Macy's posts steep sales decline, mixed results

Key Points
  • Macy's has focused efforts on expanding its off-price nameplate, Macy's Backstage, and revamping the department store chain's loyalty program.
  • America's department stores — including Macy's, J.C. Penney, Sears, Nordstrom and Kohl's — are increasingly struggling to keep pace with e-retailers.
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Macy's posted steep sales declines on Thursday, but tighter inventory controls helped boost profit margins, allowing the retailer to outpace analysts' earnings expectations.

Macy's also reaffirmed its full-year outlook, citing heightened momentum heading into the all-important holiday shopping season.

The department store chain's shares were climbing more than 8 percent Thursday afternoon on the news.

Here's what Macy's reported, compared to what Wall Street was expecting, based on a Thomson Reuters survey of analysts:

  • Earnings of 23 cents a share, excluding items, compared with a forecast profit of 19 cents per share.
  • Revenue was $5.28 billion, versus an estimate of $5.31 billion.
  • Same-store sales fell 3.6 percent, compared to an anticipated decline of 2.6 percent.

"Macy's has presented a rather mixed bag of results, with gains on the bottom line overshadowed by the continuing slide in sales," GlobalData Retail Managing Director Neil Saunders said in a note to clients. "The company needs to move further, faster and in a more coordinated way if it is to transform its fortunes."

Net income attributable to Macy's shareholders was $36 million, or 12 cents a share, in the fiscal third quarter, compared to $17 million, or 5 cents a share, one year ago. Excluding one-time items, Macy's earned 23 cents a share.

Total sales dropped 6.1 percent, to $5.28 billion. Part of the decline can be attributed to fewer tourists visiting Macy's stores — international tourist sales fell 11.7 percent during the latest period.

Sales at Macy's stores open for more than 12 months, which includes sales in departments licensed to third parties, declined 3.6 percent.

After reporting another quarterly same-store sales decline in August, Chief Executive Jeff Gennette told CNBC: Macy's "[isn't] ready to declare when we will get back to positive."

Looking to the full year, Macy's has reaffirmed its sales and earnings outlook and is particularly upbeat about the holidays.

"We expect continued improvement in our trends in the fourth quarter, including a solid lift from loyalty and digital, and intend to head into 2018 with momentum," CEO Gennette said in a statement.

Total comparable sales are expected to decline by 2.2 to 3.3 percent in fiscal 2017. Revenue is predicted by the department store chain to fall by 3.2 to 4.3 percent, while earnings are expected to land within a range of $3.38 to $3.63 per share.

The Ohio-based department store chain is still trying to turn things around, with efforts focused on expanding Macy's off-price nameplate, Macy's Backstage, and revamping the retailer's loyalty program.

"A highlight of the third quarter was the launch of the new Star Rewards loyalty program — our best customers are responding positively," Gennette said on Thuesday. "We also saw continued double-digit growth in digital and are encouraged by the potential of Backstage in Macy's stores."

American department stores — including Macy's, J.C. Penney, Sears, Nordstrom and Kohl's — are struggling to keep pace with e-retailers that are successfully drawing more customers their way. The upcoming holiday season is a crucial time for traditional retailers.

In a separate push, Macy's is exploring options within its real estate portfolio. The company announced roughly one year ago that it had hired Brookfield Asset Management to help Macy's generate money from its assets.

Chief Financial Officer Karen Hoguet told investors Thursday that Macy's continues to work on about 50 properties with Brookfield, including its flagship Herald Square location.

To be sure, not everyone is convinced Macy's efforts will prove successful.

Macy's "has seen significant pressure on sales/margins for several years, they no longer make much money as a retailer," Citi analyst Paul Lejuez wrote in a note to clients last month. Lejuez is calling for "another promotional holiday season" ahead. He proceeded to downgrade Macy's stock to sell from neutral at the end of October.

Macy's shares have fallen roughly 50 percent in 2017.

WATCH: Hurricanes and weather affect Macy's third-quarter sales

Hurricanes and warmer weather affect Macy's third-quarter sales
Hurricanes and warmer weather affect Macy's third-quarter sales