US Macy’s department stores revise downward its forecast for 2015
Macy’s Inc. cut its forecast for sales growth this year to zero after posting declines in quarterly revenue and earnings, intensifying pressure on the retailer to find new ways to grow beyond its core department-store business
On August 12, 2015, Macy’s reported, according to WSJ Wall Street Journal, a 2.6 % drop in sales to USD 6.1 billion for the three months to August 1. Sales at existing stores fell 2.1 %. When licensed departments are included, sales declined 1.5 %.
“Our performance in the first half of the year was not as strong as we had hoped,” Chief Financial Officer Karen Hoguet said on a conference call.
Shares of the retailer fell 5 % to USD 64.11 in Wednesday trading, making it the worst performer in the S&P 500. The drop was the largest for Macy’s on a percentage basis since Aug. 13, 2014.
The results extend a rough patch for a chain that dominates the department-store landscape but is having trouble posting solid growth as shopper habits change.
It also doesn’t bode well for other department stores such as J.C. Penney Co. and Kohl’s Corp., which are due to report earnings later this week. Sears Holdings Corp. already reported an 11 % decline in sales at existing stores in the second quarter.
Macy’s is also contending with activist investor Starboard Value LP, which has accumulated a stake in the retailer and is pushing it to spin off its real-estate holdings.
To that end, the retailer on Wednesday said it had agreed to sell property in Brooklyn to real-estate developer Tishman Speyer for USD 170 million in cash upon closing in the fourth quarter. Macy’s will continue to own the first five floors of the store, or about 310000 square feet. Tishman will own the remaining five floors and a parking garage across the street that it will convert to office space.
Tishman will contribute an additional USD 100 million to the property over the next three years, which Macy’s will use to renovate the five floors it continues to own and operate.
“You have to make sure that these transactions are done in a way that the benefits aren’t lost through taxes,” said Terry Lundgren, Macy’s chief executive. Macy’s has hired real-estate research firm Green Street Advisors, brokers Cushman & Wakefield and the law firm Skadden, Arps, Slate Meagher & Flom LLP to advise it on real estate transactions. Lundgren said the company was working on a few more real estate deals that he hopes to get done by year end.
As part of steps to diversify its business away from its U.S. department-store operations, Macy’s also said it had set up a joint venture with Hong Kong-based Fung Retailing Ltd. to sell merchandise on Alibaba Group Holding Ltd.’s Tmall Global platform beginning this year.
It is pushing ahead with other initiatives, including an outlet business and expanding Bluemercury Inc., a chain of high-end beauty stores Macy’s acquired this year. The company plans to open six outlet stores called Macy’s Backstage this fall. The company said it plans to open 10 Bluemercury stores before the end of the year, bringing the total to 76.
But its core U.S. market is suffering, leading Macy’s to cut its full-year forecast for sales excluding newly opened or closed stores. It now expects no growth compared with a previous forecast of 2 % growth. Total sales are now forecast to fall 1 %, compared with an earlier estimate of 1 % growth.
The retailer backed its earnings outlook of USD 4.70 to $4.80 a share, helped by a USD 250 million gain from the Brooklyn real-estate sale. Macy’s agreed to sell property in Brooklyn to real-estate developer Tishman Speyer for USD 170 million. Profit for the quarter fell 25 % from a year earlier to USD 217 million.
The company said customers are spending their money at restaurants and on health care, recreational activities and electronics, rather than the traditional items that Macy’s sells such as apparel and home goods.
The retailer has also been hurt by a fall in tourist traffic due to the strong dollar, the removal of a major promotional event and the delayed receipt of goods that had been held up in West Coast ports. Weakness in fashion jewellery and watches—two categories that had previously been growing strongly—weighed on results.
The average transaction size fell 1.3 %, while the number of transactions also declined slightly. Gross margin narrowed to 40.9 % from 41.4 % a year earlier, because of delayed receipt of goods from the port slowdown and additional markdowns taken to spur sales Hoguet said the gross margin rate was lower than the company had anticipated.
Inventory at the quarter’s end was up 3.8 %, mainly because Macy’s brought in goods early to get ready for the back-to-school season, which Hoguet said had gotten off to a good start.