Macy’s Inc. lowered its full-year earnings outlook after missing profit expectations in the latest quarter, as department stores are still struggling with today’s evolving retail climate.
The department store chain said inventories of unsold items swelled in the summer quarter. Sales at stores open at least a year rose 0.2 percent in the three months ended August 3. Including licensed departments, the measure grew 0.3 percent. But net income nearly halved to $88 million from $166 million a year earlier on lower asset sales and higher merchandise markdowns.
The results sent Macy’s shares tumbling, and darkened the outlook for the broader retail sector as it kicks off its earnings season. Macy’s stock fell 15 percent to $16.45 in midday trading Wednesday. Shares are down about 54 percent in the past 12 months.
“Macy’s, Inc. delivered another quarter of comparable sales growth,” said Jeff Gennette, Macy’s, Inc. chairman & chief executive officer. “That said, we had a slow start to the quarter and finished below our expectations. 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.”
Gennette continued, “We took markdowns to clear the excess spring inventory and are entering the fall season with the right inventory to meet anticipated customer demand. While we had seasonal inventory challenges in spring, there are many areas of the business that are performing well, notably our Destination Businesses. We continue to see healthier sales within our brick and mortar business, led by our Growth50 stores and Backstage expansion. Our digital business posted its fortieth consecutive quarter of double-digit growth, and mobile remained our fastest growing channel.”
Gennette said on Wednesday that the chain was joining with resale marketplace ThredUp to sell used clothing and accessories in 40 Macy’s stores. Its Bloomingdale’s chain recently unveiled plans to launch a rental service called My List.
For the current fiscal year that ends in early 2020, Macy’s lowered its earnings guidance by 20 cents. Excluding settlement charges, and impairment and other costs, the company now forecasts adjusted earnings per share of $2.85 to $3.05 for the year, compared with its previous estimate of $3.05 to $3.25.
Despite the expected fall in profit, Macy’s reaffirmed its annual sales guidance. The company still expects net sales to be roughly flat from the last fiscal year, with comparable sales to be flat to up 1 percent. In the recently completed period, net sales fell 0.5 percent to $5.55 billion.
“Our 2019 strategic initiatives are on track to contribute to sales growth in the back half of the year, and we have plans to drive productivity and improve gross margins,” Gennette added. “Our team has responded quickly to the external environment, course corrected when needed and we remain confident. Our 130,000 colleagues compete every day to win our customers’ business.”