Iconic US retailer Macy's cuts profit forecast, sending shivers through industry

Macy's flagship store in midtown Manhattan in New York City.
Macy's flagship store in midtown Manhattan in New York City.PHOTO: REUTERS

NEW YORK (REUTERS, AFP) - Warm weather, low spending by tourists and a pile-up of unsold inventory prompted Macy's Inc to cut its full-year forecast on Wednesday (Nov 11), raising wide concerns about the retail sector's financial health.

Macy's, the iconic American retailer whose flagship store on 34th Street in New York City is the finish of the annual Macy's Thanksgiving Day Parade, said it was beefing up its digital and mobile strength to meet the increasing consumer shift to online shopping.

The company, which also owns the upscale Bloomingdale' s chain, has been under a restructuring and downsizing plan in the past year. It previously announced it would close between 35 to 40 stores in early 2016, among about 800 in the US.

Macy's, in a quarterly report, also said it would not create a real estate investment trust for its stores, disappointing some investors and helping to push down shares 14 per cent for the day.

The long spell of warm weather in September and October, which hurt sales of cold weather apparel like coats and jackets, could also affect retailers like Urban Outfitters Inc, while a drop in spending by tourists is likely to impact Tiffany & Co and Hudson's Bay Co, which runs chains like Saks Fifth Avenue, said Mr Oliver Chen, analyst with Cowen Equity Research.

Analysts also expect slowing sales of accessories like handbags, shoes and cosmetics to hurt brands including Fossil Group and Michale Kors Holdings Ltd.

Urban Outfitters shares ended down 7.4 per cent, Tiffany & Co closed 3.37 per cent lower and Michael Kors and Fossil both fell over 4 per cent.

Macy's chief executive Terry Lundgren said on a conference call he was not happy with the company's performance in the quarter ended Oct 31.

Sales at stores open at least a year fell 3.6 per cent in their third straight quarterly decline. Analysts on average had expected 0.2 per cent growth, according to research firm Consensus Metrix.

Macy's said it expected same-store sales to fall by 1.8 per cent to 2.2 per cent for the year ending in January.

The company cut its full-year profit forecast to US$4.20 to US$4.30 per share, excluding special items, from a prior range of US$4.70 to US$4.80.

"We are disappointed that the pace of sales did not improve in the third quarter, as we had expected," Mr Lundgren said.

Macy's slide in sales has lasted several quarters and Mr Lundgren said the company would increase the focus of its turnaround plan, including product mix in stores and more experimentation with online sales.

Activist investor Starboard Value had urged Macy's in July to consider spinning off its real estate assets, valuing them at about US$21 billion (S$29.8 billion). The investor had said a Reit would trade at a higher multiple than the stores.

Instead, Mr Lundgren said Macy's would focus on forming potential partnerships or joint ventures for its four major flagship properties in New York's Herald Square, Union Square in San Francisco, State Street in Chicago, and downtown Minneapolis. The retailer will also look for ways to profit from or redevelop its real estate.