Why Macy’s guidance triggered US retail wipeout
By Sarah Halzack - Jan 15th, 14:18
Macy’s did not have as merry a Christmas as it expected, and now all of retail is under the microscope.
The department store giant released disappointing holiday sales results, with comparable sales rising 0.7%, or 1.1% including licensed departments, over a year earlier. The results forced the company to slash its annual earnings guidance.
Macy’s shares plummeted more than 18% in early trading and took shares of chains from Nordstrom to Kohl ’s down with it. Even Target, which had released robust holiday sales last week, saw its shares sink lower on Macy’s woes.
Notably, Macy’s comparable sales figure isn’t as ghastly as the nosedive in the stock would indicate. But that’s not the biggest issue: even more alarming is the volatility in Macy’s business that is suggested by the details of its report.
For one, the chain had just bumped up its full-year guidance as recently as November 14. Now that its view has darkened so notably in such a short time frame, it is fair to wonder whether executives really have a handle on what it needs to do to be competitive in a cut-throat retail environment and whether its turnaround initiatives have as much long-term promise as they’d thought.
There were other details, too, that hinted at patchiness and uncertainty throughout Macy’s empire.
CEO Jeff Gennette said in the press release that Macy’s roared during the Black Friday and Cyber Monday rush, as well as at the end of the season. But sales, he said, slipped in mid-December. And while categories such as dresses, outerwear and home performed well in November and December, the company saw lacklustre sales in departments such as cosmetics and women’s sportswear. None of that makes it sound like this store has an easy glide path to growth in 2019.
Also, it’s important to note that gross margin, which Macy’s had said in previous guidance would be up slightly for the full year, is now expected to be down slightly. This raises questions about how sustainable its previous progress on reducing markdowns and managing inventory really is.
Essentially, Macy’s just gave investors reason to indulge all the fears that had started to simmer about the sector at the end of last year. After strong results from many retailers throughout much of 2018, investors had started to worry they were in something of a Goldilocks moment that couldn’t last. After all, it would get difficult for retailers to post such eye-popping growth numbers as they “lapped” their previous improvements.
Plus, higher tariffs loom in 2019, threatening to crimp retailers’ profits. And reduced revenue guidance from Apple Inc. surely helped stoke concerns about the potential impact for consumer companies of trade tensions between the US and China. Meanwhile, a softening housing market suggests a dimmer economic picture may be in store in the US, which could put a lid on some consumers’ spending.
Welcome to the retail industry’s choppy 2019. I don’t expect things to get much smoother any time soon.Business Live
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