Macy's falls short; what's behind its rollercoaster results


For six years, Macy's seemed untouchable.

In an impressive stretch spanning second quarter 2007 and first quarter 2013, the mid-tier department store beat earnings expectations every time, according to Retail Metrics, making it one of the most-loved names in the retail space.

People at the entrance of a Macy's store in Jersey City, N.J.
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But times have changed. Although the company remains a favorite among analysts, it's fallen short on earnings expectations three of the last eight quarters—a trend that continued with its most recent report on Wednesday. Revenue has also been shaky, with same-store sales declining three of the last five quarters, and missing forecasts all but once over that time frame, according to Retail Metrics. (Tweet This)

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In the latest quarter, investors appeared skeptical of the retailer's laundry list of excuses and proposed fixes, sending the company's shares down more than 2 percent in midafternoon trading. There was some truth behind the justifications, said Ken Perkins, president of Retail Metrics. Still, the company's choppy results underscore the tough position of department stores, as mall traffic continues to decline and consumer spending shifts toward restaurants, cars and technology.

"The department store space right now is very tricky," Perkins said.

Retail sales flat in April

Among the factors that dented the company's sales in the first quarter was international tourism, Chief Financial Officer Karen Hoguet said during a conference call. International tourism—which accounts for about 5 percent of Macy's annual sales, and plays the biggest role at its New York, Las Vegas and other flagship locations—hurt same-store sales growth by 1 full percentage point. The strong dollar has similarly hurt results at companies including Ralph Lauren and Tiffany.

Second, the well-documented slowdown at the West Coast ports caused "fresh fashion" to hit the floor later than usual, meaning shoppers missed out on deep markdowns on stale merchandise. Hoguet also blamed the "unseasonably cold start" to the period, adding that the company's stores in southern markets outperformed.

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Though Macy's also faces internal challenges—something Hoguet readily acknowledged—Perkins said the company's excuses did have validity.

"The West Coast delays have clearly had an impact on a number of retailers ... we all know the dollar's impact has been wreaking havoc on a lot of multinationals," Perkins said. And while he said he hates to use weather as an excuse, "It was just a nightmare this winter. I don't think that's a 'dog ate my homework' excuse either."

Macy's also admitted that some of its wounds were self-inflicted—most specifically, what Hoguet referred to as a steeper-than-expected "learning curve" after its decision to reorganize its merchandising and marketing divisions. The CFO said she is hopeful that as the year progresses, this reorganization will help boost Macy's results.

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Macy's, still considered one of the best-run companies in retail, is looking for new ways to spur growth amid changing consumer needs. In February, the department store said it would acquire beauty retailer Bluemercury for $210 million in cash, adding Wednesday that it will open 14 new stores under the nameplate this year. Just last week, the company announced it will open four off-price "Macy's Backstage" locations in the metropolitan New York area this fall.

It also plans to double down on the millennial-skewed wedding category, focus on further growing sales at its 150 top-performing stores and potentially build out its brand internationally. So far, its upscale Bloomingdale's nameplate operates a store in Dubai, United Arab Emirates, under a license agreement, and it's bringing both a Bloomingdale's and Macy's store to Abu Dhabi in 2018 under a similar agreement.

Analysts haven't given up on the name. Despite falling short in the first quarter, Macy's maintained its full-year outlook to earn between $4.70 and $4.80 a share on revenue growth of roughly 1 percent. It also announced a 15 percent boost to its dividend and a share repurchase plan of $1.5 billion.

Stifel Nicolaus analyst Richard Jaffe wrote in a note to investors Wednesday that Macy's focus on a strong product assortment and making its stores and website easy to shop will continue to help it gain share.

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Ahead of the company's results, Deutsche Bank analyst Paul Trussell spoke optimistically about the company's international business, telling CNBC it "has a unique brand that could potentially move beyond its current footprint."

Investors will get a better sense for how the department stores are holding up when J.C. Penney, Kohl's and Nordstrom report this week.