Macy's Inc (M.N) kept its full-year profit forecast despite reporting better-than-expected first-quarter earnings on Wednesday, disappointing Wall Street and putting pressure on the retailer's shares.
Macy's, which also owns the upscale Bloomingdale's chain, has handily outperformed its mid-tier competitors in the last year, winning shoppers away from chains such as J.C. Penney Co Inc (JCP.N) and Kohl's Corp (KSS.N).
Chief Financial Officer Karen Hoguet told analysts on a conference call that Macy's has seen an uptick in sales in areas where a store competes directly with Penney, which in February implemented a new pricing strategy that largely gets rid of sales events. Analysts have said such changes would hurt Penney at least initially.
Macy's often raises its full-year profit forecast after reporting such strong numbers.
When Barclays Capital analyst Robert Drbul asked Hoguet why the company had not done so this time, she said the "guidance for the year was more aggressive than usual."
Macy's gross profit margin edged down in the first quarter, largely because of shipping costs linked to its rising Internet sales. Sales growth in April, which had been expected to be weaker than in March because of an early Easter, came in below what Wall Street was expecting.
Morningstar analyst Paul Swinand said that Macy's long winning streak may have led analysts to get ahead of themselves.
Macy's shares last week rose to $42.17, their highest level since July 2007, making them vulnerable to a sell-off. On Wednesday morning, the shares fell as much as 6.3 percent to $37.02 on the New York Stock Exchange before paring some of those losses to be down 3.4 percent to $38.18 in early afternoon trading.
NO CHANGE TO FORECAST
Macy's reported net income of $181 million, or 43 cents a share, for the quarter that ended April 28, up 38 percent over the profit of $131 million, or 30 cents a share, a year earlier.
That was 3 cents better than what Wall Street analysts were forecasting, according to Thomson Reuters I/B/E/S.
But Macy's left its full-year earnings forecast intact at $3.25 to $3.30 a share, below analysts' expectations for $3.41 a share.
Macy's expects same-store sales to rise about 3.5 percent for the rest of this year and in the current second quarter, with gross margins expected to be flat over a year ago.
The chain, which operates about 800 namesake stores as well as about 45 Bloomingdale's stores, said its gross margin edged down 0.3 points to 38.8 percent of sales in the first quarter.
Macy's is the first major department store chain to report first quarter results. Rivals Kohl's and Nordstrom Inc (JWN.N) report on Thursday, while Penney will report next week.
Last week, in one of the rare times it has disappointed Wall Street of late, Macy's said same-store sales rose 1.2 percent in April, missing analysts' average forecast of 1.9 percent.
As previously reported, Macy's same-store sales, or sales at stores open at least a year, were up 4.4 percent in the first quarter. Online sales rose 33.7 percent, accounting for 1.5 percentage points of the same-store sales gain.
Still that was far better than Kohl's 0.2 percent increase for the quarter.
Macy's is already giving its regions more leeway in ordering items that are appropriate for their markets, something it credits for its sales gains.
It is also simplifying its order process for items geared at young adults so that buyers can order more quickly and speed up the time it takes for those goods to get to stores, helping it compete with fast-fashion chains. Hoguet said there has been some weakness in sales of clothes for teenagers.
(Reporting By Phil Wahba in New York; Editing by Gerald E. McCormick, Dave Zimmerman and Tim Dobbyn)