Things went from bad to worse at Macy’s in the first quarter, with the department store giant reporting a 7.4 percent plunge in revenue as customers didn’t spend like the retailer hoped they would in key categories such as apparel.
Given the dismal results and the company’s perception that shoppers remain in a cautious posture, the retailer on Wednesday cut its outlook for the full year. While it had previously said it expected a 1 percent decline in sales at stores open more than a year, it is now expecting a decline of 3.5 to 4.5 percent.
The bleak start to 2016 continues a disappointing streak for Macy’s. But it also stokes fear in the wider retail industry about how much consumers will spend in the months ahead. The conventional wisdom has been that as the economy improves, shoppers will start buying gear to refresh their closets and redecorate their living rooms. And yet, despite low gas prices and a jobless rate hovering near a post-recession low, consumers just aren’t hitting the mall.
“We’re, frankly, scratching our heads. We see the same economic data you all see,” said Karen Hoguet, Macy’s chief financial officer, on a conference call with investors.
Hoguet also did not seem particularly upbeat that the consumer would change course anytime soon and give the retailer a jolt. Macy’s depends heavily on spending from international tourists at its flagship locations in major cities, and has recently suffered as those travelers held tight to their pocketbooks due to the strength of the U.S. dollar. Macy’s once predicted such caution would be something of a temporary blip, but on Wednesday Hoguet indicated that executives see the headwind continuing. And she did not seem particularly optimistic that domestic shoppers would open their wallets wider either.
“We are not counting on consumers to spend more this year, but we are working on giving them reason to shop more with us,” Hoguet said.
Macy’s stock was down nearly 12 percent in early trading, and its gloomy results sent a chill through the broader retail sector. Stocks for Nordstrom, Kohl’s, JCPenney and T.J.Maxx parent TJX Cos. fell Wednesday, likely an indication that investors think the performance at Macy’s is a harbinger of weakness throughout the industry.
Macy’s has been attacking its business problems from a variety of angles. It is experimenting with a new off-price chain called Macy’s Backstage that it hopes could help it capture a new customer. It is ramping up its line-up of exclusive and private label merchandise in an effort to give people more reason to shop at Macy’s instead of another department store. And it has hired a senior executive to re-evaluate its highly valuable real estate portfolio.
And while those measures may indeed end up boosting Macy’s over the long haul, things look somewhat grim right now for the company, which also includes the smaller but more upscale Bloomingdale’s chain. Macy’s has now delivered five consecutive quarters of declining revenue and decreasing sales at stores open more than a year, an important measure of a retailer’s health. Its 6.1 percent drop in comparable sales was the worst it has seen throughout this recent rough patch.
Macy’s has a host of big-picture challenges to tackle: It has more than 700 stores in the United States, a fleet that chief executive Terry Lundgren has said is simply too large for the era of Internet shopping. And many of its existing stores are anchors in the kinds of smaller, regional shopping malls that are seeing fewer visitors. In this quarter, transactions at Macy’s — a figure that is a proxy for foot traffic — were down 7 percent.
Earlier this year, Macy’s closed several stores, but only one in Texas, the location at Ridgmar Mall in Fort Worth.
Meanwhile, Macy’s digital business was a relative bright spot in the quarter, posting what Hoguet said was a “strong double-digit” increase in sales growth, though the pace has slowed. That suggests that the retailer still has plenty of work to do to shore up its e-commerce operation and to become more of a serious player in that channel.
Macy’s earnings per share for the first quarter were $0.37. Revenue was $5.77 billion, down from $6.2 billion is the same quarter last year.