Macy’s suffers back yard blues, cuts year-end outlook



Even Macy’s is suffering in its own back yard. A beacon of US department store sector stability in the post recession period, the retail giant was forced to lower its full-year sales forecast after reporting a weaker-than-expected Q2 performance.

Macy’s has now missed analysts’ earnings expectations for two straight quarters and in three of the last five.

The now-familiar combination of heavy discounting and a strong dollar that curbing foreign tourists spending was to blame, it said.

It also noted its customers are instead spending their money at restaurants and on health care, recreational activities and electronics, rather than apparel and home goods.

CFO Karen Hoguet said: “Our performance in the first half of the year was not as strong as we had hoped, but we are cautiously optimistic about our ability to improve this sales trend in the fall season.”

Macy’s said it now expected total fiscal-year sales to fall about 1% compared with a previous outlook for growth of around 1%. The retailer also forecast flat same-store sales.

For Q2, net income fell 26% to $217m/64 cents per share. Analysts had expected 76 cents.

Net sales declined 2.6% to $6.10bn, the fourth drop in six quarters, missing analysts’ $6.23bn view. Comps also fell 1.5%, well short of the 1.3% rise analysts had expected.

The average transaction size fell 1.3% in Q2, while the number of transactions also declined slightly.

Gross margin narrowed to 40.9% from 41.4% a year earlier, because of delayed receipt of goods from the port slowdown and additional markdowns taken to spur sales. Hoguet said the rate was lower than it had anticipated.

Macy’s also said it Wednesday would sell part of its nine-storey Fulton Street, Brooklyn store to real estate company Tishman Speyer for $175m. Macy’s will get an additional $100m over three years and continue to own and operate four floors.

Macy’s will continue to own five floors of the store, or about 310,000 sq ft while Tishman will own the remaining three floors and a parking garage, which it will convert to office space.

Macy’s is also pushing ahead with other initiatives, including its outlet business and expanding beauty ops Bluemercury. The retailer plans to open six outlet stores called Macy’s Backstage this autumn and plans to open 10 Bluemercury stores before the end of the year, bringing the total to 76.

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