Lower sales drag down Macy's profit, results miss forecast

In this Tuesday, May 2, 2017, photo, shoppers holding bags from Macy's wait to cross an intersection in New York. Macy's Inc. reports earnings, Thursday, May 11, 2017. (AP Photo/Bebeto Matthews)
This Tuesday, May 2, 2017, photo shows corporate signage at Macy's flagship store in New York. Macy's Inc. reports earnings, Thursday, May 11, 2017. (AP Photo/Bebeto Matthews)

NEW YORK — Lower sales dragged Macy's profit down for the first quarter, highlighting the challenge for retailers as customers shift to more online shopping and store locations lose traffic.

Macy's results fell short of Wall Street expectations, and the nation's largest department store chain warned sales will fall further this year. Its shares tumbled 14 percent, and gloom about the overall sector brought the shares of several other chains down as well.

"It's a tough time to be a (department) store," Citi said in an analyst note.

Rival Kohl's also reported a drop in first-quarter revenue, but cost cuts helped boost profit, which topped expectations. Its shares fell nearly 6 percent.

The climate is a big challenge for Macy's new CEO Jeff Gennette, who succeeded longtime Chief Executive Terry Lundgren in March.

Sales at established stores fell 5.2 percent, the ninth straight period of declines for the important metric. Macy's, like other traditional department stores, has been hurt as online leader Amazon and off-price rivals like TJ Maxx take business away. Macy's also has been closing stores as it tries to regroup as people make fewer visits to the malls where its stores are often an anchor.

Strength in categories like women's clothing, fine jewelry, fragrances, women's shoes, and furniture "was more than offset by persistent softness in handbags, fashion jewelry, and watches," analysts at Jeffries said.

Gennette said Thursday the company would invest to aggressively expand its digital and mobile business and continue integrating its online and brick-and-mortar experiences.

Neil Saunders, managing director of GlobalData Retail, called the results "gloomy."

While Macy's has a clearer sense of direction and a "rudimentary" map, "the distance it needs to travel over the next few years is enormous," he wrote. "We question whether the company is bold, nimble or healthy enough to cover such ground."

Under Lundgren, the Cincinnati-based chain had promoted more exclusive merchandise. Macy's has also tested an off-price strategy and new ideas like self-service in some of its shoe departments.

Gennette said Macy's has been encouraged by the performance of the changes they've tested in areas like women's shoes, fine jewelry, and furniture and mattresses. Saunders cited the changes in the shoe and home departments as signs Macy's thinking is on the right track.

But some new services have flopped. Earlier this month, Macy's and Tailored Brands said they'd terminate a two-year-old tuxedo rental partnership with Men's Wearhouse.

The Macy's brand still has around 700 stores, though it has been aggressive about closings. Shareholders have pressured Macy's to get more value out of its real estate holdings, which are worth an estimated $21 billion according to activist investor Starboard.

For the quarter, Macy's said its profit slumped 39 percent to $71 million, or 23 cents per share. Adjusted earnings were 24 cents per share, well below analyst forecasts.

Revenue fell 7.5 percent to $5.34 billion, also below Street forecasts.

Macy's maintained its forecast for earnings this year of $2.90 to $3.15 per share, above the 2016 level but still below where they were in 2015.

Macy's shares lost $4.19 to $25.15 in midday trading. Before the market opened, the stock had already dropped 18 percent since the beginning of the year.

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Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on M at https://www.zacks.com/ap/M

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Keywords: Macy's, Earnings Report, Priority Earnings

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