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Macy's shares punished after another earnings whiff

Record store closings

NEW YORK – Macy's (M) shares tumbled Wednesday after the retailer reported weaker sales and slimmer profits, highlighting the broader challenge facing the country's embattled department stores.

Macy's results fell short of Wall Street expectations, and the nation's largest department store chain warned sales will fall further this year. 

The retail climate is a big challenge for Macy's new CEO Jeff Gennette, who succeeded longtime chief executive Terry Lundgren in March. "[T]hese are unusual and challenging times for retail, especially for mall-based department stores," Gennette said in a conference call to discuss Macy's results, noting the impact of ecommerce on retailers. 

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"As for the retail industry overall, we've known for some time that the United States is over-retailed compared to other markets," he added. "So it's not surprising to see the contraction in retail square footage. And it will take some time to tell how the consolidations and the closure of stores and, in some cases, entire brands, will impact us."  

In afternoon trading, Macy's shares lost $4.41, or 15 percent, to $24.93. The stock is down more than 30 percent on the year.  

Sales at the company's stores fell 5.2 percent, the ninth straight period of declines for the important metric. Macy's, like other traditional department stores, has been hurt as online leader Amazon (AMZN) and off-price rivals like TJ Maxx take business away.

Strength in categories like women's clothing, fine jewelry, fragrances, women's shoes, and furniture "was more than offset by persistent softness in handbags, fashion jewelry, and watches," analysts at Jeffries said.

After a disappointing holiday season, Macy's announced in January that it would shed more than 10,000 jobs and move ahead with a plan to close 68 stores.

Gennette said Thursday the company would invest to aggressively expand its digital and mobile business and continue integrating its online and brick-and-mortar experiences.

"The first thing we have to do is we do have to stabilize the core brick-and-mortar business because still, the bulk of our business is being done in our stores. While we do that, we need to continue the high growth that we're experiencing in mobile and digital."  

Neil Saunders, managing director of GlobalData Retail, called the results "gloomy."

While Macy's has a clearer sense of direction and a "rudimentary" map, "the distance it needs to travel over the next few years is enormous," he wrote. "We question whether the company is bold, nimble or healthy enough to cover such ground."

Under Lundgren, the Cincinnati-based chain had promoted more exclusive merchandise. Macy's has also tested an off-price strategy and new ideas like self-service in some of its shoe departments.

Gennette said Macy's has been encouraged by the performance of the changes they've tested in areas like women's shoes, fine jewelry, and furniture and mattresses. Saunders cited the changes in the shoe and home departments as signs Macy's thinking is on the right track.

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But some new services have flopped. Earlier this month, Macy's and Tailored Brands said they'd terminate a two-year-old tuxedo rental partnership with Men's Wearhouse.

Macy's brand still has around 700 stores, though it has been aggressive about closings. Shareholders have pressured Macy's to get more value out of its real estate holdings, which are worth an estimated $21 billion according to activist investor Starboard.

For the quarter, Macy's said its profit slumped 39 percent to $71 million, or 23 cents per share. Adjusted earnings were 24 cents per share, well below analyst forecasts. Revenue fell 7.5 percent to $5.34 billion, also below Street forecasts.

Other major retailers are floundering, especially large department chains such as JCPenney (JCP) and Sears, which said in March that its deteriorating financial performance might force it to shut down.

"It's a tough time to be a (department) store," Citi said in an analyst note.