Macy’s reported disappointing first-quarter results Wednesday. Comparable sales dropped 5.6% including licensed sales and total sales fell 7.4% to $5.8 billion.
Management cut its fiscal 2016 earnings forecast from a range of $3.15 to $3.40 compared to prior guidance of $3.80 to $3.90 per share, well below the $3.77 recorded in 2015. This sharp drop assumes second quarter will be difficult and that comparable sales will fall by about -3% for the year. As a result of the downward guidance, the stock dropped 15% on the day, bringing the 12-month decline to 52%. The shares are unlikely to rebound until the overall retail sales environment improves and Macy’s shows some strength.
Macy’s poor sales trends are not unique. Over the next few days I believe other retailers will report disappointing results. Several factors that impacted Macy’s will likely impact others as well, including:
- There were fewer foreign visitors. Both Macy’s and Bloomingdale’s are destination stores for such shoppers. Management estimates that sales to tourists were down by 20% in key Bloomingdale’s and Macy’s stores. This is the second year in a row that international customer spending was down.
- Consumer spending was weak in major apparel and accessory categories including handbags, fashion watches, women’s shoes, kids, men’s furnishing and luggage. Many of these categories are discretionary and postponeable.
- Some of the drop in sales can be attributed to the unseasonably cool weather in many parts of the country. However, management indicated that the weak shopping trend has persisted despite more normal weather.
- The intense primary election campaigns may have had a negative effect on shoppers.
Macy’s total sales reduction also reflects the previously announced closing of 41 stores in the first quarter.
On a more positive note, there were some good selling categories in the quarter such as fine jewelry, dresses, fragrances, coats, men’s tailored clothing, housewares and furniture. Macy’s management is also taking action to improve the sales trend through a variety of merchandising initiatives such as:
- The exclusive launch of a new line of clothing and accessories called Love Bravery – collaboration between Sir Elton John and Lady Gaga.
- An exclusive men’s collection called WHT space created in collaboration with X Games Gold Medalist Shaun White.
- The introduction of new wearable technology from Samsung.
- Brookstone will team up with Macy’s for a robust gift strategy for Christmas.
Macy’s is also moving forward with its off-price initiatives. The first two Macy’s Backstage off-price departments open inside full line stores in Nanuet, NY and Waterbury, CT. If these two “in store” locations prove successful, management believes it could expand the concept to 250 additional stores. Macy’s Backstage is really the return of the “basement store” with a different name; but as a new initiative it forces management to reduce the assortment in the rest of the store in order to allocate space to an off-price department.
Final clearances of men’s and women’s apparel will go in a centralized location called The Last Act. With excess merchandise piling up as a result of the below plan sales and the downward revision to the full year forecast pushing clearance sales will be important. The Last Act is a good idea, if the area stays neat and appealing. Observers have accused some Macy's stores of looking sloppy – which could be the fault of store managers finding it difficult to maintain housekeeping standards in this very promotional environment.
As I wrote previously, I view Macy’s and Bloomingdale’s managements as strong merchants who will fuel excitement in their stores through great merchandising. While the momentum is currently slow, some of the initiatives I outlined above are innovative and will help the company in the longer term.
