Picture: 123RF/YOORAN PARK
Picture: 123RF/YOORAN PARK

Bengaluru  —Macy’s cut its annual profit forecast for the second time in 2019 on Thursday, as the department store operator blamed weak international tourism and sluggish mall traffic for the first drop in same-store sales in two years.

Shares fell 4% in pre-market trading. The company was the second major department store to cut its earnings outlook this week, after Kohl’s, ahead of the holiday sales season.

Department stores and apparel retailers are grappling with a shift towards more shopping at big-box retailers such as Target and Walmart, as well as at online giant Amazon. On Wednesday, Target posted another set of strong sales numbers and raised its full-year forecast, driven by demand for its apparel.

Comparable sales at Macy’s owned and licensed stores fell 3.5% in the third quarter ended November 2, also due to prolonged warm weather that hit demand for winter goods. Analysts had expected a 1% decrease, according to IBES data from Refinitiv.

“The sales deceleration was steeper than we expected,” CEO Jeff Gennette said in a statement.

A drop in international tourists, some of Macy’s biggest spenders, is also pressuring sales. The 161-year-old, Cincinnati-based retailer also experienced some issues with its website “in preparation for the fourth quarter”. Gennette tried to reassure investors of Macy’s preparations for the all-important holiday season, which kicks off next week.

However, analysts remained sceptical.

“We expect a very competitive and difficult holiday quarter for the department store segment,” largely due to steep promotions and discounts to drive traffic into stores and to digital, said research firm Retail Metrics founder Ken Perkins.

Many of the top gift ideas are electronic gadgets, which Macy’s does not sell, Perkins said. “Macy’s needs to differentiate itself in terms of gift selection to drive interest and traffic. It needs to expand items for same-day delivery and execute on this.”

The largest US department store operator, which has closed more than 100 stores since 2015 and cut thousands of jobs as mall traffic plummeted, has completed a revamp of about 150 stores with fresh interiors and better assortment of merchandise, and expanded its off-price “Backstage” departments into more stores, Perkins said.

It has also upgraded its website and worked hard at clearing excess inventory, he said.

Mattresses, fragrances, dresses, and fine jewellery performed well during the reported quarter, the retailer said, while men’s and women’s sportswear, handbags, housewares, and furniture performed poorly.

Macy’s now expects 2019 adjusted profit of between $2.57 and $2.77 per share, compared with its previous forecast of between $2.85 and $3.05. It also projected full-year total comparable sales to fall between 1% and 1.5%, compared to a previous forecast of up to a 1% rise.

Adjusted net income attributable to Macy’s shareholders fell to $21m, or 7c per share, in the quarter, from $83m, or 27c per share, a year earlier. Analysts had expected the company to break-even on a per share basis.

Reuters