Macy's Continues to Feel the Retail Pinch

By Anne Steele Features Dow Jones Newswires

Macy's Inc. reported a worse-than-expected slide in revenue for the first quarter and stretched its swoon in same-store sales to more than two years as the retailer contends with broad weakness at brick-and-mortar stores.

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Shares of the company dropped 12% to $25.95 as profit also declined and came in sharply below market expectations. The stock has been pummeled this year, already falling 18% through Wednesday's close.

During the April quarter, sales at Macy's stores open at least a year declined 5.2%, worse than the 3% decrease analysts expected, according to Consensus Metrix, and marking the ninth straight quarter that same-store sales have fallen.

Foot traffic continues to dwindle at brick-and-mortar retailers as shoppers increasingly opt to make purchase online, and consumers are shelling out less for things like clothing and more on experiences.

Macy's is among a parade of retailers shutting stores and cutting jobs. Early this year it said it would slash more than 10,000 jobs and detailed plans to close dozens of stores after another holiday season of weak sales, further signaling that department stores have lost their once-central place in American retailing.

The retailer has been testing programs to lift sales in certain stores.

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"We are encouraged by the performance of the pilot programs we tested last year in categories like women's shoes, fine jewelry, and furniture and mattresses," said Chief Executive Jeffrey Gennette, who took the reins at the 159-year-old retailer from Terry Lundgren in March.

He said Macy's will expand those programs nationally this year and anticipates they will have a measurable impact starting this quarter and building through the fall.

"In 2017, we are focused on taking actions to stabilize our brick-and-mortar business," Mr. Gennette said.

In all for the first quarter, Macy's posted a profit of $71 million, or 23 cents a share, down from $116 million, or 37 cents a share, a year earlier.

Excluding some costs, Macy's adjusted per-share profit fell to 24 cents from 40 cents, below analysts' expectations for 35 cents. Overall sales fell 7.5% to $5.34 billion, below expectations of $5.47 billion, in part owing to store closings.

Gross margin narrowed to 38.1% from 39.1%.

Still, Macy's backed its 2017 guidance for total sales to be down between 3.2% and 4.3% and adjusted earnings of $2.90 to $3.15 a share.

Meanwhile, Kohl's Corp. on Thursday said inventory management helped the retailer improve its bottom line in the first quarter despite lackluster sales. Same-store and overall sales fell more than expected, but gross margin widened and adjusted earnings beat Wall Street estimates by a dime.

"We are encouraged by the significant improvement in sales and traffic for the March and April period, after a weak February start to the first quarter," said Kohl's CEO Kevin Mansell.

Kohl's stock was down 2.8% premarket to $39.20.

Write to Anne Steele at Anne.Steele@wsj.com

Macy's Inc.'s troubles showed no sign of abating as the department store reported another quarter of falling sales, ahead of a flurry of results from other retailers battling similar problems with store traffic and online competition.

During the April quarter, sales at Macy's stores open at least a year declined 5.2%, worse than the 3% decrease analysts expected, according to Consensus Metrix, marking the ninth straight quarter that same-store sales have fallen.

Shares of the company dropped 14% to $25.10 as profit also dropped. The stock has been pummeled this year, already falling 18% through Wednesday's close.

"Don't count us out, we're not dead," Karen Hoguet, Macy's chief financial officer, said in an interview. The company is rolling out several initiatives that it expects to lift sales, including reconfigured shoe and fine-jewelry departments, she added. "While we'll be operating fewer stores, we have the opportunity to make our stores better."

The government is expected on Friday to release its monthly retail sales data, with economists expecting a 0.5% increase in April, following two months of declines. Ms. Hoguet said that despite an uptick in sales in March and April from an unusually weak February, Macy's wasn't banking on a rebound in consumer spending this year.

Kohl's Corp., which on Thursday reported declines in same-store sales, also saw improvements in sales and traffic as the quarter progressed, according to Chief Executive Kevin Mansell.

February same-store sales declined around 8%, while same-store sales in the combined March-April period were down just 1%. Mr. Mansell said February could have been affected by the slower-than-usual receipt of tax refunds.

The retail sector is in focus on Wall Street over the next few days, with Nordstrom Inc. scheduled to report results Thursday afternoon, followed by J.C. Penney Co. on Friday and Home Depot Inc., Target Corp. and Wal-Mart Stores Inc. next week.

Foot traffic continues to dwindle at brick-and-mortar stores as shoppers increasingly opt to make purchases online. Retailers have responded by shutting stores and cutting jobs.

"The past year will be remembered as one of the most challenging periods for 'brick and mortar' retailers," Sears Holdings Corp. Chief Executive Edward Lampert wrote in a blog post Thursday, adding that the Sears and Kmart chains were "fighting like hell" to transform to meet these challenges.

Macy's early this year it said it would eliminate more than 10,000 jobs and detailed plans to close dozens of stores after another weak holiday season, further signaling that department stores have lost their once-central place in American retailing.

The 159-year-old retailer has been testing programs to lift sales, such as weeding out certain shoe styles and buying deeper in the ones its merchants considered winners. It also added more color and fashion and armed its sales staff with technology to make it easier for them to see what was in stock. In certain stores, Macy's tested an open sales format similar to DSW Inc. The changes, which will be rolled out to all stores by August, drove a double digit increase in shoe sales.

Macy's Chief Executive Jeffrey Gennette, who took the reins from Terry Lundgren in March, said he expects the expanded programs will have a measurable impact starting this quarter and building through the fall.

"In 2017, we are focused on taking actions to stabilize our brick-and-mortar business," Mr. Gennette said.

In all for the first quarter, Macy's posted a profit of $71 million, or 23 cents a share, down from $116 million, or 37 cents a share, a year earlier. Overall sales fell 7.5% to $5.34 billion, below expectations of $5.47 billion, in part owing to store closings.

Still, Macy's backed its 2017 guidance for total sales to be down between 3.2% and 4.3%.

Kohl's said inventory management helped it improve its bottom line in the first quarter despite lackluster sales. Gross margin widened and adjusted earnings beat Wall Street estimates by a dime.

Kohl's has made a big bet on activewear, with its Under Armour launch and an expanded Nike business, and that helped lift sales in the quarter, Mr. Mansell said. He added that Kohl's is beginning a targeted effort to capture sales from competitors who are closing stores in the hopes of boosting traffic at its own locations.

But the company is also continuing to focus on expense reduction and plans to outline broader cost-cutting plans when it reports its next quarterly results in August.

Kohl's stock was down 5.9% in recent trading to $37.93.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

May 11, 2017 13:41 ET (17:41 GMT)