CINCINNATI -- Macy's Chief Executive Officer Terry Lundgren said markdowns are likely as falling sales have left the department store with excessive inventory.
The opening of the retail earnings season 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.
The slowdown is renewing concerns that consumers are shifting away from mall shopping in favor of spending on cars, homes and technology.
"It's obviously troubling," Lundgren said. "My sense is, if they want to spend, they can. And once they've finished buying their cars and finished remodeling their houses, there's room for them to spend in our categories as time goes on."
Sales for the Cincinnati company fell 3.6 percent at established locations for the three months ending Oct. 31. And for the last three months of the year, which encompass the critical Christmas shopping season, Macy's expects sales to fall between 2 percent and 3 percent from a year ago. The company cut its profit forecast for the full year, sending shares down more than 14 percent to a two-year low.
Not all retailers are suffering. Spending is up on electronics, and stores such as 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.
"Warm weather combined with already weak traffic trends likely led to a shortfall in sales, and we expect inventory to appear elevated across the sector," Paul Lejuez, an analyst at Citigroup Inc., said in a note this week.
"We're going to take markdowns, I mean, great for consumers," Lundgren 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 because of lower prices, 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 2 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, short of the $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.
Macy's shares fell $6.58, or 14 percent, to close Wednesday at $40.44, meaning the company's stock has fallen about 38 percent this year.
Shares of Kohl's Corp. fell nearly 7 percent and Nordstrom Inc. fell 5 percent. Dillard's Inc. shares fell $7.24, or 8.1 percent, to close Wednesday at $81.90. J.C. Penney Co. and Sears Holding Corp, which owns Kmart, also tumbled.
Dillard's Inc., based in Little Rock, will release its third-quarter earnings soon. A date for the release has not been announced, but analysts expect the company to report a 0.5 percent decline in sales from $1.5 billion in the 2014 quarter to $1.49 billion this year.
Macy's also said Wednesday it will not pursue a spin-off of its real-estate assets for now but noted it may revisit the option.
In a separate statement, Macy's announced an agreement with Luxottica Group SpA to bring LensCrafters shops to as many as 500 Macy's department stores in the U.S. over the next three years.
"There are going to be more ideas out there that are going to affect our stores," Lundgren said. "It's a different way of looking at the department-store box than we've looked at it in the past, and we're very excited about it."
Information for this article was contributed by staff members of The Associated Press; by Lindsey Rupp of Bloomberg News; and by Jessica Seaman of the Arkansas Democrat-Gazette.
Business on 11/12/2015