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Gloomy outlook continues for retail giant Macy’s

May 11, 2016

Macy’s Inc., the largest U.S. department-store company, cut its profit forecast for this year and posted first-quarter revenue that missed analysts’ estimates as slow mall traffic hurt sales.

Shares of Macy’s plunged as much as 13 percent, to $32.24 each Wednesday morning in their worst intraday decline in six months. And it wasn’t alone. Wal-Mart, the largest U.S. retailer, slid as much as 4.6 percent and Target Corp. fell as much as 5 percent.

Macy's operates more than 750 stores worldwide, including 10 stores in Indiana and Indianapolis-area stores at Castleton Square, Glendale Shopping Center and Greenwood Park Mall.

Macy’s is spooking investors with the message that consumers just aren’t spending, said Ken Perkins, president of Retail Metrics. And the chain doesn’t see that changing soon.

“It’s beginning to feel like a new world,” Perkins said.

Full-year earnings will be $3.15 to $3.40 a share, down from an earlier projection of $3.80 to $3.90 a share, the Cincinnati-based company said Wednesday. The company also cut its forecast for full-year sales, citing a double-digit drop in tourist spending and a slowdown in sales of some core categories.

The gloomy outlook signals Macy’s is still suffering from sluggish mall traffic and increased competition from other department stores and off-price retailers. On top of that, the strong U.S. dollar is weighing on sales to foreign tourists.

To combat these challenges, the retailer is closing underperforming stores and expanding its discount offerings. It’s also looking to capitalize on its real estate portfolio through joint ventures that can squeeze extra cash out of its properties.

The weak revenue trends were evident in the company’s fiscal first quarter. Sales fell 7.4 percent, to $5.77 billion, in the period ended April 30. Analysts projected $5.93 billion, on average. First-quarter profit was 40 cents a share, excluding some items. Analysts projected 36 cents.

The company outlined three areas that it plans to improve on this year. The first is to speed up its rollout of new initiatives, such as its Bluemercury and Macy’s Backstage store-in-stores. The retailer also will add more exclusive merchandise like a line of clothing and accessories supported by Elton John and Lady Gaga. The third area is a more intense focus on cutting expenses while improving service through better technology and more full-time associates.

“As we rebuild our business for a comeback that we expect will begin later this year, we continue to focus on agility and innovation,” Lundgren said in a written statement.

The company plans to open 16 of its off-price Macy’s Backstage locations and 42 Bluemercury stores, the beauty and spa chain Macy’s bought last year.

On top of slower sales, Lundgren is under pressure from activist investors to monetize the company’s store portfolio. The company hired Douglas Sesler as its senior-level real estate executive and is evaluating proposals for joint ventures involving flagship and mall-based stores from potential partners, Macy’s said in the statement.

The retailer said in November that it won’t form a real estate investment trust, an effort hedge fund Starboard Value had endorsed. Instead, Macy’s is looking to sell parts of its flagship Manhattan, San Francisco, Chicago and Minneapolis stores, as well as mall-based properties. The real estate firm Tishman Speyer is interested in taking stakes in the flagship locations. Macy’s added Four Corners Property Trust Inc. CEO Bill Lenehan to its board April 1, tapping a real estate expert to help the retailer determine what to do with its properties.

Lundgren is looking to cost-savings programs to cut $400 million in annual expenses. As part of the move, Macy’s said in January it’s cutting or relocating about 3,000 workers and exploring options for its real estate. And it’s shutting about 40 Macy’s locations, following through on an announcement in September. Indiana avoided those closures.

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