Macy’s Stock Swoon Adds to PostHol­i­day Angst

The re­tailer’s more op­ti­mistic hopes were dashed against the De­cem­ber shop­ping lull.

WWD Digital Daily - - Front Page - BY EVAN CLARK WITH CON­TRI­BU­TIONS FROM SHARON EDEL­SON AND KELLIE ELL

When it comes to re­tail, Wall Street has of­fi­cially lost the hol­i­day spirit.

Macy's Inc.'s stock dropped 17.7 per­cent to $26.11 Thursday as the com­pany missed hol­i­day sales growth tar­gets, lead­ing the re­tail sec­tor dra­mat­i­cally lower. The depart­ment store said its an­nual com­pa­ra­ble sales gain, in­clud­ing li­censed de­part­ments, would tally 2 per­cent, down from the 2.3 per­cent to

2.5 per­cent in­crease pro­jected just be­fore Thanks­giv­ing. (Macy's com­bined comps for Novem­ber and De­cem­ber rose 0.7 per­cent, or 1.1 per­cent when li­censed de­part­ments are factored in).

The sea­son started out with high hopes and a solid Black Fri­day/Cy­ber Mon­day rush, but the De­cem­ber lull was more pro­nounced than usual dur­ing the long sea­son and costs as­so­ci­ated with more e-com­merce sales, price pro­mo­tions to

move goods and other is­sues have stoked profit mar­gin fears.

And Macy's isn't the only one feel­ing pinched. Vic­to­ria's Se­cret con­tin­ued its string of tough sales re­ports with a 6 per­cent comp drop in De­cem­ber and

J.C. Pen­ney Co. Inc. turned in 3.5 per­cent “shifted” de­cline for the nine-week hol­i­day pe­riod ear­lier this week.

Off the mall, the Novem­ber/De­cem­ber trend looked bet­ter, with Tar­get Corp. comp­ing up 5.7 per­cent and Kohl's Corp. ris­ing 1.2 per­cent (a mod­est de­cline that none­the­less was enough for it to boost its an­nual profit guid­ance).

But it seemed in­vestors — al­ready wary of re­tail — were largely in a “sell first, ask ques­tions later” mode.

Among the de­clin­ers were Aber­crom­bie & Fitch Co., down 8.2 per­cent to $19.26; Kohl's, 4.7 per­cent to $66.54; J.C. Pen­ney, 4.5 per­cent to $1.28; L Brands, 4.4 per­cent to $26.99; Dil­lard's Inc., 4.2 per­cent to $65.02; Nord­strom Inc., 4.1 per­cent to $47.30; Capri Hold­ings, 3.8 per­cent to $40.28, and Tar­get, 2.9 per­cent to $68.29.

“Many shop­pers took a pause in the mid­dle of the longer hol­i­day sea­son and the need for pro­mo­tions and ex­pen­sive and fast ful­fill­ment were key neg­a­tives,” said Oliver Chen, an eq­uity re­search an­a­lyst at Cowen.

Chen said the hol­i­day re­sults gave in­vestors “con­fir­ma­tion of anx­i­ety given lack of sub­stan­tial up­side.”

“There is a list of mar­gin-re­lated con­cerns in­vestors are wary of,” he said. “Mar­gin head­winds re­tail­ers are plan­ning around in­clude: pro­mo­tional lev­els, la­bor and trans­porta­tion costs, ex­po­sure and plan­ning to tar­iffs, dig­i­tal and ship­ping han­dling and ful­fill­ment costs, and new costs to clear in­cre­men­tal in­ven­tory if comps missed at mall re­tail­ers.”

De­spite all the hand­wring­ing, 2018 ac­tu­ally ended up much stronger than it started.

Macy's, for in­stance, started off last year pro­ject­ing comp sales would range from flat to up 1 per­cent — well below the pro­jected 2 per­cent in­crease that now has in­vestors un­happy.

But in­vestors and ev­ery­one else have nanosec­ond mem­o­ries and in the here and now, sales are weaker than hoped for and Macy's is clear­ing in­ven­tory.

“We are re­vis­ing the guid­ance we pro­vided in Novem­ber and will con­tinue to take the nec­es­sary steps in Jan­uary to en­sure a clean in­ven­tory po­si­tion as we en­ter fis­cal 2019,” said Jeff Gen­nette, chair­man and chief ex­ec­u­tive of­fi­cer of Macy's.

Ad­justed earn­ings per share are now ex­pected to range from $3.95 to $4 for the year, below the $4.10 to $4.30 pro­jected in Novem­ber.

If Macy's was look­ing for the hol­i­day sea­son to show its strength, Vic­to­ria's Se­cret was look­ing to demon­strate signs of des­per­ately needed turn­around, and fell short.

Vic­to­ria's Se­cret's in-store comp sales dropped 8 per­cent and the brand saw de­clines came in both the core lin­gerie busi­ness and Pink.

The brand, with its wai­flike mod­els and be­jew­eled un­der­wear of­fer­ings, has been strug­gling to main­tain mar­ket share as con­sumer preferences shift to brands with ba­sic fash­ions that pro­mote in­clu­siv­ity.

The com­pany has em­ployed a num­ber of meth­ods to try to re­vive the brand, in­clud­ing a move to rein­tro­duce swimwear this spring. In ad­di­tion, John Me­has, for­merly of Tory Burch, was tapped to run the com­pany af­ter for­mer Vic­to­ria's Se­cret ceo Jan Singer left the firm in Novem­ber.

But even the an­nual Vic­to­ria's Se­cret fash­ion show, once one of the most an­tic­i­pated fash­ion spec­ta­cles of the year, couldn't help re­sus­ci­tate the brand's dy­ing im­age. Tele­vi­sion view­er­ship for New York's Novem­ber show, which aired Dec. 2, was down.

“Vic­to­ria's Se­cret's big hol­i­day miss reaf­firms our view that sig­nif­i­cant progress to­ward a Vic­to­ria's Se­cret turn­around in [the first half of] 2019 seems un­likely,” Michael Binetti, an an­a­lyst at Credit Suisse, wrote in a re­cent note.

Mean­while, Tar­get had to prove that it could break away from the re­tail pack and made head­way on that score.

Tar­get's om­nichan­nel strat­egy paid off dur­ing the hol­i­day stretch, when online orders picked up in stores and drive-up ar­eas fu­eled brick-and-mor­tar traf­fic.

The 5.7 per­cent comp jump for the two months came on top of a 3.4 per­cent gain a year ear­lier and was driven by foot traf­fic and a small in­crease in av­er­age ticket sales.

Store pick-up and drive-up grew 60 per­cent and ac­counted for one-fourth of the com­pany's to­tal sales. Com­pa­ra­ble dig­i­tal sales shot up 29 per­cent and

Tar­get said it ex­pects 2018 to be the fifth con­sec­u­tive year in which its dig­i­tal sales grew more than 25 per­cent. The re­tailer said it saw the strong­est per­for­mance in toys, baby and sea­sonal gift items.

“This per­for­mance demon­strates the ben­e­fit of plac­ing our stores at the cen­ter of ev­ery way we serve our guests, in­clud­ing both in-store shop­ping and dig­i­tal ful­fill­ment,” said Brian Cor­nell, Tar­get's chair­man and chief ex­ec­u­tive of­fi­cer.

Macy’s hol­i­day salesdidn’t live up to hopes from ear­lierin the sea­son.

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