Macy's sales drop 5.4%, hit by store closures

Dive Brief:

Macy’s posted total sales of $5.55 billion for the second quarter, a 5.4% decrease from the year-ago period that was driven largely by this year’s store closures, according to a company press release. The retailer’s sales beat the FactSet Consensus, cited by MarketWatch, of $5.52 billion. At just under $10.9 billion, Macy’s sales for the year so far are down about 6.4% from this time last year.
Macy’s comparable sales fell 2.8% in Q2 and are down 4% year-to-date. Earnings rose from 3 cents per diluted share in Q2 last year to 38 cents in Q2 2017. Adjusted earnings were 48 cents per share, beating the FactSet consensus of 46 cents, according to MarketWatch. Executives reaffirmed guidance for the fiscal year, with expectations that comparable sales could decline by between 2.2% and 3.3% and total sales could drop by as much as 4.3%. But management still expects Macy’s to be profitable, with projections of earnings between $3.37 to $3.62 per share.
The retailer said it opened 16 new freestanding Bluemercury beauty stores and 12 new Backstage off-price stores in existing Macy’s stores. Macy's also closed two stores, in Texas and Ohio, and plans to close another at the Magic Valley Mall in Twin Falls, Idaho, in early 2018.

Dive Insight:

Macy’s efforts to cut costs, including closing around 100 stores and letting go of some 10,000 employees, have taken their toll on the company’s sales. Macy’s CEO Jeff Gennette — who is still relatively new at the helm of a retailer trying to forge a path forward in a chaotic retail world — said in a statement that he expects Macy’s fairly lackluster sales to improve during the back half of the year.

He noted the sales benefited from new models for selling women’s shoes and jewelry, as well as "successful testing" of its in-store Backstage outlets. Gennette also expects sales to get a bump in the fall off the launch of Macy’s new loyalty program, which rewards consumers based on their purchase levels, and a new marketing campaign.

Further out, Gennette said Macy’s was working to build a more "elevated and exclusive" product assortment and to better integrate technology in stores and the online platform. In an effort to bring in exclusive products, Macy’s recently tapped Israeli designer Kobi Halperin for a limited-time fashion collection that includes blouses, sweaters, dresses, jackets, jumpsuits, pants and more.

Wall Street gave Macy’s Q2 earnings a tepid review (the company’s stock fell about 2% in premarket training), but not everybody was gloomy about the report. "After a torrid opening quarter, Macy's second quarter numbers come as a relief," Neil Saunders, managing director of GlobalData, wrote in a note emailed to Retail Dive. "Certainly, a same-store sales decline of 2.8% is far from good, but it is one of the better performances Macy's has turned in over recent periods."

While store closures dragged down Macy’s sales, Saunders noted that Macy’s has retained some loyal shoppers, who transferred to other stores. "This is encouraging as it indicates that Macy's rationalization will ultimately deliver higher levels of store productivity without severe damage to volumes," he wrote.

While the company closes stores, it's also trying to boost the productivity of its existing ones by opening the off-price Backstage concept in some of the laggards. It’s not clear what the strategy will reap in the long run. Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, said Gennette needs some space and time. "They’re a decade behind in getting into off-price — a decade — they just started," he told Retail Dive previously. "They’re also going about it differently, they’re going to make it part of their stores. That may work, that may not work."