M Macys Inc

By Suzanne Kapner and Aisha Al-Muslim 

Macy's Inc. lowered its full-year earnings outlook after missing profit expectations in the latest quarter, citing weak sales of women's sportswear and warm-weather apparel as well as a slowdown in international tourism.

In a troubling sign heading into the key back-to-school and holiday seasons, the department store chain said inventories of unsold items swelled in the summer quarter. At the same time, the company and its rivals face the prospect of tariffs on some Chinese apparel imports starting next month.

The results sent Macy's shares tumbling, and were an ominous sign for the health of the broader retail sector as it kicks off its earnings season. Macy's stock fell 16% in early trading Wednesday. Shares are down about 54% in the past 12 months.

The results weighed on rivals, which are set to report their latest results in coming days. Shares of Nordstrom Inc., JC Penney Co. and Kohl's Corp. fell between 4% and 6% in Wednesday morning trading, amid a broader market selloff.

Macy's and other chains have been closing weaker stores in recent years and spending to expand their e-commerce efforts. The companies are struggling to capture shoppers despite strong consumer spending and low U.S. unemployment.

For the current fiscal year, Macy's lowered its earnings guidance by 20 cents. Excluding settlement charges, impairment and other costs, the company now forecasts adjusted earnings per share of $2.85 to $3.05 for the year, compared with its previous estimate of $3.05 to $3.25.

Despite the expected drop in profit, Macy's reaffirmed its annual sales guidance. The company still expects net sales to be roughly flat from the last fiscal year, with comparable sales to be flat to up 1%.

Sales at stores open at least a year grew 0.2% for the period ended Aug. 3, above the FactSet estimate of flat sales. Including licensed departments, same-store sales rose 0.3%.

Despite a rise in same-store sales, profit, gross margin and gross profit dollars all fell in the period. Inventory remains bloated, up 5% a square foot, according to Citi analyst Paul Lejuez. Mr. Lejuez said that the 5% drop in gross profit dollars is the worst since the third quarter of 2017.

Overall, the Cincinnati-based company Wednesday reported net sales for the second quarter fell 0.5% to $5.55 billion, in-line with the consensus forecast.

"We had a slow start to the quarter and finished below our expectations, " Chief Executive Jeff Gennette said in prepared remarks. "Rising inventory levels became a challenge based on a combination of factors: a fashion miss in our key women's sportswear private brands, slow sell-through of warm-weather apparel and the accelerated decline in international tourism."

The department store operator posted a profit of $86 million, or 28 cents a share, down from $166 million, or 53 cents a share, a year earlier.

Excluding impairment and other costs, adjusted earnings were also 28 cents a share, below the 46 cents a share analysts polled by FactSet were looking for.

On Tuesday, the Trump administration abruptly suspended plans to impose new tariffs on about $156 billion in goods from China until Dec. 15 on items including toys, cellphones and laptop computers that had been set to take effect Sept. 1. Tariffs on about $13.7 billion of fabrics and apparel were postponed until the end of the year, but tariffs will still move forward on about $39 billion of such items.

The tariff delay comes as companies expressed concerns about the impact an escalating trade fight would have on businesses and consumers ahead of the holiday shopping season. Retailers' profit margins have already been under pressure as they spend on upgrading their digital capabilities and remodeling their stores.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Aisha Al-Muslim at aisha.al-muslim@wsj.com

(END) Dow Jones Newswires

August 14, 2019 10:15 ET (14:15 GMT)

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