Christmas was supposed to sparkle for Macy’s. Along with other big names in US retail, the department store chain’s chairman and chief executive Jeff Gennette had predicted a bumper festive shopping season.
“It’s a very good backdrop for us,” he said the week before Black Friday, describing consumer confidence as “very strong” as he raised sales and earnings forecasts. “The holidays are where Macy’s really shines.”
Eight weeks later, Macy’s has called time on the festive cheer. A profit warning on Thursday showed its earlier predictions had been too optimistic and triggered an 18 per cent drop in its shares, the biggest one-day sell-off since the company’s 1992 stock market launch. As much as $34bn was wiped from the market value of the country’s biggest retailers in a broader rout as investors ditched stocks.
Macy’s, which produced only a 1.1 per cent rise in like-for-like sales for November and December, was the biggest shock for Wall Street in a batch of mixed holiday sales updates this week from several big US retailers.
Although some companies, such as Target, are bolstering sales through investments in ecommerce and revitalised stores, others are floundering in the face of the competitive onslaught from Amazon.
“Some of those who have been struggling continue to struggle, while those that are doing better continue to do better,” said Dana Telsey, who runs Telsey Advisory Group, a consultancy focused on the consumer sector.
The disappointment from Macy’s — long considered a bellwether for middle America — has raised concerns that the recovery in retailers’ fortunes, driven by a robust US economy, may be coming to an end despite record holiday sales.
Ken Perkins, president of the consultancy Retail Metrics, said the recent sell-off in financial markets and hit to investment portfolios may have encouraged some consumers to “hold back” from splashing out at Christmas gifts.
The issue is the expenses, and the cost of doing business being higher
He added that there was “probably some latent pressure” as a result — especially at higher-end stores, including Macy’s-owned Bloomingdale’s.
Still, several analysts said the sales figures this week told them more about how different businesses were coping with the rise of internet shopping than it did about the health of the economy.
Shoppers turned out in force at Costco, helping the warehouse club chain boost net sales 7.8 per cent, and Target, whose like-for-like sales over November and December rose 5.7 per cent.
Brian Cornell, Target’s chairman and chief executive, said the S&P 500 company was on course for its biggest annual increase in comparable sales since 2005.
In contrast, said Oliver Chen, managing director at the brokerage Cowen, there was a trend for mall-focused retailers, and those that specialise in clothing, to underperform.
Comparable sales growth at department store chain Kohl’s slowed from 6.9 per cent a year ago to just 1.2 per cent. At JCPenney, another mainstay of American shopping centres, the metric declined 3.5 per cent over the holiday period.
Among other laggards, Victoria’s Secret-owner L Brands, also mall-based, posted a dip in net revenues for the festive season. Barnes & Noble, the struggling bookstore chain, lifted sales but warned its earnings could be 10 per cent lower than previously forecast due to spending on advertising and increased promotions.
In a reminder of how bad it can get for bricks-and-mortar chains, the trading updates came in a week in which Sears teetered on the brink of collapse before a bankruptcy judge gave the go-ahead for a potential rescue bid. It is due to be assessed by the company on Monday.
Macy’s started the festive season briskly, Mr Gennette said, but sales went quiet in mid-December and “did not return to expected patterns” until the week of Christmas.
The company’s profit warning “raises a lot of concerns about holiday 2018 sales for department stores and for speciality apparel retailers”, said Mr Perkins.
Some of Macy’s problems appeared to be self-inflicted. The company said, without elaborating, that it had “underestimated” the impact of changes it had made to some promotions before Christmas. Bad luck also played a part: a fire damaged one of its distribution centres over the Black Friday weekend.
Whatever the reasons for the slowdown, the company put investors on notice that it may offer further discounts. Macy’s would take “necessary steps” to ensure “a clean inventory position”, as Mr Gennette put it.
Given Macy’s size, with roughly 870 outlets, that could lead to further downward pricing pressure at stores across the country. “It’s not very nice when a large competitor has to undertake big sales,” Mr Chen said.
Much of the marked down merchandise was likely to be seasonal — winter coats, for instance — and as a result would need to be sold quickly, he added.
The prospect of a discounting war is an alarming one for investors. Margins are already threatened by rising labour and transport costs, higher trade tariffs and investments in logistics and ecommerce.
Investors would remain sceptical, Ms Telsey said, until retailers provided fuller details about profit margins in their earnings, which are not due to be released for several weeks.
In spite of its robust sales figures, shares in Target fell almost 3 per cent on Thursday. The company, whose margins disappointed in the previous quarter, left its earnings guidance unchanged.
“For the most part holiday season sales have been good,” Ms Telsey added. “The issue is the expenses, and the cost of doing business being higher.
“Where’s the margin, and where’s the return?”
- KKR wins race to buy German payments group for €600m 34 views | posted on August 4, 2019 | under Finance
- WeWork tests tolerance for its ‘gov-lite’ structure 14 views | posted on August 15, 2019 | under Finance
- Venezuela sanctions order leaves Citgo’s future in doubt 13 views | posted on August 12, 2019 | under Finance
- BMO 1st Art! Competition Recognizes Fresh Perspectives from Emerging Canadian Artists 7 views | posted on August 12, 2019 | under Finance
- How JR Builds Simple $4,000 Per Month WordPress Website Business 6 views | posted on July 28, 2019 | under Videos