like-for-like basis from a year ago to $5.55bn. Higher expenses helped to push net income down from $166m to $86m.
Macy’s left its top-line forecast for the year unchanged — it expects like-for-like sales to be flat to up 1 per cent — but lowered guidance for adjusted diluted earnings per share from a range of between $3.05 and $3.25 to between $2.85 and $3.05.
Shares in Macy’s had recovered from a steep sell-off last year on hopes that executives were reinventing the business and making strides online. But the sell-off on Wednesday took the decline for the year so far to 44 per cent, putting Macy’s among the five worst-performing stocks in the S&P 500 index during that period, alongside Nordstrom.
The latest earnings downgrade from the company, which operates about 680 stores and employs about 130,000 people, follows a profit warning after the Christmas shopping season.
Macy’s said its new financial outlook did not take account of the latest wave of tariffs on goods from China. Executives said they were evaluating the White House’s decision this week to postpone levies on a range of Chinese goods, which gives retailers more time to avoid tariffs on popular consumer goods being imported for Christmas.
“We are in active discussions with our vendors and suppliers to mitigate tariffs,” said Paula Price, chief financial officer. “We’ll know more in the coming weeks.”
She said Macy’s, whose long-term debt of $4.68bn compared with a market capitalisation on Wednesday of $5bn, had a “healthy” balance sheet. The company planned to use excess cash to pay down debt and could reduce its leverage to its targeted levels without resorting to asset sales.
Macy’s is trying to breathe new life into its stores through initiatives including its Backstage discount concept and Story pop-up brand, and Mr Gennette said it still had a bright long-term future.
“While we know there is negative sentiment in our sector, we are confident in our plans,” he said. The company was generating “double-digit growth” from its digital business, he added, and there was still “strong consumer demand” for high-quality and affordable goods.
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