Macy’s Posts Another Disappointing Quarter

Department store chain Macy’s posted disappointing first-quarter results this morning, with comparable sales declining by 4.6% versus a forecast of 3.5%. Gross margins also declined by 100 bps from last year’s 39.1% to 38.1%, an indication that the chain may have had to engage in heavier discounting to attract shoppers. Overall revenue declined by 7.5% and adjusted earnings per share of $0.24 was $0.10 lower than Wall Street expectations.

As once busy shopping centers close, Macy’s has been in an ongoing process of what to do with the real estate, some of which sits in valuable downtown shopping centers. In the first quarter alone, a downtown store in Minneapolis was sold for $47 million and it plans to sell another valuable property in San Francisco by the end of the year. The iconic store in downtown Manhattan probably is worth about $4 billion, although the company has no plans to sell or close the property.

Despite the weaker results in the first quarter, Macy’s is expecting a similar amount of earnings this year as their previous guidance, an indication that perhaps the first quarter was weaker from timing shifts this year more than fundamental weakness. Comp sales are still expected to decline between 2% and 3% and adjusted earnings per share to be in a range between $2.90 and $3.15. Earnings per share in 2016 on an adjusted basis were $3.11.

In pre-market trading Macy’s shares declined by more than 11% to $26, implying a forward price to earnings ratio of less than 9.




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