Macy’s Tanks After Forecast Cut, Signaling Department-Store Woes
Aug 14, 2019
Macy’s Inc. plunged after a worse-than-
expected second quarter underscored investor fears that the
teetering department-store industry is slated for more pain
The retailer, the first of its peers to report earnings,
slashed its profit outlook for the year -- and it warned that
the cut doesn’t even take into account the next round of Chinese
tariffs, some of which will hit as soon as Sept. 1.
The shares fell as much as 17% in New York Wednesday.
Stocks of rival department stores including Nordstrom Inc. and
Kohl’s Corp. also dropped as concerns flared about the overall
health of the sector. J.C. Penney releases results Thursday,
with peers coming the following week.
Even before Macy’s reported, department stores showed
indications of weakness in the second quarter, Bloomberg
Intelligence analyst Poonam Goyal said, citing falling credit
card point-of-sale data. “That’s played out with Macy’s,” she
said. “I wouldn’t be surprised if J.C. Penney comes out with a
weak quarter as well.”
Department stores have been under pressure as competition
ramps up from online rivals like Amazon.com Inc. and popular
discount retailers like TJX Cos., which owns Marshalls and TJ
Maxx. They’re also getting squeezed as the Trump administration
ratchets up tariffs on Chinese goods. A levy on department-store
staples like handbags already went into effect, with the vast
majority of other products slated for hikes later this year,
even after a partial reprieve.
“I think very few retailers had a good second quarter,”
said Chuck Grom, managing director at Gordon Haskett Research
With new tariffs on everything from apparel to shoes
looming, companies are finding themselves hard pressed to give
investors confidence that the macro and earnings environment
won’t worsen over the next six to 12 months. Chief Executive
Officer Jeff Gennette said in May if President Donald Trump’s
proposed tariffs on $300 billion items from China is enacted, it
would hit the retailer’s private and international brands.
At Macy’s, same-store sales for owned as well as licensed
stores rose 0.3% in the latest quarter, matching analysts’
expectations, according to Consensus Metrix. Even though that
marks the seventh consecutive gain, the growth is still anemic
compared to big-box store peers. Gennette called out a “slow
start to the quarter” that “finished below our expectations.”
While Macy’s is working on its individual strategies to
bring people into stores like its experimental Growth50
initiatives, it can’t completely separate itself from the macro
geopolitical uncertainties, Grom said.
“I think the consumers are under some stress and they’re
having some trouble drawing traffic into their stores,” he said.
“You’ve got some big headwinds and that’s why the stock is
Macy’s says it now sees diluted profit in a range of $2.85
to $3.05 per share, excluding some items, down 20 cents -- even
as it held its sales forecast unchanged. The company blamed too-
high inventory levels in the quarter, including “a fashion miss
in our key women’s sportswear private brands.”
It also cited a faster decline in international tourism,
which often props up its flagship stores. Recent data backs up
the retailer’s experience: International visitors to the U.S.
spent $17.5 billion in June, according to the Commerce
Department. That’s the lowest total in two years, and the 2.9%
drop from a year earlier was the second-steepest since 2009.
Related: A Walmart Earnings Beat Could Bring Guidance
Boost, Analysts Say
There were some bright spots: Its digital business posted
its fortieth consecutive quarter of double-digit growth, it
said. Macy’s also said its strategic initiatives are “on track
to continue delivering sales growth” in the second half.
But while it said it has corrected course, Goyal said she
still questioned “if their back half is too aggressive in lieu
of what they saw in Q2 and just in what they saw with tariffs.”