Macy’s stock falls on outlook, department store chain fears

Bloomberg

Macy’s Inc plunged after a worse-than-expected second quarter underscored investor fears that the teetering department-store industry is slated for more pain ahead.
The retailer, the first of its peers to report earnings, slashed its profit outlook for the year — and it warned that the cut doesn’t even take into account the next round of Chinese tariffs, some of which will hit as soon as September 1.
The shares fell as much as 17 percent in New York last week. Stocks of rival department stores including Nordstrom Inc and Kohl’s Corp also dropped as concerns flared about the overall health of the sector.
Even before Macy’s reported, department stores showed indications of weakness in the second quarter, Bloomberg Intelligence analyst Poonam Goyal said, citing falling credit card point-of-sale data.
“That’s played out with Macy’s,” she said. “I wouldn’t be surprised if JCPenney comes out with a weak quarter as well.”
Department stores have been under pressure as competition ramps up from online rivals like Amazon.com and popular discount retailers like TJX Cos, which owns Marshalls and TJ Maxx. They’re also getting squeezed as the Trump administration ratchets up tariffs on Chinese goods.
A levy on department-store staples like handbags already went into effect, with the vast majority of other products slated for hikes later this year, even after a partial reprieve.
“I think very few retailers had a good second quarter,” said Chuck Grom, managing director at Gordon Haskett Research Advisors.

Tariff Risk
With new tariffs on everything from apparel to shoes looming, companies are finding themselves hard pressed to give investors confidence that the macro and earnings environment won’t worsen over the next six to 12 months. CEO Jeff Gennette said in May if president Donald Trump’s proposed tariffs on $300 billion items from China is enacted, it would hit the retailer’s private and international brands.
At Macy’s, same-store sales for owned as well as licensed stores rose 0.3 percent in the latest quarter, matching analysts’ expectations, according to Consensus Metrix.
Even though that marks the seventh consecutive gain, the growth is still anemic compared to big-box store peers. Gennette called out a “slow start to the quarter” that “finished below our expectations.”
While Macy’s is working on its individual strategies to bring people into stores like its experimental Growth50 initiatives, it can’t completely separate itself from the macro geopolitical uncertainties, Grom said.
“I think the consumers are under some stress and they’re having some trouble drawing traffic into their stores,” he said.
“You’ve got some big headwinds and that’s why the stock is down.”
Macy’s says it now sees diluted profit in a range of $2.85 to $3.05 per share, excluding some items, down 20 cents — even as it held its sales forecast unchanged. The company blamed too-high inventory levels in the quarter, including “a fashion miss in our key women’s sportswear private brands.”
It also cited a faster decline in international tourism, which often props up its flagship stores. Recent data backs up the retailer’s experience: International visitors to the US spent $17.5 billion in June, according to the Commerce Department.