Why Macy’s and Kohl’s Saw Weak Fiscal 2016 Earnings

Impact of poor holiday sales

In Part 1 of this series, we discussed the fall in Macy’s (M) and Kohl’s (KSS) 2016 holiday sales. Following weak 2016 holiday sales, Macy’s and Kohl’s lowered their outlook for fiscal 2016 earnings on January 4. The lower guidance dragged down their stock prices.

Why Macy’s and Kohl’s Saw Weak Fiscal 2016 Earnings

Macy’s cuts earnings outlook

Following lower holiday sales, Macy’s expects its adjusted EPS (earnings per share) for fiscal 2016 to be $2.95–$3.10 compared to the previous guidance of $3.15–$3.40. The adjusted EPS excludes the impact of one-time items like asset impairment charges. Macy’s adjusted EPS fell in each of the first three quarters of fiscal 2016. The company’s adjusted EPS in 3Q16 fell 69.6% due to lower sales and a fall in the operating margin. Macy’s is scheduled to report its fiscal 4Q16 and fiscal 2016 results on February 21.

Macy’s expects its fiscal 2016 same-store sales, on an owned plus licensed basis, to arrive at the lower end of its previously issued guidance of a 2.5%–3.0% decrease.

Kohl’s bleak outlook

On January 4, Kohl’s reported weak 2016 holiday sales. It lowered its adjusted EPS guidance for fiscal 2016 to $3.60–$3.65—compared to the company’s previously issued adjusted EPS guidance of $3.80–$4.00. Including one-time charges related to impairments and store closures, Kohl’s expects its fiscal 2016 EPS to be $2.92–$2.97—down from the previously issued guidance of $3.12–$3.32.

Kohl’s is slated to announce its fiscal 4Q16 and fiscal 2016 results on February 23. Together, Macy’s and Kohl’s account for 2.1% of the First Trust Consumer Discretionary AlphaDEX Fund (FXD).

Aside from announcing its latest earnings guidance, Macy’s also announced restructuring initiatives on January 4 to address its dismal performance in recent quarters. We’ll discuss this in the next part of the series.