A glum outlook from Macy’s Inc.
renewed concerns about the broader retail industry, contributing to a stock rout for consumer companies such as Wal-Mart Stores Inc., Michael Kors Holdings Ltd., Ralph Lauren Corp. and Ross Stores Inc.
Macy’s cut its profit forecast for this year and posted first-quarter revenue that missed analysts’ estimates — a sign that slow foot traffic at shopping malls continues to take a toll on the largest US department-store company.
Shares of Macy’s plunged as much as 14 percent to $31.91 in New York, their worst intraday decline in six months. And it wasn’t alone. Wal-Mart, the largest US retailer, slid as much as 4.6 percent to $65.61. Target Corp. fell as much as 5 percent to $76.01, its biggest intraday drop since November.
Macy’s is spooking investors with the message that consumers just aren’t spending, said Ken Perkins, president of Retail Metrics. And the chain doesn’t see that changing soon.
“It’s beginning to feel like a new world,” Perkins said.
Companies that stock retailers with goods also got hit. Nike Inc. tumbled as much as 4 percent. VF Corp., owner of the North Face, Lee and Wrangler clothing brands, dropped as much as 5.7 percent. Michael Kors, meanwhile, plummeted as much as 13 percent.
Gap Inc., the largest specialty chain focussed on apparel, also reported weak results this week. It posted a 7 percent decline in Gap’s same-store sales last month. Analysts had predicted a gain of 1.1 percent, according to RetailMetrics.
Gap’s evaporating sales may force the retailer to rely more heavily on real estate deals and other cost-cutting moves to maintain profit, said Fitch Ratings, which cut its long-term issuer default rating to junk status.
The retreat for US retailers takes some of the shine off of what had been a strong year for the stocks. Even with drop, the group has surged 19 percent from mid-February, when the Standard & Poor’s 500 Index fell to a 22-month low. It’s the sixth-best performer of 24 industry groups in the three months, though much of the rally can be attributed to a 41 percent jump in Amazon.com Inc., which makes up more than a quarter of the retailing index.
Investors have been adding to positions in retailers before the crush of consumer earnings. The SPDR S&P Retail ETF absorbed $194 million, the biggest single-day inflow in a month.
That optimism may be misplaced, according to Macy’s profit forecast. The retailer now expects full-year earnings of $3.15 to $3.40 a share, down from an earlier projection of $3.80 to $3.90 a share. The Cincinnati-based company also cut its forecast for full-year sales, citing a double-digit drop in tourist spending and a slowdown in sales of some core categories.
The disappointing results from Gap to Macy’s also run counter to sentiment for the group’s earnings. Prior to April 11, analysts had projected retailers’ profit would increase by 7.6 percent in the first quarter and 13 percent in 2016. They now see earnings jumping by 11 percent in the last quarter and 14 percent this year. However, still, some investors are expecting a very disappointing performance from the retailers.