Macy's Remarks Spark Selloff
June 06 2017 - 4:15PM
Dow Jones News
By Suzanne Kapner
Macy's Inc. met with investors on Tuesday to lay out its
strategy. Instead, the department-store chain set off a new panic
over the beleaguered retail sector.
The company's finance chief Karen Hoguet warned that Macy's
gross margins would fall about 1% in its current quarter compared
with a year ago and will decline slightly less than 1% for the full
financial year. The remarks sent its shares tumbling 7% and, in a
sign of the sector's fragility, dragged down other retailers as
well, including J.C. Penney Co., Kohl's Corp., Nordstrom Inc.,
Target Corp. and Wal-Mart Stores Inc.
Margins are under pressure, Ms. Hoguet said Tuesday, because
Macy's is taking longer than expected to clear excess inventory.
She also noted Macy's was feeling the brunt of heightened
promotions of beauty products and stalling watch sales.
The company had said in February that it expected margin
declines but didn't specify the degree. It isn't lowering its sales
and profit targets, planning instead to make up the difference
through ongoing cost-cutting and efforts to improve the performance
of its stores.
Chief Executive Jeffrey Gennette, who took the helm earlier this
year, outlined some of those plans in what he called the "North
Star Strategy."
Mr. Gennette wants to see Macy's reassert itself as a fashion
authority with trendier merchandise, less-cluttered stores and a
marketing plan less dependent on discounts. The strategy also calls
for simplified pricing so shoppers don't have to do as much math to
figure out what they are paying.
"We are committed to being a promotional department store but
want the value to be clear," he told investors.
Some analysts wondered whether improving what is essentially an
old-school department-store model would be enough to ensure Macy's
survival in an age when retailing norms are being upended.
"While we appreciate these strategies, near-term
fundamentals...are challenged," Jefferies analyst Randal Konik
wrote in a research note.
In an interview, Mr. Gennette said Macy's is looking to the
future by continuing to grow its digital operations but added that
the company also needs to stabilize its brick-and-mortar
stores.
One way he plans to do that is by opening more Macy's Backstage
discount stores inside its traditional locations. Mr. Gennette said
shoppers are making two additional trips to Macy's stores with
Backstage space.
"Our assumption is that traffic will continue to be challenged,"
he said, so "whatever we put into that box that gets additional
trips" will help.
In a nod to how difficult retailing has become, Mr. Gennette
acknowledged that the strategy he laid out Tuesday, parts of which
he had previously disclosed to The Wall Street Journal in March,
won't be enough to return Macy's to growth. For that, the company
is looking at new ways to interact and do business with shoppers,
details of which it has yet to disclose.
"The growth will have to come from thinking outside the box," he
said.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
June 06, 2017 16:00 ET (20:00 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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