Macy’s, Kohl’s renew fears of intractable retail slump

Bloomberg

A fresh round of sales declines at Macy’s Inc. and Kohl’s Corp., though less severe than Wall Street had feared, is renewing concerns that the department-store industry can’t pull out of a crippling slump.
Shares of both retailers declined last week after the quarterly results failed to assure investors that a comeback was taking hold. Same-store sales— a key measure—dropped 2.5 percent at Macy’s and 0.4 percent at Kohl’s.
The tepid reception from investors ensures that Macy’s new chief executive officer, Jeff Gennette, will remain in the hot seat. In the role only since March, he faces shrinking foot traffic in malls, deepening discounts by competitors and a declining customer base. Despite the challenges, Macy’s is vowing to reach its earnings goals by slashing costs and revamping its marketing strategy.
“Our eyes are open,” Gennette said in an interview. “We recognize how competitive the landscape is—we’re not going to rest. We have a very big half in front of us.”
Still, investors are skeptical that Macy’s can deliver on its goals. “While the second quarter was less bad than the first quarter, we do not believe it is enough to impress the market,” said Paul Lejuez, an analyst at Citigroup Inc., citing a “very weak” sales-gross margin equation.
Kohl’s has been performing better, but it too has struggled to snap a string of same-store sales declines. Shares of Macy’s fell as much as 10 percent to $20.72 after its report was posted, the biggest intraday decrease in three months. The stock had already slid 36 percent this year through Wednesday’s close.
Kohl’s rallied in the wake of its results, though it soon fell into negative territory. The stock declined as much as 11 percent to $37.50 in New York trading, its worst performance since January.
Dillard’s, a department-store chain operating in 29 states, sank as much as 16 percent to $61.50 after posting a surprise loss in its second quarter. CEO Bill Dillard blamed the result on “significant markdowns” and a pileup of merchandise. Its inventory rose 2 percent by the end of the period.
Macy’s is focused on pricing as the year goes on. With customers less brand-loyal than ever, Gennette said that prices— and margins—may be lower than last year in some businesses where Macy’s sells the same goods as other retailers. To offset that, the company is adding differentiated products that shoppers are willing to pay more for.

JC Penney drops post
loss revives concerns
Bloomberg

JC Penney is the bearer of more bad news for department-store investors.
The company followed Macy’s Inc., Kohl’s Corp. and Dillard’s Inc. in reporting declining sales in the second quarter. JC Penney also posted a deeper loss than analysts expected—hurt by clearance sales—sending the shares on their worst decline in more than four years.
The results renewed fears that there’s no end in sight for the department-store industry’s drought. JC Penney Chief Executive Officer Marvin Ellison is trying to win back customers by expanding the company’s partnership with cosmetic retailer Sephora and bolstering the assortment of high-price items, like appliances. The company is also pushing services like salons that require shoppers to come into stores. But progress has been slow.
The company also is closing about 140 underperforming stores. And the liquidation of inventory in 127 of those locations hurt profit in the period, Ellison said. “These events were isolated to the second quarter,” he said, adding that the company expects to “deliver improved results in the back half of the year.”
But investors saw little reason for optimism. The shares tumbled as much as 18 percent to $3.85 after the report was released, the biggest intraday drop since February 2013. That followed a 43 percent decline this year.
The rout suggests investors don’t think the weak results can be attributed just to one-time liquidation sales, Citigroup Inc. analyst Paul Lejuez said in a note. JC Penney may need to give further assurances to investors, he said.