Macy's investors, brace for another rough quarter

Retail earnings pressure

Macy's investors may not want to count on the beleaguered department store making its much-needed recovery in the first quarter.

According to fresh estimates from Retail Metrics, Wall Street expects the big-box chain to report declines in four major metrics — earnings per share, operating income, revenue and comparable sales — in what would be a disappointing kickoff to the new fiscal year.

Ken Perkins, president of Retail Metrics, said Macy's is expected to earn 38 cents a share in the recently ended quarter when it reports earnings before the opening bell Wednesday. That would represent a decline of nearly 50 percent from the prior-year period. Retail Metrics is also calling for a year-over-year operating income decline of 40 percent, a 4.4. percent drop in revenue, and a comparable-sales slide of 3.2 percent.

A balloon from the Macy's Thanksgiving Day Parade in New York.
Taylor Hill | FilmMagic | Getty Images

Like many of its competitors, Macy's has struggled to sell merchandise to a group of consumers who are more interested in spending on travel and dining out and who have allocated more of their cash toward improving their homes or buying cars.

What's more, a chilly April and an abundance of inventory caused traffic to stall, and ate away at the stores' pricing power.

"Of the four [department stores] reporting this week, only J.C. Penney is expected to report a year-over-year improvement in operating income," Perkins said.

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Among all retail segments, department stores are the "lone" group expected to have lost money in the first quarter, Perkins said. Combined, their loss is expected to be almost three times as much as a year ago, at $199 million. The majority of that red ink is expected to come from Sears and J.C. Penney, Perkins said.

Yet weakness is expected to be broad-based across the group. Kohl's year-over-year operating income decline is projected to be its largest since the Great Recession, with forecasts calling for a 46 percent decline, Perkins said. Even Nordstrom, a standout in the department store space, is expected to report its first negative quarterly same-store sales number since the end of the recession in 2009.

"Despite the lowest first-quarter bar since '08 to '09, department store comps and EPS could disappoint," Morgan Stanley analyst Kimberly Greenberger told investors last week.

To be sure, Macy's is taking steps to slow its sales bleed. They include its new off-price store concept, called Backstage, and its acquisition of beauty chain Bluemercury. Investors, however, have been reluctant to respond to these changes, sending the company's shares down more than 40 percent over the past year.

After Macy's kicks off retail earnings season, Kohl's and Nordstrom report on Thursday, and J.C. Penney on Friday.