Macy's, Kohl's Renew Fears Of Intractable Department Store Slump
A fresh round of sales declines at Macy’s and Kohl’s, though less severe than Wall Street had feared, is renewing concerns that the department-store industry is mired in a slump.
Shares of both retailers declined on Thursday after the quarterly results failed to assure investors that a comeback was taking hold. Same-store sales dropped 2.5% at Macy’s and 0.4% 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.
“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, 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 4.9% to $21.91 after its report was posted, the biggest intraday decrease in a month. The stock had already slid 36% 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% to $37.50 in New York trading, its worst performance since January.
Macy’s reported earnings of 48 cents a share in the second quarter, excluding some items. Analysts had predicted 45 cents on average in the period, which ended July 29. The average estimate for same-store sales was a drop of 3%, according to Consensus Metrix.
For Kohl’s, analysts had predicted a 1.5% decline in same-store sales.
New fashion trends for the back-to-school season could give Macy’s a boost, as the company gets more than half its sales from apparel. A surge in denim and more patterns - like florals and camouflage - could convince customers to buy, said Poonam Goyal, an analyst at Bloomberg Intelligence.
“There’s improved momentum from the first quarter,” Goyal said. “They’re doing everything they can -- they just need to regain that momentum and the traffic.”