Macy’s ( M ) reported another quarter of declining sales, a month after rejecting a $6.9 billion buyout offer.
On Wednesday, Macy’s reported a 3.8% decline in year-over-year net sales to $4.9 billion, missing estimates of $5.06 billion. Same-store sales fell 4%, worse than the expected 0.27% drop. Its stock fell more than 13% in morning trade.
Adjusted earnings beat Wall Street expectations by $0.24, at $0.53. CFO and COO Adrian Mitchell told Yahoo Finance that consumers “individually” are still “under pressure” and looking for value.
The report comes after the company ended discussions on a possible buyout bid from one of its shareholders, Arkhouse, and its partner Brigade Capital Management on July 15. The offer was made public in early December last year.
Mitchell said, “There’s not enough evidence to indicate that any potential transaction is viable … You have to have financing to do a transaction.”
He said an offer of $24.80 per share was “not compelling” given Macy’s potential. Management is now focusing on its turnaround strategy, which it calls “a bold new chapter.”
The offer represents an approximately 60% premium over Macy’s stock price on November 30, 2023. Mitchell said he believes the strategy will make Macy’s plan more valuable.
One of Arkhouse’s main goals is to reposition its large real estate portfolio. The company is set to announce its first wave of 55 store closings this year, up from the 50 planned earlier this year. It plans to close a total of 150.
“We’re getting a lot of traction in real estate monetization,” he said. “We originally had a limit of $90 [million] Asset sale gains of $115 million this year. We are now improving that outlook by … approximately $115 million.
In Q2, the company saw $36 million in asset sale gains, and forecast $30 million in Q3 and $67 million in Q4.
This February CEO Tony Spring introduced “a bold new chapter” in Q1. The strategy includes closing underperforming stores, developing remaining “go-forward” locations and investing in digital sales.
Macy’s reported same-store sales growth in its top 50 priority locations in the spring release.
At these 50 locations where the company is testing new strategies, sales are up 0.8% year over year.
“We found that traffic and conversions in these top 50 Macy’s stores were better than other stores. When we look at customers, we see that these stores have the highest number of complete customers. That was the year before,” he said.
Sales at non-improved other stores fell 3.8%. Among the group of stores slated to close, sales fell 6.5%.
Morgan Stanley analyst Alex Stratton expects “greater market confidence” when the P&L starts to show “visibility” from its turnaround plan in mid-2025, following initial store closures and investment in 50 high-performing stores.
Spring told investors on its Q2 earnings call, “Please know, we’re going to move as fast as we can without tripping over the road to success.”
Shares of Macy’s are down 22% this year, compared with an 18% gain for the S&P 500s ( ^GSPC ).
Macy’s Q2 earnings come as shoppers are tired of high costs and on the hunt for deals.
According to a report Placer.ai, Macy’s year-over-month visits declined for most of 2024.
“The chain’s weekly foot traffic has been at or above 2023 levels since mid-month. [July] — may be fueled by back-to-school shopping and sales,” Placer.ai wrote in a post.
Same-store sales at its luxury subsidiary Bloomingdale’s fell 1.1%, but sales at its cosmetics chain BloomMercury rose 2%.
“The reality is that a luxury consumer has dollars to spend, but they’re not immune to being aware of how they’re thinking about their spending,” Mitchell said. “We’ve seen some headlines in relation to some luxury brands.”
Bluemercury and the beauty business are “a solid category even with some of the pressures we’re seeing,” he said.
UBS analyst Jay Soule said Macy’s “structural challenges” will “cause it to lose share to off-price retailers, brands and Amazon.”
Discount retailer TJX Companies ( TJX ), the parent company of TJ Maxx, Marshall’s and Home Goods, is scheduled to report Wednesday before the market opens.
Merchandise margin increased 210 basis points, driven by lower year-over-year discounts, the company said.
Income statement
Here’s what Macy’s reported compared to Wall Street estimates:
-
Net Sales: $4.9 billion and $5.06 billion
-
Adjusted EPS: $0.53 and $0.29
-
One-stop-shop: -4.0% vs. -0.27%
The company expects continued pressure in the back half of 2024, lowering its outlook for the year.
It expects net revenue to come in between $22.1 billion and $22.4 billion, down from the $22.3 billion to $22.9 billion previously expected.
Same-store sales are expected to decline 2% to 5% annually. It previously expected same-store sales to range from a 1% gain to a 1.5% decline.
Mitchell attributed the lower outlook to “the realization of second-quarter sales results” and “the need to navigate the uncertainty we’re seeing with respect to discretionary spending.”
Spring said inflation, potential rate cuts, jobless claims, discretionary spending and consumer confidence are some of the key indicators the committee will be looking at. He said the group is “mainly focused on the health of our inventory levels.” [and] The compelling nature of our marketing campaigns.”
Heading into the holiday, Spring said the company is “really good” in its product assortment with “more innovation” than it was a year ago, pointing to “exclusive partnerships with both Macy’s and Bloomingdale’s” that he could share more about next quarter.
“We’re very sensitive to the change in weather trends. So we have a broader range of product ideas than cold weather categories… We’ve got 5 fewer shopping days between Thanksgiving and Christmas. We definitely have an election there,” he said when asked about the back half of the year.
—
Brooke DePalma is a senior reporter at Yahoo Finance. Follow her @ on XBrooke DePalma Or send an email to [email protected].
Click here for all the latest retail stock news and events to better inform your investment strategy
