Macy's and Kohl's Slow Sales Slump, but Investors Still Spooked -- 2nd Update

By Suzanne Kapner and Ezequiel MinayaFeaturesDow Jones Newswires

Macy's Inc. and Kohl's Corp. reported another quarter of shrinking sales that spooked investors, though the latest declines weren't as deep as they have been in recent quarters.

Kohl's executives pointed to signs of improved demand and shopper traffic in summer months and Macy's executives said their store restructuring and inventory reduction put them on track to reach their goals for the year.

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"I don't want to make too much of one quarter, but it certainly feels better than it has in a long time," Karen Hoguet, Macy's finance chief, said in an interview.

Still, the results weren't enough for investors who have soured on the sector. Shares of Macy's fell 9% and Kohl's dropped 7% Thursday afternoon. Smaller department store chain Dillard's Inc., which Thursday surprised analysts by swinging to a loss, tumbled 15%.

"Investors want more sustainable evidence of why these businesses can survive in today's world," said Charles Grom, an analyst with Gordon Haskett Research Advisors.

Macy's same-store sales -- a metric that tracks sales at established locations that haven't recently opened or closed -- fell 2.8% in the second quarter, better than the 5.2% retreat in the first quarter.

"I'm encouraged by the second quarter and we're on track for the year," Macy's CEO Jeffrey Gennette said on a conference call. "But I also know that we operate in an environment of intense and destructive competition, and that our customer has more shopping options than ever."

Kohl's same-store sales retreated 0.4% in its latest quarter, less than the 2.7% decline the previous quarter.

"The improvement in our sales trend was driven entirely by an improvement in traffic," Kohl's Chief Executive Kevin Mansell said on a conference call. A notable change came in July, when traffic turned positive compared with the same month last year.

Kohl's lured new shoppers with the addition of the Under Armour brand in its stores. That helped its activewear business post a roughly 15% sales increase in the period compared with a year ago. Mr. Mansell said Kohl's also sold more goods at full price, while less inventory resulted in fewer promotions to clear unsold goods.

Foot traffic has steadily slowed at brick-and-mortar stores as shoppers increasingly turn to Inc. and e-commerce to spend their dollars. Same-store sales have declined at both Macy's and Kohl's for several quarters in a row.

But Craig Johnson, the president of market research firm Customer Growth Partners, said the worst may be over for some of the stronger department stores. "Although it's premature to call a turn, we believe that the sector has bottomed," Mr. Johnson said, noting that mall traffic picked up in July just in time for the back-to-school sell season.

Both Macy's and Kohl's said the back-to-school season was off to a strong start.

Stave Lewkovitch, 36, an accountant from Manhattan, was in the Herald Square Macy's Thursday shopping for maternity clothes. Ms. Lewkovitch said she buys most things online -- from toys to clothes for herself and her children -- but she prefers to try on maternity clothes. Ms. Lewkovitch said she looks for sales and clips coupons because "everything goes up, but salaries stay the same."

The shift to online shopping has pinched Macy's and its peers, which have responded by closing weaker locations and investing in e-commerce. Macy's, which is in the process of closing 100 stores, said Thursday it expects same-store sales to decline about 2.5% in the third quarter.

Macy's said business improved throughout the second quarter, despite a 9% drop in sales to foreign tourists. New strategies, including revamped shoe and jewelry departments, contributed $60 million in sales during the period.

Kohl's CEO Mr. Mansell said he had no plans to announce mass store closures this year. "There is an impact on a market when you have fewer stores," he said, noting that e-commerce sales tend to slow in areas where stores have closed. "Everything we've learned reinforces the importance of a great physical footprint."

Kohl's is opening smaller stores, including four new locations this fall, and is working to tailor stores to their local communities using data that identifies what shoppers in those areas want.

Dillard's slowed its same-stores sales decline to a 1% retreat in its second quarter, better than the 4% in the first three months of the year. But the company swung to a loss as it cut prices to help clear bloated inventory.

Overall for the quarter ended in July, Macy's earned $116 million, up from $11 million a year ago. Revenue decreased 5.4% to $5.55 billion. Kohl's posted $208 million profit, up from $140 million a year ago. The company's revenue slipped 0.9%% to $4.14 billion.

Michelle Ma contributed to this article

Write to Suzanne Kapner at and Ezequiel Minaya at

(END) Dow Jones Newswires

August 10, 2017 13:00 ET (17:00 GMT)