Macy’s (M) earnings for the third quarter yet again reflected the struggle that’s facing department stores in this highly competitive retail market. The company’s sales fell 4.3% year-over-year to $5.17 billion in the third quarter. They also lagged behind analysts’ forecast for $5.32 billion. Macy’s same-store sales fell 3.5% on an owned-plus-licensed basis and 3.9% on an owned basis. This decline was steeper than the 1% fall Wall Street had predicted.
Macy’s third-quarter adjusted EPS of $0.07 beat analysts’ estimate of breakeven earnings. However, adjusted EPS were down 74.1% compared to $0.27 in Q3 of fiscal 2018. Lower sales and margin contraction pulled down Macy’s earnings.
Why Macy’s earnings saw lower sales for Q3
Macy’s cited unfavorable weather, continued softness in international tourist spending, and weakness in lower-tier malls as the reasons for its dismal top line. Also, an upgrade to the company’s e-commerce site had a temporary adverse impact on online sales. The upgrade aimed to improve consumers’ shopping experience in the holiday season. Meanwhile, the company experienced weakness in the women’s and men’s sportswear, handbags, housewares, and furniture categories.
Macy’s and its peers Kohl’s (KSS) and JCPenney (JCP) are struggling to compete with online retailers, mainly, Amazon (AMZN). And the rivalry in the retail space is only more intense because of off-price retailers like TJX Companies (TJX), which are getting more consumer traffic than department stores.
Kohl’s Q3 sales declined 0.3% year-over-year to $4.36 billion while JCPenney’s sales declined by a steep 10.1% to $2.38 billion. Same-store sales for Kohl’s grew 0.4% while JCPenney’s same-store sales fell 9.3% year-over-year. However, TJX’s sales grew 6.4% to $10.45 billion with a 4% rise in same-store sales.
Macy’s has been expanding its Backstage stores to capture growth prospects in the off-price space. Macy’s Backstage stores, which were open for over a year, delivered mid-single-digit sales growth in Q3. The company has opened 50 Backstage stores within Macy’s locations this fiscal year.
Macy’s lowered its full-year outlook following the poor performance in the third quarter. It now expects fiscal 2019 net sales to decline in the range of 2.0%–2.5%. The prior outlook was for flat net sales. The company anticipates fiscal 2019 same-store sales (on an owned-plus-licensed basis) to decline in the range of 1%–1.5%. It previously forecast same-store sales growth in the range of 0.0%–1.0%.
The company expects its fiscal 2019 adjusted EPS in the range of $2.57–$2.77, compared to the prior outlook of $2.85–$3.05. Its guidance fell short of analysts’ expectation of $2.80.
Aside from expanding in the off-price retail market, Macy’s is also trying to boost sales by updating 150 locations under its Growth150 strategy. However, despite significant growth investments, Macy’s and its peers are unable to boost their top lines amid a highly promotional market.
Macy’s stock is one of the worst-performing stocks of the S&P 500 Index this year. It’s down 49.6% year-to-date while the S&P 500 was up 24% as of November 20.
Upscale department store Nordstrom will announce its earnings results today after the markets close. Analysts expect a 2.1% fall in Nordstrom’s third-quarter revenue due to continued weakness in full-price stores. Also, they also expect adjusted EPS to fall 4.5% to $0.64. Nordstrom stock was down 27.2% year-to-date as of yesterday.