Macy's on Wednesday said that second quarter net sales fell to $5.55 billion from $5.57 billion in the year-ago quarter.
Store comps on an owned plus licensed basis rose 0.3% after a 0.5% rise a year ago; on an owned basis only, comps, flat a year ago, rose 0.2%, according to a company press release. While fall inventory is now in line with anticipated demand, bloated inventory due to a fashion miss in women's, slow sales of warm-weather apparel and a decline in international tourism forced markdowns in the spring quarter, the company said.
Net income fell to $86 million from $166 million a year ago, as earnings before interest, taxes, depreciation and amortization fell to $400 million from $501 million last year, the company said.
Macy's painted a picture of a company in the tough retail business, where fashion is always risky and the vagaries of outside forces like tourism trends and weather can disrupt even the best planning.
The company reiterated its guidance for full-year comps to end flat to up 1% and net sales to be about flat, but lowered its adjusted diluted earnings expectation to between $2.85 to $3.05 per share, down from its earlier guidance for $3.05 to $3.25 per share.
Bloomingdale's particularly suffered from the fall-off in tourism, Macy's CEO Jeff Gennette told analysts on a conference call Wednesday morning. The company's Bluemercury spa business, however, did better in the quarter, he said. He also expressed confidence in the company's off-price efforts, mostly Backstage concessions within Macy's stores.
But the department store also has its own neglect to blame, particularly of its flagship stores, which should provide a key way to market to its customers, according to GlobalData Retail Managing Director Neil Saunders. Its Story and off-price Backstage efforts are promising strategies, but so far "represent tinkering at the edges," he said in emailed comments.
"They do not address the fundamental issues at the heart of the business; problems which have been festering for years and which Macy's always seems unwilling or unable to resolve," he warned. "The central issue is the terrible environment in many of Macy's regional shops. These stores, which have suffered years of underinvestment, increasingly resemble 1980s throwbacks – and not in a trendy retro way."
Gennette touted the company's efforts through b8ta and Story, and announced two new programs — used apparel sales in partnership with resale site ThredUp in 40 Macy's stores and a subscription rental service at Bloomingdale's in partnership with CaaStle dubbed "My List," set to launch next month. The company will take what it learns from "My List @ Bloomingdale's" to develop a similar strategy at Macy's in the near future, Gennette said.
"We needed to play in this game," he told analysts. "The vendors themselves are keen to be a part of this."
The company has found that its customers don't have much of an appetite for price increases, so it's working with manufacturers and vendors to offset tariffs, Gennette said. An attempt to boost prices faltered earlier in the year, he said. The next set of tariffs on Chinese goods, now-delayed until December, will be tougher to manage and could force price increases after all, he said.
Gross margin was down 160 basis points in the quarter, CFO Paula Price told analysts. In addition to the markdowns particular to the reported quarter, growth in e-commerce and the retailer's Star Rewards loyalty program, plus delivery headwinds contributed to the pressure, she said.
It's a problem in the sector generally. "Department stores continue to be challenged in their effort to stabilize operating margins," Christina Boni, a Moody's vice president-senior credit officer, told Retail Dive in an email. "Although Macy's comp sales remained positive at 0.3%, second quarter performance was clearly disappointing, as operating income declined approximately 50%."