Macy’s (M) reports another quarter of declining sales, a month after rejecting a $6.9 billion takeover bid.
Macy’s on Wednesday reported a 3.8% year-over-year decline in net sales to $4.9 billion, missing estimates of $5.06 billion. Same-store sales fell 4%, worse than expectations of a 0.27% decline. Shares tumbled more than 7% in premarket trading.
Adjusted earnings topped Wall Street expectations by $0.24, coming in at $0.53. CFO and COO Adrian Mitchell told Yahoo Finance that consumers are still “under pressure” in discretionary spending and are looking for value.
The report comes after the company ended talks on July 15 regarding a potential takeover bid from one of its shareholders, Arkhouse, and its partner Brigade Capital Management. The bid was first made public in early December.
Mitchell said: “There was not enough evidence to indicate that a potential transaction was feasible… you have to have the financing in place to be able to do a transaction.”
He added that the $24.80 offer was “not attractive” given Macy’s potential. Management is now focused on its turnaround strategy, dubbed “A Bold New Chapter.”
The offer represented a premium of about 60% above Macy’s stock price on Nov. 30, 2023. Mitchell said he is confident the strategy will make Macy’s more valuable than the proposal.
The reset of its large real estate portfolio, one of Arkhouse’s key goals, is underway. The company is expected to announce the first wave of 55 store closures this year, up from the 50 it had projected earlier this year. The company plans to close 150 in total.
“We’re getting a lot of traction on real estate monetization,” he said. “We originally had a range of $90 million to $115 million in gains from asset sales this year. We’re now improving that outlook … to about $115 million.”
In the second quarter, the company posted a gain of $36 million on asset sales and is forecasting another $30 million in gains in the third quarter and $67 million in the fourth quarter.
CEO Tony Spring, who took on the role in February, introduced “A Bold New Chapter” in Q1. The strategy includes closing underperforming stores, upgrading remaining “go forward” locations and investing in digital sales.
Spring reported in the press release that sales at existing stores increased in the first 50 locations that Macy’s prioritized.
In these 50 locations, where the company is testing new strategies, sales increased 0.8% year-over-year.
“We saw that the traffic and conversion in these first 50 Macy’s stores [that] were noticeably better than the other stores. When we look at customers, we see that a greater number of absolute customers are coming into these stores. That is compared to the previous year,” he said.
Other forward-looking stores that did not get an upgrade saw their sales fall by 3.8%. In the group of stores they plan to close, their sales fell by 6.5%.
Morgan Stanley analyst Alex Straton expects the market to have more confidence in the income statement when the restructuring plan becomes visible in mid-2025, after the first store closures and investments in 50 well-performing stores.
Macy’s shares have fallen nearly 12% this year, compared with a 17% gain for the S&P 500 (^GSPC).
Macy’s posted a profit in the second quarter as consumers tired of higher costs and continued to look for bargains.
According to a report from Placer.ai, monthly visits to Macy’s declined for most of 2024 compared to last year.
“The chain’s weekly visitor numbers have been at or above the 2023 level since the middle of the month [July] — likely fueled by back-to-school shopping and sales,” Placer.ai wrote in a post.
Sales at luxury store Bloomingdale’s fell 1.1%, but sales at cosmetics chain Bluemercury rose 2%.
“The reality is that a luxury consumer has the dollars to spend, but they’re not immune to being critical about how they think about their spending,” Mitchell said. “We’ve seen some headwinds with respect to some of the more luxury brands.”
He said Blumercury and the beauty industry are “a solid category, even with the pressures we’re experiencing right now.”
According to UBS analyst Jay Sole, Macy’s “structural challenges” will “cause the company to lose market share to off-price retailers, brands and Amazon.”
Discount retailer TJX Companies, Inc. (TJX), the parent company of TJ Maxx, Marshall’s and Home Goods, is also expected to report earnings before the market opens on Wednesday.
The margin on goods rose 210 basis points, reflecting lower discounts compared to the previous year, the company said.
The overview of the profits
Here’s what Macy’s reported, compared to Wall Street estimates:
-
Net sales: $4.9 billion vs. $5.06 billion
-
Adjusted earnings per share: $0.53 vs $0.29
-
Same store sales: -4.0% versus -0.27%
The company expects pressure to continue into the second half of 2024, lowering its guidance for the year.
The company now expects net sales to come in between $22.1 billion and $22.4 billion, down from the previously expected range of $22.3 billion to $22.9 billion.
Same-store sales are expected to decline by 2% to 5% year-over-year. Previously, same-store sales were expected to increase by 1% to 1.5%.
Mitchell said the “realization of the second quarter sales results” and the “need to manage the uncertainty we see around discretionary spending” were the reasons behind the lowered outlook.
“Given all the indicators that we’ve seen in the economy, the things that we’re hearing from economists [and] the ratio between discretionary spending and essential spending, that means we’re shifting quite a bit.”
—
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
Click here for the latest retail stock news and events to better inform your investment strategy
