Bloodbath at Macy's: Stores see 'massive bleeding off of traffic and customers'

The department store Macy's is fighting for its survival following another dismal quarter.

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Macy’s on Wednesday announced disappointing second-quarter results and lowered its outlook for the rest of the year, sending shares plunging. The results weighed heavily on retailers across the board.

TickerSecurityLastChangeChange %
MMACY'S INC.16.05+0.17+1.07%
JWNNORDSTROM37.43+0.78+2.13%
JCPJ.C. PENNEY1.08+0.05+4.85%
KSSKOHL'S CORP.57.01-0.03-0.05%
DDSDILLARD67.70-1.81-2.60%

“Rising inventory levels became a challenge based on a combination of factors: a fashion miss in our key women’s sportswear private brands, slow sell-through of warm weather apparel and the accelerated decline in international tourism,” Macy’s Chairman and CEO Jeff Gennette said in the earnings release.

“We took markdowns to clear the excess Spring inventory and are entering the Fall season with the right inventory to meet anticipated customer demand.”

The retailer reported second-quarter earnings of 28 cents a share, missing the Thomson Reuters consensus of 45 cents. Revenue was in line at $5.5 billion.

Looking ahead, Macy’s sees adjusted diluted earnings per share of $2.85 to $3.05, down from its previous outlook of $3.05 to $3.25.

The outlook doesn’t include the fourth tranche of tariffs on goods from China, which on Tuesday was delayed until Dec. 15. Macy’s says it is “evaluating the details of these tariffs and is actively working with its vendor partners and suppliers in China to help mitigate potential impact.”

It has been tough sledding for Macy’s and the rest of retail over the past several years. The department store chain had a market capitalization of more than $24 billion in the summer of 2015, and that had shrunk to just $5 billion following Wednesday’s earnings.

"We've been saying for some time the department stores are deeply troubled,"  former Toys R Us CEO Gerald Storch told Fox Business' Varney & Co.

"If you look under the surface, their internet grew double digit, which means their physical stores continue to see this massive bleeding off of traffic and of customers. So as a consequence they kind of held their sales OK, but their margins crashed, their operating profit crashed, their expense rate ballooned. I think there is more of the same coming for department stores."

Still, Gennette says things are looking up.

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“We continue to see healthier sales within our brick and mortar business, led by our Growth50 stores and Backstage expansion,” he said. “Our digital business posted its fortieth consecutive quarter of double-digit growth, and mobile remained our fastest growing channel.”