Macy's cut profit outlook after weak quarter; confident for holiday

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

Shares fell 3% in morning trading. The company was the second major department store to cut its earnings outlook ahead of the critical holiday sales season. Kohl’s Corp did as well, citing weak apparel sales.

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

Even so, he told investors Macy’s is positioned for a strong holiday season, citing an expanded assortment of gifts, improved customer service and more flexible pickup or delivery options.

Department stores and apparel retailers are struggling to lure shoppers to malls and away from big-box retailers like Target Corp and Walmart Inc and online giant Amazon.com Inc.

Target on Wednesday 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 Nov. 2, as warm weather hurt demand for coats and sweaters. Analysts had expected a 1% decrease, according to IBES data from Refinitiv.

A drop in international tourists, some of Macy’s biggest spenders, also hit sales. The 161-year-old, Cincinnati-based retailer also experienced some issues with its website “in preparation for the fourth quarter,” it said.

Some analysts remain skeptical about Macy’s and other department stores’ prospects for the holiday season, a period that can be make-or-break for retailers.

“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.

Thanksgiving, the traditional kickoff of the U.S. holiday shopping period, falls on Nov. 28 this year, a week later than last year’s Nov. 22, leaving retailers with six fewer days to make sales between Thanksgiving and Christmas Day.

The largest U.S. 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 refreshed interiors. It has also expanded off-price “Backstage” departments into more stores.

It has also upgraded its website and worked to clear excess inventory, he added.

Mattresses, fragrances, dresses, and fine jewelry 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 per share 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 with a previous forecast of up to a 1% rise.

Adjusted net income attributable to Macy’s shareholders fell to $21 million, or 7 cents per share, in the quarter, from $83 million, or 27 cents per share, a year earlier.

Analysts had expected the company to break-even on a per share basis.

Rival Nordstrom Inc is set to report quarterly results later on Thursday.