Macy’s profit falls, holiday forecast cut

CINCINNATI — With a hint at what may be in store for shoppers this holiday season, Macy’s CEO Terry Lundgren said shoppers can expect markdowns because falling sales have left the department store with excessive inventory.

The opening of the retail earnings seasons began ominously with Macy’s, which dragged shares of almost every retailer sharply lower Wednesday. The retail sector was by far the biggest loser on the Standard & Poor’s index.

Sales for the Cincinnati company fell 3.6 percent at established locations for the three months that ended Oct. 31. And for the last three months of the year that encompasses the critical holiday shopping season, Macy’s expects sales to fall between 2 and 3 percent from a year ago. The company cut its profit forecast for the full year. Shares dropped 14 percent to close at $40.41. Earlier in the session, they hit their lowest point in more than two years.

Not all retailers are suffering. Spending is up on electronics and stores like Home Depot are posting huge sales numbers. But traditional retailers, particularly Macy’s, are getting hit hard as the strong dollar limits the spending power of international customers.

The company also blamed warmer weather, which cut into sales of coats, boots and down comforters.

“We’re going to take markdowns, I mean, great for consumers,” Lundgren said during an interview on CNBC. “Consumers are going to have a field day because we’re going to have lots of values out there.”

Lundgren said the company needs to clear space for new merchandise in the new year.

“We’re not selling lumber, so I can’t carry the lumber over into 2016,” he said.

Fourth-quarter gross margins will be under pressure due to markdowns, the company said.

For the quarter that ended Oct. 31, Macy’s Inc. earned $118 million (36 cents per share). Excluding one-time costs, earnings were 56 cents per share, which was 2 cents more than analysts expected. The one-time costs were mostly related to the company’s previously announced plans to close between 35 and 40 stores early next year.

Macy’s said Wednesday that it expects it will continue to reduce the number of its stores.

Total revenue for the quarter fell to $5.87 billion, and was short of $6.15 billion that Wall Street had been expecting.

The company now expects full-year earnings in the range of $4.20 to $4.30 per share, down from the previous forecast of $4.70 to $4.80 per share. That is short of the $4.40 that Wall Street was expecting.

Shares of Kohl’s Corp. fell 5.4 percent, Nordstrom Inc. fell 3.7 percent, and Dillard’s Inc. fell 8.1 percent. Stock of J.C. Penney Co. and Sears Holding Corp, which owns Kmart, also dipped.

“We’re not selling lumber, so I can’t carry the lumber over into 2016.”

Terry Lundgren, Macy’s CEO