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Macy’s Stock Falls 15% on Dismal 1Q16 Results and Sinking Outlook

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Macy’s Stock Falls 15% on Dismal 1Q16 Results and Sinking Outlook PART 1 OF 6

Macy’s 1Q16 Sales Fell on Lower Consumer Spending

Sales miss estimates

Department store chain Macy’s (M) reported yet another quarter of disappointing sales. The company’s sales for 1Q16 ended April 30, 2016, were $5.8 billion, lower than the consensus analyst estimate of $5.9 billion.

Macy’s 1Q16 Sales Fell on Lower Consumer Spending

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Sales decline in 1Q16

Macy’s sales fell by 7.4% in 1Q16 from the comparable quarter of the previous year. The company’s sales fell at a steeper rate in 1Q16 compared to a decline of 5.3% in 4Q15 and 0.7% in 1Q15. According to the company, the weakness in sales started in mid-March and continued in April. Macy’s cited the following reasons for its 1Q16 sales decline:

  • continued weakness in consumer spending in apparel and related categories
  • a 7% decline in the number of transactions
  • a 20% decline in sales on international tourist credit cards in 1Q16 on top of a 21% drop in 1Q15
  • a slowdown in some center core categories like handbags and women’s shoes

Persistent weakness

The sales decline in 1Q16 marked the fifth consecutive fall in Macy’s quarterly sales. Macy’s sales declined by 3.7% in fiscal 2015 ended January 30, 2016. The SPDR S&P Retail ETF (XRT) has 1% exposure to Macy’s. The sales of peers Kohl’s (KSS) and JCPenney (JCP) increased by 1% and 3%, respectively, in fiscal 2015. Dillard’s (DDS) experienced a 0.4% decline in its fiscal 2015 sales.

Overall, department stores are facing intense competition from online retailers like Amazon (AMZN). Also, off-price retailers like TJX Companies (TJX) and Ross Stores (ROST) are attracting consumers with their bargain deals. A highly promotional environment is putting pressure on the margins of department stores.

Macy’s announced a series of steps to improve its business, which we’ll discuss in part four of this series. We’ll also discuss the steep decline in the company’s stock price in response to the 1Q16 results in part five of this series and the company’s valuation in the concluding part of this series.

Read on to find out what impacted the company’s earnings in 1Q16.

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