Macy's Aggravates Retailer Angst -- WSJ
June 07 2017 - 3:02AM
Dow Jones News
Remarks about profit margins undercut its shares; revival
strategy still in flux
By Suzanne Kapner
Macy's Inc. met with investors on Tuesday to lay out its
strategy, but ended up triggering a new panic over the beleaguered
retail sector.
The department-store chain's finance chief, Karen Hoguet, warned
that Macy's gross margins would fall about a percentage point in
its current quarter compared with a year ago and decline slightly
less than a point for the full financial year.
The remarks sent Macy's shares tumbling 8.2% to $21.90, their
lowest close in more than six years, 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.
Retailers have been struggling with falling sales as more
shopping shifts online. That has led to an unprecedented bout of
store closures. Sears Holdings Corp. is closing 66 unprofitable
stores in addition to the 150 closures announced this year,
according to a person familiar with the situation. The closures
include 49 Kmart and 17 Sears locations, this person said.
At Macy's, margins are under pressure, Ms. Hoguet said Tuesday,
because Macy's is taking longer than expected to clear excess
inventory. She also noted that the retailer 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 their degree. It isn't lowering its
sales and profit targets, planning instead to make up the
difference through continuing 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 on 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 build its digital operations but added that
the company also needs to stabilize results from 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 visit Macy's stores with Backstage space more often.
"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 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
haven't been disclosed.
"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 07, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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