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Macy's (M) reported another quarter of declining sales, a month after it rejected a $6.9 billion takeover offer.
Macy’s reported Wednesday that net sales fell 3.8% year over year to $4.9 billion, missing estimates of $5.06 billion. Comparable-store sales fell 4%, beating expectations for a 0.27% decline. Shares of the company fell more than 13% in morning trading.
Adjusted earnings beat Wall Street expectations by $0.24, coming in at $0.53. Adrian Mitchell, chief financial officer and chief operating officer, told Yahoo Finance that the “discretionary” consumer is still “under pressure” and looking for value.
The report comes after the company ended talks about a potential takeover bid from one of its shareholders, Arkhouse, and its partner, Brigade Capital Management, on July 15. The offer first became public in early December.
“There was not enough evidence to suggest that any potential transaction was viable… You have to have financing to complete the transaction,” Mitchell said.
He added that the offer of $24.80 per share was “not compelling” given the enormous potential of Macy's. Management is now focused on a turnaround strategy it calls “A Bold New Chapter.”
The offer represents a premium of about 60% to Macy's stock price on Nov. 30, 2023. Mitchell said he is confident the strategy will make Macy's more valuable than the proposal.
The massive real estate portfolio is now being reshuffled, a key target for Arkhouse. The company is set to announce the first wave of 55 store closures this year, up from the 50 it had forecast earlier this year. The company plans to close 150 stores in total.
“We have a lot of traction in terms of monetizing real estate,” he said. “We originally had a $90 range.” [million] “To $115 million in asset sales gains this year. We are now improving that forecast … to approximately $115 million.”
In the second quarter, the company saw a gain of $36 million from the sale of assets, and expects another gain of $30 million in the third quarter and $67 million in the fourth quarter.
Chief executive Tony Spring, who took over in February, announced a “bold new chapter” in the first quarter. The strategy includes closing underperforming stores, improving remaining locations that can move forward, and investing in digital sales.
Same-store sales increased at the first 50 locations that Macy's prioritized, Spring said in the statement.
In those 50 locations, where the company is testing new strategies, sales were up 0.8% year over year.
“We’ve noticed that traffic and conversion in the first 50 Macy’s stores has been significantly better than the other stores. When we look at customers, we see a higher number of absolute customers showing up in these stores. And that’s even the previous year,” he said.
Other stores that did not receive an upgrade saw sales fall 3.8%. In the group of stores that plan to close, sales fell 6.5%.
Morgan Stanley analyst Alex Stratton expects “greater market conviction” when the “vision” starts to show on the P&L of the turnaround plan in mid-2025, after initial store closures and investment in 50 high-performing stores.
“Please know that we will move as quickly as we can without tripping on our path to success,” Spring told investors on a second-quarter earnings call.
Macy's shares are down 22% this year, compared with an 18% gain in the S&P 500 (^GSPC).
Macy's second-quarter earnings come as shoppers are wary of rising costs and still on the hunt for deals.
According to a report from Placer.ie, Macy's monthly visits have been down year-over-year through most of 2024.
“The chain’s weekly traffic has remained at or above 2023 levels since mid-month. [July] “This is likely driven by back-to-school shopping and sales,” Placer.ai Written in a post.
Same-store sales at its luxury subsidiary, Bloomingdale's, fell 1.1%, but sales jumped 2% at cosmetics chain Blue Mercury.
“The reality is that the luxury consumer has money to spend, but they are not immune to discrimination in how they think about spending it,” Mitchell said. “We have seen some headwinds with respect to some luxury brands.”
“Bloomercury and the beauty industry are a strong category, even with some of the pressures we’re seeing,” he said.
Macy's “structural challenges” will “cause it to lose share to retailers, brands and Amazon,” said UBS analyst Jay Saul.
TJX Companies (TJX), the parent company of TJ Maxx, Marshall's and Home Goods, is scheduled to report its financial results on Wednesday, also before the market opens.
The company said merchandise margin rose 210 basis points, driven by lower discounts year-over-year.
Earnings Summary
Here's what Macy's reported, compared to Wall Street estimates:
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Net sales: $4.9 billion vs. $5.06 billion
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Adjusted earnings per share: $0.53 vs $0.29
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Same store sales: -4.0% vs -0.27%
The company expects pressures to continue into the second half of 2024, lowering its outlook for this year.
The company now expects net revenue to be between $22.1 billion and $22.4 billion, down from the previously expected range of $22.3 billion to $22.9 billion.
Comparable-store sales are expected to decline 2% to 5% year-over-year. The company previously forecast comparable-store sales to increase 1% to decrease 1.5%.
Mitchell said “delivering on second-quarter sales results” and “the need to manage the uncertainty we see around discretionary spending” were the reasons for the lowered outlook.
Some of the key indicators the team is watching include inflation, potential interest rate cuts, jobless claims, discretionary spending and consumer optimism, Spring said. The team is “primarily focused on the health of our inventory levels,” he said. [and] “The persuasive nature of our marketing campaigns.”
Spring said ahead of the holiday that the company feels “really good” about its product lineup, which has “more freshness” than last year, hinting at “exclusive partnerships at both Macy’s and Bloomingdale’s” that he could share more of in the coming quarter.
“We are very sensitive to changes in weather trends,” he said when asked about the second half of the year. “So we have a broader range of product ideas beyond just cold weather categories… We have five fewer shopping days between Thanksgiving and Christmas. We definitely have an election there.”
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Brooke DePalma is a senior reporter at Yahoo Finance. You can follow her on Twitter @Brooke De Palma Or email her at bdipalma@yahoofinance.com.
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