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Macy’s: “we’re not dead” as US department stores continue to suffer in Q1

Any sign of a recovery for the beleaguered US department store sector? Not judging by Thursday’s results from a quartet of major sector retailers with figures that mostly made pretty grim reading. All saw their shares dwindle as did JC Penney (down 7.3% at close), who is expected to report similar woes later today.

“Don’t count us out, we’re not dead,” was probably the standout quote of the day from Macy’s CFO Karen Hoguet as they, together with Kohl’s, Dillard’s and Nordstrom recognize they have a big fight on their hands, with some outlining plans on how to hit the turnaround trail.

With around 38,000 jobs from the sector having been lost already this year and the pressure on malls heightening as visits continues to dwindle in the face of the growing move to e-commerce, how are the major department stores coping?

Macy’s: the bad news

The long wait (two years) for positive comp sales continues at Macy’s. The US department store giant reported a worse-than-expected slide in Q1 sales. Its shares closed down 17% Thursday.

Those tell-tale comps fell 5.2%, worse than the 3% dip analysts had expected, the ninth straight quarterly dip. Total sales fell 7.5% to $5.34bn, below analysts’ expectations for $5.47bn, attributed to the closure of 68 Macy’s stores earlier this year.

Profits of $71m/23 cents a share were sharply down from $116m/37 cents a year ago. Excluding costs, adjusted profit fell to 24 cents from 40 cents, below analysts’ expectations for 35 cents. Gross margin slipped to 38.1% from 39.1%.

Macy’s: the good news

Although the retailer referred to “unusual, challenging times” for mall-based retailers, Macy’s remains confident its turnaround efforts are showing signs of traction.

“We are encouraged by the performance of the pilot programmes we tested last year in categories like women’s shoes, fine jewellery, and furniture and mattresses,” said new chief executive Jeffrey Gennette.

He said Macy’s will expand those programmes nationally this year and anticipates they will have a measurable impact starting this quarter and building through the autumn.

“In 2017, we are focused on taking actions to stabilise our brick-&-mortar business,” adding Thursday that the company would invest to aggressively expand its digital and mobile business and continue integrating its online and brick-&-mortar experiences.

Macy’s also backed its 2017 guidance, although that called for total sales dipping 3.2-4.3% and adjusted earnings of $2.90-$3.15 a share.

CFO Karen Hoguet added: “While we’ll be operating fewer stores, we have the opportunity to make our stores better.”

Kohl’s: the bad news

Kohl’s sales and comp-store sales both fell for the fifth straight quarter and missed analysts’ estimates in the quarter to April 29.

Net sales fell 3.2% to $3.84bn, missing analysts’ $3.9bn estimate. Same-store sales also fell 2.7%, much steeper than the 1.1% dip analysts had expected.

Women’s, children’s and accessories departments all saw a drop in sales.

Kohl’s shares closed down 7.85%.

Kohl’s: the good news

The retailer reported a better-than-expected quarterly profit, helped by lower costs and a leaner inventory. Net income soared to $66m/39 cents a share in Q1, 10 cents ahead of analysts’ view, from $17m/9 cents a year earlier, when it recorded a $64m charge related to impairments and store closures.

“We are encouraged by the significant improvement in sales and traffic for the March and April period, after a weak February start to the first quarter,” said CEO Kevin Mansell. Q1 average transaction value increased, driven by a continued increase in average unit retail.

Mansell saw strength across active businesses due in large part to launch of Under Armour, that was a hit with customers, Kohl’s said, “exceeding our expectations.”

Click & collect reached 13% of online orders, up from 8% last year.

The retailer will be launching a very targeted effort to capture sales from competitor stores that are closing. It will try to attract more shoppers by offering more outside famous brands and cutting down on the number of in-house clothing brands it sells.

“We will continue reducing the number of private-label women’s brands it offers to “help” sales of bigger brands such as Sonoma,” said Mansell.

Kohl’s also announced it will start selling Clarks footwear for the back-to-school shopping season and is looking for other brands to add to its offer.

It also plans to open four new 35,000 sq ft stores this autumn despite a “very dense existing market”.

Dillard’s: the bad news

Dillard’s posted Q1 declines in both net income and net sales. Its shares were down 17.5% at close Thursday.

Net income for the quarter ended April 29 fell 14.3% to $66.3m/$2.12 a share, from $77.4m/$2.17 a year ago.

Net sales fell 5.7% to $1.42bn as total merchandise sales fell 4.3% to $1.39bn.

Comparable-store sales also fell 4%. There were weak performances in beauty, home and furniture, women’s accessories and lingerie, the company said.

Inventory levels rose 4% year-on-year at the end of Q1.

Dillard’s: the good news

Sales of womenswear “notably outperformed” other merchandise categories, followed by juniors’ and childrenswear.

Sales were strongest in the western region, followed by the eastern and central regions.

For the quarter, Dillard’s said gross margin from retail operations improved 65 basis points of sales compared with the prior year’s Q1.

Nordstrom: the bad news

Nordstrom saw its same-store sales unexpectedly fall 0.8%. Sales at full-price stores, which account for most of the top line, fell 1.7%.

The sales slump was “consistent with trends experienced over the past year.”

Its shares closed down 7.6% and fell a further 4.1% after hours.

Nordstrom: the good news

The retailer’s bottom line was a bit brighter, with EPS of $0.37, up from $0.26 a year ago, beating analysts’ estimates by 10 cents, and were in line with its own expectations.

Overall revenue rose 2.7% to $3.3bn, but was less than expected as declines at those full-price stores weighed on strength at its off-price banner.

Sales at its Nordstrom Rack and HauteLook discount stores rose 8.7%.

Across US full-line stores and Nordstrom.com the top-performing merchandise categories were menswear and womenswear. The west was the top-ranking US geographic region.

Online sales accounted for 24 % of total net sales, driven by 11% growth at Nordstrom.com and 19% at nordstromrack/hautelook. Total customer count increased on-year, reflecting its ongoing efforts to gain new customers.

The retailer reiterated its annual outlook for earnings per diluted share of $2.75-$3.00, net sales increasing 3-4% with comp sales flat.

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