November 21, 2019 / 12:09 PM / 19 days ago

Macy's cuts profit outlook as tourist numbers drop

(Reuters) - Macy’s Inc (M.N) cut its annual profit forecast for the second time this year on Thursday, as the department store operator blamed weak international tourism, warm weather and sluggish mall traffic for the first drop in same-store sales in two years.

Shares fell nearly 2% in afternoon trading. The company was the second major U.S. department store, after Kohl’s Corp (KSS.N), to cut its earnings outlook ahead of the critical holiday sales season.

“The sales deceleration was steeper than we expected,” Chief Executive Jeff Gennette said in a statement.

But he told investors Macy’s was positioned for a strong holiday season, citing an expanded assortment of gifts, improved customer service and more flexible pickup or delivery options.

Department stores and apparel retailers are struggling to lure shoppers to malls and away from big-box budget retailers like Target Corp (TGT.N) and Walmart Inc (WMT.N), or online sellers like Amazon.com Inc (AMZN.O).

Target on Wednesday posted another set of strong sales numbers and raised its full-year forecast.

Comparable sales at Macy’s owned and licensed stores fell 3.5% in the third quarter ended Nov. 2, as warm weather hurt demand for coats and sweaters. Analysts had expected a 1% decrease, according to IBES data from Refinitiv.

A drop in international tourists, some of Macy’s biggest spenders, also hit sales, the 161-year-old, Cincinnati-based retailer, said.

Tourist arrivals to the United States have taken a hit in the past year, hurt by a stronger dollar, weaker pound, and escalating trade tensions between Washington and Beijing, denting the number of international visitors to the country.

Tourism was down 6.3% in the quarter, following on from a 4% fall the previous year, Macy’s said.

The company also said it had experienced some issues with its website “in preparation for the fourth quarter.”

FILE PHOTO: The Macy's logo is pictured on the side of a building in down town Los Angeles, California, U.S., March 6, 2017. REUTERS/Mike Blake

COMPETITIVE QUARTER?

Some analysts are skeptical about Macy’s and other department stores’ prospects for the holiday season, a period that can be make-or-break for retailers.

Thanksgiving, the traditional kickoff of the U.S. holiday shopping period, falls on Nov. 28 this year, a week later than last year’s Nov. 22, leaving retailers with six fewer days to make sales between Thanksgiving and Christmas Day.

“We expect a very competitive and difficult holiday quarter for the department store segment,” said research firm Retail Metrics founder Ken Perkins, citing expected steep promotions and discounts.

Many of the top gift ideas are electronics including TVs and laptops, which Macy’s does not sell, Perkins added.

Macy’s does sell some smaller electronics, such as smart watches, Bluetooth speakers, and headphones, however.

The largest U.S. department store operator is also hoping a recent revamp will lure in holiday shoppers. It has closed more than 100 stores since 2015 and cut thousands of jobs as mall traffic plummeted, but has completed a revamp of about 150 stores with refreshed interiors. It has also expanded discounted “Backstage” departments into more stores.

It has also upgraded its website and worked to clear excess inventory, said Gennette.

Mattresses, fragrances, dresses, and fine jewelry performed well during the reported quarter, the retailer said, while men’s and women’s sportswear, handbags, housewares, and furniture performed poorly.

Macy’s now expects 2019 adjusted profit of between $2.57 per share and $2.77 per share, compared with its previous forecast of between $2.85 and $3.05.

It also projected full-year total comparable sales to fall between 1% and 1.5%, compared with a previous forecast of up to a 1% rise.

Slideshow (2 Images)

Adjusted net income attributable to Macy’s shareholders fell to $21 million, or 7 cents per share, in the quarter, from $83 million, or 27 cents per share, a year earlier.

Analysts had expected the company to break-even on a per share basis.

Rival Nordstrom Inc (JWN.N) is set to report quarterly results later on Thursday.

Reporting by Uday Sampath in Bengaluru and Melissa Fares in New York; Editing by Jonathan Oatis and Rosalba O'Brien

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