Macy's cuts forecasts as apparel demand stays weak; shares slump

By

Monica Karski

Published
May 11, 2016

Department store operator Macy's Inc reported its fifth straight drop in quarterly sales, missing analysts' estimates again, as customers cut back on buying apparel and a strong dollar discouraged tourists from spending heavily.

Shares of Macy's, which also slashed its full-year comparable sales and earnings forecasts, fell 12 percent on Wednesday to a near four-year low of $32.48, dragging down other department store stocks as well.

The company, whose profits have been shrinking for more than a year, said it would intensify cost-cutting measures, including monetizing unproductive real estate.

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Macy's said it was working to boost sales by rolling out more of its Backstage off-price stores and launching exclusive product ranges, including a clothing and accessories line in partnership with singers Elton John and Lady Gaga.

However, Macy's does not expect these initiatives to improve sales in the second quarter.

The company said gross margins in its second quarter would be lower than in the first quarter because of slow-selling warm weather goods.

Apparel sales were hurt by unseasonably cool weather in late March and early April, when retailers usually roll out spring collections.

Shares of rivals Kohl's Corp, Nordstrom Inc and J.C. Penney Co Inc, which are all expected to report results this week, were down about 3-6 percent.

Department store operators have been hit over the last year as consumers choose to spend on smartphones and electronics, dining out and travel, and invest in assets such as vehicles and homes.

Macy's sales at its stores open for at least a year, including at third-party sections, came in much lower than the average analyst estimate, falling 5.6 percent in the first quarter.

Net income attributable to Macy's fell 40 percent to $116 million, or 37 cents per share, in the quarter ended April 30.

Excluding items, Macy's earned 40 cents per share, beating the average analyst estimate of 36 cents, according to Thomson Reuters I/B/E/S.

The company's net sales fell 7.4 percent to $5.77 billion, missing the average estimate of $5.93 billion.

The company said it now expects comparable sales on an owned plus licensed basis to fall 3-4 percent in the year ending January. It also reduced its full-year profit forecast to $3.15-$3.40 per share.