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Macy's sinks as poor spring season hits profit

Reuters | Washington DC | Updated: 14-08-2019 19:58 IST | Created: 14-08-2019 19:56 IST
Macy's sinks as poor spring season hits profit
Image Credit: Wikipedia

Macy's Inc slashed its full-year earnings forecast on Wednesday after missing estimates for quarterly profit for the first time in at least two years, as it discounted merchandise heavily to clear spring inventory, sending its shares down 17%. The largest U.S. department store operator, whose flagship building in Manhattan is a major tourist attraction, blamed a bigger-than-expected decline in tourist spending for the shortfall along with weak demand for its own-brand women's sportswear and for warm weather apparel.

Tourist arrivals to the United States have taken a hit in the past year, hurt by a stronger dollar and escalating trade tensions between Washington and Beijing, denting the number of Chinese visitors to the country. The number of Chinese citizens arriving in the United States dipped 2.8% in the first six months of the year, according to the National Travel and Tourism Office.

Like its peers, the Cincinnati, Ohio-based retailer, which has closed more than 100 stores since 2015 and cut thousands of jobs as mall traffic plummeted, faltered in the past few years as it struggled to adjust to a fiercely competitive retail landscape where shoppers buy more goods online at places like Amazon.com Inc. "While they are controlling what they can control, the headwinds from both macro and micro factors continue to grow, creating a challenging backdrop for CEO Jeff Gennette to manage through," said Gordon Haskett analyst Chuck Grom. "The good news is that they have a plan."

The 160-year-old company is pumping money into projects such as remodeling its stores and building up its off-price and online businesses. Retailers like Macy's have been burdened by a long-drawn trade war between the United States and China, which U.S. President Donald Trump escalated earlier this month by threatening to impose 10% tariffs on $300 billion worth of Chinese goods from Sept. 1. On Tuesday, the Trump administration delayed the 10% tariffs on some Chinese goods until Dec. 15.

Macy's executives reassured investors on an earnings call Wednesday that the company is in "active discussions" with vendors and suppliers to mitigate tariffs and minimize customer impact in 2019 as much as possible. Analysts said the temporary tariff reprieve would not benefit retailers greatly.

"Only a small percentage of soft-good tariffs are actually getting delayed until December 15th and none have been removed yet," UBS analyst Jay Sole wrote in a note, adding that, of the approximately 789 apparel and footwear categories on the original latest list of tariffs, only 17% have had tariffs delayed. Macy's now expects 2019 adjusted profit to be between $2.85 per share to $3.05 per share, down from a previous forecast of $3.05 to $3.25.

The company's margins in the quarter fell to 38.8% from 40.4% a year earlier, hit hard by steep markdowns. For the second quarter ended Aug. 3, net income attributable to Macy's shareholders slumped 48% to $86 million, or 28 cents per share.

Analysts on average had expected the company to earn 45 cents per share, according to IBES data from Refinitiv. "We had a slow start to the quarter and finished below our expectations," Chief Executive Gennette said in a statement.

Net sales fell marginally to $5.55 billion, largely in line with estimates, while sales at its established stores rose 0.3%. Still, Macy's maintained its 2019 sales expectations, with the company saying that it entered the fall season with the "right inventory."

Macy's shares, which have declined about 35% this year, opened at a near 10-year low. The company, which is the first of the department stores to report results, also dragged down peers' shares. Kohl's, Nordstrom and J.C. Penney were down between 4% and 6%.


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