• Wall street Journal/ By Suzanne Kapner and Allison

Macy’s Posts Lower Sales; Cuts Forecast

Retailer reports decline in profit as traditional department stores struggle to attract shoppers

Macy’s Inc. said sales declined in the third quarter, and it lowered its guidance for the year, highlighting the struggle to attract shoppers to traditional department stores.

Adding to the negative drumbeat were Nordstrom Inc. JWN 1.09% and Gap Inc., GPS -0.37% which reported lower sales after the market closed.

At Macy’s, comparable sales, which typically measure sales at stores open at least a year, fell 3.5% including licensed departments in the period that ended Nov. 2. Excluding licensed departments, comparable sales dropped 3.9%.

The retailer said it now expects comparable sales to fall 1% to 1.5% for the fiscal year, more than an earlier range of flat to 1% growth. Macy’s also lowered its guidance for total sales and adjusted earnings for the year.

Macy’s Chief Executive Jeff Gennette said in an interview that consumer spending remained strong. He attributed the results to the late arrival of cold weather tempering demand for fall goods, continued softness in spending by international tourists and a steeper-than-expected sales decline at Macy’s stores in lower-tier malls.

He added that department stores still had an important role to play in retailing, but said there is room for improvement. “We need to give customers new reasons to shop,” he said.

Macy’s joined Kohl’s Corp. and J.C. Penney Co. in reporting weaker results ahead of the key holiday shopping season, a sign that department stores continue to struggle even as other retailers have figured out how to succeed in a rapidly changing landscape marked by a shift to online shopping.

Sales at Nordstrom’s full-price department stores fell 4.1% in the quarter but rose 1.2% at its off-price Rack stores. Comparable-store sales at the Gap brand fell 7% on top of a 7% decline the year earlier. The company’s CEO recently stepped down after several quarters of soft sales, and Gap in the process of spinning off its Old Navy brand.

All is not gloomy though. Walmart Inc., Target Corp. and TJ Maxx parent TJX Co s. all reported strong results.

According to David Berman, the president of research firm Berman Capital, consumer spending picked up compared with the summer quarter. Of the retailers that have reported results so far, overall sales excluding Amazon.com Inc. increased 2.3%, while inventories were up 2.8%. It is a healthy sign when inventory grows in line with sales, Mr. Berman said.

That compares with the second quarter, when sales rose 1.6% while inventories jumped 5.2%. “What you are looking at is a stronger consumer,” Mr. Berman said.

Macy’s sluggish sales are due more to its own problems than a macro slowdown in spending, analysts said.

”The products it sells and the environments in which it sells them are not aligned with what consumers want,” said Neil Saunders, managing director of GlobalData Retail, a research firm.

The retail chain has been taking steps to transform its business, including upgrading its best stores, overhauling its men’s and women’s clothing departments and adding new concepts such as Story, which is curated around a theme that changes every few months. Mr. Saunders said these moves weren’t enough “to move the needle in any meaningful way.”

Part of Macy’s problem is that it has too many stores in lower-tier malls that are losing shoppers. Executives said sales in the weakest malls fell faster than they anticipated in the latest quarter.

The chain has been upgrading its top 150 stores located in stronger malls. Mr. Gennette said that half of Macy’s sales now comes from those locations, which Macy’s calls “magnet” stores.

Net sales totaled $5.17 billion in the quarter, down more than 4% from a year ago.

Profit fell to $2 million, from $62 million in the year-ago period on lower gains from asset sales and higher restructuring costs.

Macy’s shares, which are down 55% over the past year, closed down more than 2% at $14.67.

E-commerce sales also slowed in the quarter. Macy’s cited upgrades to checkout and navigation that disrupted the site during the period.

Macy’s didn’t follow rivals, including Kohl’s, in slashing prices during the period. Mr. Gennette said the decision cost the retailer some sales but kept margins from declining even more than they did.

He added that Macy’s was able to mitigate almost all of the extra costs related to tariffs on products imported from China in the period. It is working with suppliers to add more design details to products, which allows it to charge higher prices.


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