Macy’s takes beating in Q1; more closures not ruled out
Macy’s sounded an early warning for the retail industry Thursday in reporting results that signal another challenging quarter for department stores and mass merchandisers struggling to adapt to shoppers who increasingly browse and buy online.
Macy’s downward spiral continued, with profits plunging as sales dwindled at the start of the year. The price of the beleaguered retailer’s stock followed suit, plummeting 17% for the day, its lowest level in more than five years. The stock drop reflected a wide miss of analysts’ consensus predictions.
And the sector may not be through. JCPenney reports Friday, followed by Target, Walmart and L Brands next week. Only after the season is complete will an assessment of the carnage in an otherwise healthy U.S. economy become clear. Analysts are braced for the worst.
“These are unusual and challenging times for retail, especially for mall-based department stores,” said Macy’s CEO Jeff Gennette, who called the first quarter “disappointing ” in a call with investors.
For the quarter ending April 29, Macy’s profit dropped to
$71 million, a 38% drop from $116 million during that period last year.
But it was the surprising decrease in earnings that caught analysts by surprise. Macy’s earnings of 23 cents per share dramatically missed the analysts’ consensus of 35 cents. Sales fell to $5.3 billion, down 7.5% from $5.8 billion in the same quarter of 2016.
Previously, Macy’s announced plans to shutter 100 stores to boost cash and streamline its operations.
Gennette did not rule out closing more locations in the future if the sale of the real estate is more lucrative than a given store’s sales activity. But such plans are not in the works yet.
“I’m not going to say we’re not going to close more stores beyond those 100,” he said, “but we do feel we got to the right level.’’
Once the gold standard of the grand department store and renowned for its namesake Thanksgiving Day parade, Macy’s has been struggling to reinvent itself. It has made it easier to use its mobile app to shop. It hasn’t been shy about weeding out underperforming stores. It’s planning to fill its shelves with clothing and other items that customers can find nowhere else.
Kohl’s, by contrast, reported earnings for the same quarter Thursday that reflected the overall poor climate for department stores, seeing sales slip 2.7%, from $3.97 billion to $3.84 billion, but its efforts to bolster the bottom line worked. Kohl’s posted net income of $66 million compared to $17 million last year. Instead of missing analysts’ estimates, it beat them with 39 cents per share, a dime more than analysts at S&P Global Market Intelligence expected.
Kohl’s and Macy’s have been roiled by the same forces that are rattling many traditional retailers who are competing with online giant Amazon while trying to reshape their in-store experience to woo customers off the couch and through their doors. Industrywide, roughly 90% of retail sales still occur at an actual store.
For Macy’s CEO Gennette, the quarterly report marked a rough start to a job he has held only a few weeks. He said Macy’s has a chance to grab new customers as Sears, The Limited and other retail rivals are also closing stores or, in some cases, going out of business.
But the loss of other stores that can help draw in shoppers puts even more pressure on Macy’s mall-based locations, which Gennette says have “already seen a slowdown in traffic.”
On the digital front, in addition to bolstering its mobile app, Macy’s says that it is also working to improve the option of buying online and picking up items in a physical store.
Macy’s stock closed Thursday at $24.35, down $4.99.
“I’m not going to say we’re not going to close more stores beyond those 100, but we do feel we got to the right level.’’ Jeff Gennette, CEO of Macy’s