Sluggish Sales Sink Macy’s Earnings

The mall has not been kind to Macy’s, or at least that was the takeaway from the retailer’s earnings report released earlier today (Nov. 21). As the numbers hit the wires, sluggish sales figures and stumbling same-store sales growth hit Macy’s figures with a one-two punch, and sent its stock price spiraling as regular trading opened on the markets this morning.

“We’ve been investing in malls where our developers are investing and … we feel really good about that initiative, and those stores continue to outpace the breadth of our fleet,” said Hal Lawton, Macy’s president, during a post-earnings conference call.

But while the “A stores” are doing better, the so-called “C and D stores” at lower-performing malls have been a persistent drain that pushed Macy’s to slash earnings and revenue forecasts for the rest of the year. According to CEO Jeff Gennette, the more sluggish than anticipated sales were further pushed by an unseasonably warm fall and weaker international spending by tourists.

By the numbers, in terms of earnings, Macy’s reported 7 cents per share – about even with what analysts had been seeking. Revenue, however, was a miss, clocking in at $5.17 billion vs. the expected $5.32 billion. It was also a drop from the results at this time last year, when Macy’s brought in $5.40 billion in net sales.

The most notable drop, and the one that caught the most attention, was in same-store sales, which were expected to drop by 1 percent and instead fell by 3.5 percent. That marked the first same-store sales decline Macy’s has seen in two years.

The retailer also reported slower online sales growth, which, according to the CEO, was slightly due to a technical issue on its website that occurred as upgrades were being added “in preparation for the fourth quarter.” Macy’s also seems to have lost some market share to rivals who priced down a bit more aggressively.

Notably, Macy’s was far from the only department store player singing the blues this week. Earlier in the week, Kohl’s delivered results that were widely derided as dismal. Results from big-box retailers – particularly Target and Walmart, who reported yesterday and last week, respectively – were much stronger, particularly in the arena of online sales growth.

As for what’s next for Macy’s, by their own forecasts, it doesn’t seem they are predicting any kind of Christmas miracle this year: The chain has downwardly revised its same-store sales forecasts to 1 percent to 1.5 percent, when they had previously forecasted flat growth. The retailer further noted it expects net sales to drop 2.5 percent to 2 percent, as opposed to the previous estimate of flat net sales.

More broadly, Gennette noted plans for future upgrades of the Macy’s mobile app and tiered loyalty program, the addition of mini-shops and expansion into the rental and apparel resale businesses as positive steps toward leveraging the brand’s long history to build a new relationship with an emerging generation of consumers. At its investor meeting in February, Macy’s plans to further detail plans underperforming stores in shopping malls.

Gennette added that Macy’s has made progress in clearing out excess inventory, “resulting in significantly improved margin compression versus the first half of the year,” and that despite bumps and stumbles, the company has “confidence” in its holiday plans.

Investors, as of today, don’t seem to share that confidence. Macy’s stock price is down 50 percent since the beginning of the year, and fell about 3 percent today when the numbers went public.