Macy’s malaise raises fears

Los Angeles Times - - BUSINESS - By Sarah Halzack

The re­tailer’s shares slide on dis­ap­point­ing hol­i­day sales and take down other stores’ stocks.

Macy’s Inc. didn’t have as merry a Christ­mas as it ex­pected, and now all of re­tail is un­der the mi­cro­scope.

The depart­ment store giant re­leased dis­ap­point­ing hol­i­day sales re­sults Thursday, with com­pa­ra­ble-store sales ris­ing 0.7% — or 1.1% in­clud­ing li­censed de­part­ments — from the year-ear­lier quar­ter. The re­sults forced the com­pany to slash its an­nual earn­ings guid­ance.

Macy’s stock plum­meted 17.7% on Thursday — its big­gest sin­gle-day drop on record — and took shares of other chains, from Nord­strom Inc. to Kohl’s Corp., down with it. Even Tar­get Corp., which re­leased ro­bust hol­i­day sales fig­ures ear­lier Thursday morn­ing, saw its shares sink.

Macy’s com­pa­ra­ble­store sales fig­ure isn’t as ghastly as the nose­dive in the stock would in­di­cate. But that’s not the big­gest is­sue: Even more alarm­ing is the volatil­ity in Macy’s busi­ness that is sug­gested by the de­tails of its re­port.

For one, the chain had just bumped up its full-year guid­ance as re­cently as Nov. 14. Now that its view has dark­ened so no­tably in such a short time, it is fair to won­der whether ex­ec­u­tives re­ally have a han­dle on what it needs to do to be com­pet­i­tive in a cut­throat re­tail en­vi­ron­ment, and whether its turn­around ini­tia­tives have as much long-term prom­ise as they’d thought.

There were other de­tails, too, that hinted at patch­i­ness and un­cer­tainty through­out Macy’s em­pire.

Chief Ex­ec­u­tive Jeff Gen­nette said in the news re­lease that Macy’s roared dur­ing the Black Fri­day and Cy­ber Mon­day rush, as well as at the end of the sea­son. But sales, he said, slipped in mid-De­cem­ber. And while cat­e­gories such as dresses, out­er­wear and home per­formed well in Novem­ber and De­cem­ber, the com­pany saw lack­lus­ter sales in de­part­ments such as cos­met­ics and women’s sports­wear. None of that makes it sound like the store has an easy glide path to growth in 2019.

Also, it’s im­por­tant to note that gross mar­gin, which Macy’s had said in pre­vi­ous guid­ance would be up slightly for the full year, is now ex­pected to be down slightly. This raises ques­tions about how sus­tain­able its pre­vi­ous progress on re­duc­ing mark­downs and man­ag­ing in­ven­tory re­ally is.

Es­sen­tially, Macy’s just gave in­vestors rea­son to in­dulge all the fears about re­tail that started to sim­mer at the end of last year. Af­ter strong re­sults from many re­tail­ers through­out much of 2018, in­vestors had started to worry they were in a mo­ment that couldn’t last. Af­ter all, it would get dif­fi­cult for re­tail­ers to post such eye-pop­ping growth num­bers as they “lapped” their pre­vi­ous im­prove­ments.

Plus, higher tar­iffs loom in 2019, threat­en­ing to crimp re­tail­ers’ prof­its. And re­duced rev­enue guid­ance from Ap­ple Inc. surely helped stoke con­cerns about the U.S.-China trade ten­sions’ po­ten­tial ef­fect on con­sumer com­pa­nies.

Mean­while, a soften­ing hous­ing mar­ket sug­gests a dim­mer eco­nomic pic­ture may be in store in the United States, which could put a lid on some con­sumers’ spend­ing.

Wel­come to the re­tail in­dus­try’s choppy 2019. I don’t ex­pect things to get much smoother any time soon.

Halzack is a Bloomberg Opin­ion colum­nist cov­er­ing the con­sumer and re­tail in­dus­tries.

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