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Feb 25, 2020

Macy's sticks to forecast on holiday uptick; shares decline

Macy's department store in New York. Photographer: Victor J. Blue/Bloomberg

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Macy’s Inc. said a last-minute holiday surge helped quarterly earnings beat analysts’ estimates, though acknowledged its performance for the whole year didn’t live up to its expectations..

Excluding some items, fourth-quarter earnings per share of US$2.12 topped the highest of analysts’ projections. Same-store sales, a closely watched metric, fell 0.5 per cent for owned and licensed stores, in line with estimates, according to Consensus Metrix. Macy’s also reiterated its annual outlook.

The full-year results were not as strong as the company had planned, but were improved by a strong holiday season with a sales uptick in the 10 days ahead of Christmas, according to Chief Executive Officer Jeff Gennette.

“Taken as a whole, 2019 did not play out as we intended for Macy’s, Inc.,” he said. “However, we executed well during the Holiday 2019 season.”

The shares pared early gains and fell as much as 5.3 per cent to US$14.64 in New York, tracking declines in the broader U.S. stock market. It had already dropped 9.1 per cent this year through Monday’s close after tumbling 43 per cent last year.

While Macy’s has been fairly isolated from the impact from the coronavirus so far, it won’t be immune. It said it could see a small impact on sales in the fiscal first quarter, which ends in April, from declining tourism due to the spreading epidemic. Between Macy’s and its luxury brand Bloomingdale’s, there are 70 stores that have a strong Asian consumer base, Gennette said on a call with analysts. The retailer has seen “some slowdown of sales in these stores this month” but added that it was “nothing to be concerned about yet.”

Supply Chain

The company also said it sources less than half of its private-brand goods in China and has seen a slowdown of product flowing out of the East Asian country.

“This is an example of where the tariff situation actually over the last 18 months really gave us a very core line of sight into our product flow from China for both our national and private label brands,” Gennette said on the call. The company has not factored any effects from the coronavirus into its 2020 guidance.

The earnings report alleviates pressure on Macy’s following the release of its new three-year strategy earlier in February. The sales that were in line with estimates may help offset concerns that the retailer this month has failed to innovate amid rising competition.

The three-year plan, dubbed Polaris, includes about 2,000 jobs cuts, shuttering almost a quarter of its stores and consolidating the corporate headquarters to New York. This should result in annual gross cost savings of US$1.5 billion by 2022.

“I am confident that the Polaris strategy we shared earlier this month will allow us to stabilize margin in 2020 and position the company for healthy growth,” said Gennette.