Macy’s ‘Disappointed’ With Pace Of Sales In Q3

Terry Lundgren
Terry Lundgren, chairman and CEO of Macy's Inc.
Getty Images.

Macy’s Inc. Chairman and CEO Terry Lundgren said the company’s revenues did not show the improvement the company had hoped for in its third quarter.

Tepid spending by domestic shoppers and slowing tourism, Lundren said, are at least partly to blame for Macy’s declines in revenues, profit and comparable store sales in Q3.

“This is a management team that has navigated through difficult times in the past, and we’ve done so successfully. As we’ve demonstrated in the past, we use these challenging times to move decisively forward. We use these times to reset our ambitions and determine how we’re going to win and where we’re going to play, while maintaining a financial objective that we set for our shareholders,” Lundgren said during the firm’s conference call.

This is the third consecutive quarter of soft performance and elevated inventory, analysts have noted, while the company recently announced that it will shutter 35 to 40 stores.

As Macy’s continues to face macroeconomic and internal challenges, management downward-adjusted its guidance for the fiscal year.

Heading into the fourth quarter, we are shifting our organization into overdrive to focus on sales-driving activities in the holiday shopping season, when Macy’s and Bloomingdale’s shine as destinations for gift-giving and self-purchase,” Lundgren said in a release. “We also will be opening stores in several of our nameplates in the fourth quarter, including a new Bloomingdale’s at Ala Moana in Honolulu.

Comp sales decreased 3.6 percent on an owned-plus licensed basis; on an owned basis, comps declined 3.9 percent.

Management also announced that it will not pursue the formation of a REIT (Real Estate Investment Trust) at this time.

The firm’s share price was down 13.12 percent, shedding roughly $6, at press time.

Net Income: Profit for the quarter ending Oct. 31, 2015, totaled $118 million, a 46 percent decline from the comparable quarter’s earnings of $217 million.

EPS: Earnings per diluted share decreased 41 percent year-over-year, to 36 cents, from 61 cents per share in the comparable quarter.

Net Revenue: Sales totaled $5.9 billion, a decrease of 5.2 percent, compared with sales of $6.2 billion in the same period last year.

Hit, Miss or Beat: Macy’s missed Wall Street’s estimates for revenue and EPS. Analysts polled by Yahoo Finance had predicted EPS of 54 cents and revenues of $6.1 billion.

Executive Insights: “I’m just not happy with our current overall results, and I’m committed to fixing it. Our team is among the deepest, most experienced and most determined team in retail. That’s been clearly recognized for the last several years as we’ve proven to have strong success. And while we are quite dissatisfied with our current results, we’re quite confident that we’ll be able to return to delivering profitable growth.”
— Lundgren during the Q3 conference call

Looking Ahead: Diluted EPS for fiscal 2015 now are expected in the range of $4.20 to $4.30, excluding asset-impairment charges associated primarily with previously announced store closings — compared with the prior range of $4.70 to $4.80. Updated annual guidance calculates to guidance for fourth-quarter diluted EPS of $2.54 to $2.64, excluding additional charges associated with store closings or cost reductions. Guidance is for full-year 2015 comparable sales on an owned-plus licensed basis to decrease by 1.8 percent to 2.2 percent, compared with previous guidance of approximately flat. This calculates to fourth-quarter comparable sales on an owned-plus licensed basis to decline by 2 percent to 3 percent. Full-year and fourth-quarter 2015 comparable sales on an owned basis will be approximately 50 basis points lower than on an owned-plus licensed basis, the company said. Macy’s expects 2015 total sales to be down by 2.7 percent to 3.1 percent, compared with previous guidance for total sales to be down approximately 1 percent.

Analyst Insights: “A bit worse than feared … 3Q inventory growth of 4.6 percent year-over-year outpaced sales growth of [down] 5.2 percent, which is the third consecutive quarter that inventory outpaced sales growth. Management indicated that it is accelerating sales-driving activities for the holiday season to improve the sales trend.”
— Cowen & Co. analyst Oliver Chen

“While several vendors have referenced lower margins in 4Q (seemingly to brace for markdown support), we were still surprised to see inventory so heavy heading into 4Q on Macy’s.”
— UBS Investment Bank analyst Michael Binetti