Macy's sales slip, says shoppers wary of spending
NEW YORK • Macy's Inc. reported a disappointing profit for its second quarter and cut its outlook for the year on Wednesday. The department store chain blamed shoppers' reluctance to spend for a rare slip in sales.
Its shares fell nearly 5 percent in regular trading. Over the past year, its stock is up almost 27 percent.
The second-quarter weakness raises worries about consumer spending, an important part of the economy, and how other merchants fared during the spring and early summer.
Macy's, the first of the major retailers to report second-quarter results, has been a standout among its peers throughout the economic recovery. It's a barometer of spending among middle- to upper-income shoppers.
Wal-Mart Stores Inc., Kohl's Corp. and Nordstrom Inc. are among the major retailers scheduled to report later this week.
Like other retailers, the Cincinnati-based operator of Macy's and Bloomingdale's is grappling with a yo-yo economic recovery that's making people careful about their purchases heading into the heart of the key back-to-school selling period.
While jobs are easier to get and the turnaround in the housing market is showing promise, the improvements haven't been enough to get most Americans to spend more. Most are juggling tepid wage gains with higher costs of living. On top of that, Americans are still trying to digest higher payroll taxes that went into effect Jan. 1.
"We believe that much of our weakness is due to the health of the consumer and to the fact that consumers seem to be choosing to make purchases in non-department store categories such as cars, housing and home improvement," Karen Hoguet, Macy's chief financial officer, said during a conference call with investors.
Hoguet also said that Macy's was also partly to blame for the sales shortfall as well. The chain didn't provide ample offerings of low-priced merchandise. To lure shoppers back in the store, Macy's said it is stepping up marketing but declined to offer details.
Chris Donnelly, London-based global retail managing director at Accenture, said that in this still tough economic environment, shoppers are shifting their spending around since they can't afford to buy all the product categories at one time. The nature of back-to-school shopping adds even more pressure to retailers.
Unlike Christmas, "there is no artificial deadline," he said. "There's no reason you have to buy the new pair of jeans on the first day of school."
For the three months that ended Aug. 3, Macy's said it earned $281 million, or 72 cents per share. That's short of the 78 cents per share analysts expected. It was the first time Macy's profit missed expectations since 2007. A year ago, the company earned $279 million, or 67 cents per share.
Revenue slipped to $6.07 billion, also short of the $6.26 billion analysts expected, according to FactSet.
Revenue at stores open a year, a key metric because it strips out the impact of newly opened and closed locations, slid 0.8 percent. That was Macy's first decline since the fourth quarter of 2009.
Macy's now expects the figure to climb between 2 percent and 2.9 percent for the full year, down from its previous projection of a 3.5 percent increase.
Hoguet said that weakness during the quarter affected many types of products, including shoes and cosmetics. The company had to mark down prices after a cool spring. But she said she was encouraged by early back-to-school sales so far in August. Another piece of encouraging news: the company's upscale Bloomingdale's chain saw a rebound in business from a weaker first quarter.
But other retailers such as teen clothing sellers American Eagle Outfitters Inc. and Aeropostale Inc. have warned of a slow start to the back-to-school period.
Macy's also lowered its full-year earnings forecast to $3.80 to $3.90 per share, down from the previous outlook of $3.90 to $3.95 per share.
Macy's results were also surprising because analysts believed that the chain should be benefiting from the woes of J.C. Penney.
Penney, based in Plano, Texas, is trying to stabilize its business after a transformation strategy spearheaded by its former CEO Ron Johnson backfired and led to disastrous results.
During a question-and-answer session with analysts, Hoguet declined to comment on how Penney's moves to bring back discounts had affected Macy's.
Still, Richard Jaffe, a Stifel Nicolaus analyst, believes that Macy's is positioned long-term as a dominant clothing retailer.
Macy's has been reaping the benefits of tailoring its merchandise to local markets, like offering more business suits in Washington, D.C. It's also been focusing on exclusive merchandise.
"Macy's great brands and exclusive merchandise provide the right combination of fashion and quality at a good price," he added.
But Macy's results don't bode well for Penney, which reports second-quarter results on Tuesday, said Brian Sozzi, chief equities strategist for Belus Capital Advisors.
Shares of Macy's fell $2.17 to $46.33. Over the past 52 weeks, the stock has traded between $36.30 and $50.77.
AP Retail Writer Candice Choi in New York contributed to this report.
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