Macy's cuts outlook, says markdowns on the way to clear elevated inventory

CINCINNATI – With a hint at what may be in store for shoppers this holiday season, Macy’s CEO Terry Lundgren said markdowns are likely as falling sales have left the department store with excessive inventory.

The opening of the retail earnings seasons began ominously with Macy’s, which dragged shares of almost every retailer sharply lower Wednesday. The retail sector was by far the biggest loser on the Standard & Poor’s index.

Sales for the Cincinnati company fell 3.6 per cent at established locations for the three months ending Oct. 31. And for the last three months of the year that encompasses the critical holiday shopping season, Macy’s expects sales to fall between 2 per cent and 3 per cent from a year ago. The company cut its profit forecast for the full year. Shares dropped 14 per cent to $40.44, earlier hitting their lowest point in more than two years.

Not all retailers are suffering. Spending is up on electronics and stores like The Home Depot are posting huge sales numbers. But traditional retailers, particularly Macy’s, are getting hit hard as the strong dollar limits the spending power of international customers.

The company also blamed warmer weather, which cut into sales of coats, boots and down comforters.

“We’re going to take markdowns, I mean, great for consumers,” he said during an interview on CNBC. “Consumers are going to have a field day because we’re going to have lots of values out there.”

Lundgren said the company needs to clear space for new merchandise in the new year.

“We’re not selling lumber, so I can’t carry the lumber over into 2016,” he said.

Fourth-quarter gross margins will be under pressure due to markdowns, the company said.

For the quarter ended Oct. 31, Macy’s Inc. earned $118 million, or 36 cents per share. Excluding one-time costs, earnings were 56 cents per share, which was two cents more than analysts expected, according to Zacks Investment Research. The one-time costs were mostly related to the company’s previously announced plans to close between 35 and 40 stores early next year.

The company said Wednesday that it expects it will continue to reduce the number of its stores.

Total revenue for the quarter fell to $5.87 billion in the period, and was short of $6.15 billion Wall Street forecast.

The company now expects full-year earnings in the range of $4.20 to $4.30 per share, down from the previous guidance of $4.70 to $4.80 per share. That is short of the $4.40 that Wall Street was expecting.

Shares of Kohl’s Corp. fell 5.4 per cent, Nordstrom Inc. fell 3.7 per cent, and Dillard’s Inc. fell 8.1 per cent. Stock of J.C. Penney Co. and Sears Holding Corp, which owns Kmart, also dipped.


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Keywords: Macy’s, Earnings Report, Priority Earnings

Macy’s also said it will not pursue a spin-off of its real-estate assets for now, but noted that it may revisit the option in the future.