Macy’s cuts jobs after holiday sales slump
THE year-end shopping season brought little relief to the beleaguered department-store industry, leading to lower earnings forecasts and a vow by Macy’s Inc to slash 6,200 jobs.
Both Macy’s and Kohl’s Corp reported disappointing November and December results, with accessories such as handbags selling especially poorly. They each cut their outlooks for the full year, sending shares of the two companies plunging more than 10%.
Consumer spending is shifting toward e-commerce and more specialized retailers, crimping traffic at department stores. Macy’s, the industry leader, has been hit especially hard. It’s now scrambling to rein in its sprawling operations. In addition to eliminating about 4% of its workforce, Macy’s is shutting stores and trying to squeeze more money out of its real estate, including its flagship 34th Street property in Manhattan.
“It’s going to be a hard, long battle to get traffic back in the stores consistently,” says Poonam Goyal, a Bloomberg Intelligence analyst. “You need all pieces of the business working. It doesn’t help if apparel works and accessories doesn’t.”
Macy’s fell 14 percent to $30.86 in New York on Thursday, while Kohl’s plunged 19% to $42.01. Shares of both companies had posted modest gains in 2016, bolstered by optimism that department-store doldrums might be lifting.
Instead, the holidays brought more pain. Demand was volatile throughout the season, Kohl’s CEO Kevin Mansell says. Sales for the combined months of November and December dropped 2.7%.
Big Markdowns
Though the Christmas season typically brings bigger crowds, it’s also marked by steep discounting.
“That’s what the holiday has become -- it’s become a period of anguish for retailers,” said Simeon Siegel, an analyst at Instinet. “Any company that depends on promotions to drive products is going to be hurting for a very long time.”
At Macy’s, comparable-store sales declined 2.1 percent during the final two months of the year -at the low end of its projections. And CEO Terry Lundgren warned that next year could bring a similar performance.
“We had anticipated sales would be stronger,” he said in a statement. “Ongoing weakness in handbags and watches negatively impacted our results.”
S&P Global Ratings also put Macy’s credit ratings on watch for a downgrade. The ratings firm currently has assigned the retailer a BBB corporate grade, two levels above junk.
Handbag harm
The remarks about accessories also dragged down shares of Coach Inc, Michael Kors Holdings Ltd and Kate Spade & Co, which all rely heavily on handbag sales.
Some apparel makers also posted disappointing holiday results.
L Brands Inc, the owner of Victoria’s Secret and other brands, fell 7.9% after saying that heavy discounting hurt margins. G-III Apparel Group Ltd., the apparel company that sells clothing under the Ivanka Trump name and other brands, reported weak fourth-quarter sales and cut its forecast, citing a “challenging retail environment.”
After the sluggish season, Macy’s now expects profit of US$2.95 to US$3.10 a share this year, excluding some items. It previously predicted a range as high as US$3.40.
The retailer is taking more drastic steps to slim down as it copes with the slump. It previously announced plans to close 100 underperforming stores, with 68 of those shutting down this year.
That move will eliminate about 4,000 jobs, in addition to the 6,200 announced on Wednesday.
The Cincinnati-based company maintained its prediction that sales will decrease 2.5% to 3% for the full year, which lasts until the end of this month.
The move to cut costs should generate annual savings of US$550mil, beginning in 2017, Macy’s said. That’s higher than a previous goal of US$500 announced in 2015. The idea is to pump the savings into its e-commerce business, Chinese operations and other units, such as its Bluemercury makeup division.
“We have been focused and disciplined about making strategic decisions to position us to gain market share and return to growth over time,” Lundgren said. But the trends remain challenging, he said.
“We continue to experience declining traffic in our stores where the majority of our business is still transacted,” he said. – Bloomberg