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Macy’s shares plunge, reflecting strains

  • ASSOCIATED PRESS / 2015

    Macy’s shoppers leave the retailer’s flagship store in New York.

  • JAMM AQUINO / AUG. 13

    A pedestrian walked past Macy’s department store in Kailua. The store closed in March.

NEW YORK >> Macy’s is acknowledging that there will be no consumer splurge anytime soon.

A gloomy holiday shopping season across much of the retail spectrum has seeped into a spring funk. And after some startling numbers and projections from the Gap earlier this week and then Macy’s on Wednesday, investors had seen all they needed to see.

Shares tumbled across the sector with the bulk of retailers yet to report quarterly earnings.

Macy’s stock plunged 15 percent to levels not seen in four years.

Ralph Lauren, Nordstrom, J.C. Penney and Kohl’s are all reporting this week, followed by Sears, Target and Wal-Mart the next.

Macy’s Inc. slashed its profit and sales expectations for the year after a sales funk deepened during the spring. It reported its fifth straight decline for a key revenue measure, with the declines accelerating. Seven out of the past 10 quarters have now registered a decline in revenue at stores opened at least a year.

MACYS BY THE NUMBERS

40

Number of stores recently shuttered

15

Percent stock dropped

7 of 10

Quarters registered revenue in decline

Against this backdrop, Macy’s announced it was accelerating initiatives to get shoppers excited. It announced plans to look for new ways to cut expenses and plow that money into more sales help at the stores and online. And it’s expanding its offerings on exclusive launches, including one backed by Sir Elton John and Lady Gaga.

“We are not counting on the consumer to spend more, so we are working harder to give customers more reasons to buy from us,” said Chairman and CEO Terry Lundgren in a company release.

But while analysts say that Macy’s woes are emblematic of the department store sector, they also put some of the blame on the retailer itself.

“The blunt truth is that Macy’s does not give consumers a reason to visit its stores,” said Neil Saunders, CEO of Conlumino, a research firm. “In many locations shops are simply not up to par; they are poorly merchandised, hard to shop, lack any inspiration and have fairly mediocre customer service.”

Macy’s first-quarter income tumbled 40 percent and revenue fell 7.4 percent.

Macy’s report, which kicks off the first-quarter earnings season for major retailers, raises fresh concerns about the consumer and the health of stores, even after companies aggressively closed lower-performing locations. Macy’s recently shuttered 40 stores. The Cincinnati chain operates about 800 stores.

It had appeared retailers were recovering after a brutal holiday shopping season as sales accelerated earlier this year. That trend appeared to stall in mid-March.

Gap Inc. issued a profit warning for the first quarter Monday as an attempted turnaround this spring sputtered. On Wednesday, Fitch Ratings cut its rating to junk status.

The red flags from Gap and Macy’s follow a report last week from the owner of Victoria’s Secret, usually a strong performer, which showed that sales in April had stagnated.

Retailers suffered tremendously during the recession but the economy has bounced back strongly since then and consumers are spending.

The United States reported Friday that employers had added 160,000 jobs in April, suggesting that the job market continues to generate steady hiring. The average job gain in the previous six months before April was 243,000.

While consumers are spending again, they’re not doing it at department stores, with more money going toward restaurants, travel and home improvement. And when they do shop for clothes, increasingly they are doing it at discount stores like T.J. Maxx, or online at Amazon.com

Macy’s had been a standout among retailers in the aftermath of the recession. Yet in the last year, the malaise suffered by others seemed to catch up even with a sector superstar.

“Consumers are being very selective in their spending,” said Ken Perkins, president of Retail Metrics LLC, a retail research firm. “The economy is not likely to get much stronger so retailers are going to have to batten down the hatches and cut expenses and look for new growth areas.”

And retailers will face even more adversity with growing pressure to raise wages, both from a national social movement and because some workers have become more willing to leave jobs, knowing better pay can be found elsewhere.

But retailers have to find a way to win back customers.

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