(Bloomberg Opinion) -- Macy’s Inc.’s continuing missteps put a turnaround even further out of reach.The department store giant said on Wednesday that comparable sales in the second quarter rose a meager 0.2% from a year earlier, or 0.3% including licensed departments. Earnings in the period fell well short of analysts’ estimates and Macy’s said it resorted to markdowns to clear inventory. The weak performance forced the company to cut its 2019 adjusted earnings guidance. It now expects to earn $3.05 a share at most this year, down from an earlier prediction for as much as $3.25.
Macy’s shares were slammed on Wednesday, tumbling more than 17% in early trading. No wonder: the guidance cut doesn’t even reflect the potential impact from tariffs. After initially planning to slap 10% tariffs on $300 billion of mostly consumer-linked Chinese goods by Sept. 1, the Trump administration announced this week that it would delay levies on some items — including certain kinds of apparel and footwear — until mid-December. That delay doesn’t offer any durable relief for the retail industry, though. If Macy’s had to slash its outlook even before factoring in policy curve balls from Washington, investors are right to be worried about what direction things go from here.
To be fair, there were factors beyond Macy’s control pressuring its results. These include a decline in international tourist spending, which is often a top driver of sales at its flagship locations such as at Herald Square in Manhattan. However, the company also acknowledged its women’s sportswear business suffered from “fashion misses,” which is retail code for “we didn’t have cute enough clothes.” And in that respect, Macy’s failed at the most basic task of being a department store: Having a merchandise assortment that’s exciting and appealing to key customers.
The company called out women shoppers younger than 40 — particularly those ages 24 to 29 — as an “opportunity” for improved sales on its May earnings call. And it clearly understands it needs to do better job of having the right garments. Macy’s launched an initiative dubbed “destination businesses” that’s aimed at strengthening some of its key departments, such as dresses, by having a selection of great brands and exclusive merchandise. I agree these are critical focus areas, but I don’t think the company has offered enough specifics on how it plans to better reach its audience. This quarter’s fashion whiffs only underscore the urgency of the problem and make it seem like the promised changes aren’t happening nearly fast enough.
I also worry some of Macy’s other big strategic initiatives have soft underbellies. Its expansion of Backstage, its off-price store-within-a-store concept, seems to be wringing more dollars out of shoppers who already visit Macy’s. But what is it doing to lure customers who have barely (or never) set foot in a Macy’s in their adult lives? I’m also not convinced its plans to slash the square footage of its less-productive locations goes far enough; the company may need to close more stores altogether.
Department stores have long been one of the most challenging corners of the retail industry. Macy’s did practically nothing in the second quarter to dispel notions of how heavy a lift it will be for the chain — and the rest of its department store brethren — to return to relevance.
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Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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