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

NEW YORK – Lower sales dragged down Macy’s profit during the first quarter as customers’ habits shift to more online shopping and retail locations lose traffic.

The results fell short of Wall Street expectations, and the nation’s largest department store chain warned sales will fall further this year. Its shares lost $3.42, more than 11 percent, to $25.92 in early trading.

Cincinnati-based Macy’s said its profit slumped 39 percent to $71 million, or 23 cents per share in the quarter. Eight analysts surveyed by Zacks Investment Research had forecast an average of 35 cents a share.

The department store operator’s revenue fell 7.5 percent to $5.34 billion, also below Street forecasts. Four analysts surveyed by Zacks expected $5.47 billion.

Sales at established stores fell 5.2 percent, the ninth straight period of sales declines for the important metric. Like many department stores, Macy’s has faced sluggish sales as customers buy more online and less at the malls where department stores are often an anchor. Macy’s has been closing stores as it tries to regroup.

Rival Kohl’s also reported a drop in first-quarter revenue, but cost cuts helped boost profit, which topped expectations.

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

Macy’s had performed in stellar fashion following the recession, but has seen sales fall as online leader Amazon and off-price rivals like TJ Maxx take business from traditional department stores. Under Lundgren, Macy’s 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.

But none of that has stopped the decline. And 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.

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

The results were “gloomy,” said Neil Saunders, managing director of GlobalData Retail. 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,” Saunders said. “We question whether the company is bold, nimble or healthy enough to cover such ground.”

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.

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

Shares in Macy’s have dropped 18 percent since the beginning of the year, while the Standard & Poor’s 500 index has increased 7 percent. The stock has fallen 21 percent in the last 12 months.