Rocky road ahead at Macy's, potential 'regional flare-ups,' with Covid-19 cases surging in some states

Key Points
  • Macy's said sales are falling again in states such as Texas where Covid-19 cases are on the rise. 
  • For the remainder of the year, Macy's is taking a "conservative view" and anticipating sales at stores will trend down about 35% from a year ago. 
  • "I'm very hopeful that it will be better than the down 35, but we wanted to pick a prudent approach," CEO Jeff Gennette said. 
  • Its digital business, meantime, has shown "very strong performance." 
A person looks into a closed Macy's Inc. department store near Union Square in San Francisco, California, U.S., on Thursday, June 18, 2020.
Michael Short | Bloomberg | Getty Images

The road to recovery at Macy's is likely going to be a rocky one because of the coronavirus pandemic. 

The retailer warned Wednesday that sales are falling again in states such as Texas where Covid-19 cases are on the rise. And the department store operator expects this pattern could play out as the crisis continues. 

Macy's said sales at its stores are currently down about 35% from year-ago levels. 

"We are taking the conservative view and pulling that trend through the back half of the year. If trends improve, we will react aggressively to meet customer demands," Chief Executive Jeff Gennette said on an earnings call. 

Gennette said the company does not expect another national shutdown because of the coronavirus. But it has plans in place in case there are some "regional flare-ups," and it needs to close smaller groups of stores for a second time. 

Meanwhile, Macy's digital business has shown "very strong performance," with consumers holed up at home and some looking to spend their government-issued stimulus checks. Gennette said the retailer expects online sales to continue at a "healthy double-digit growth rate to the back half of the year by all metrics." 

Macy's shares were down more than 4% in afternoon trading, on the heels of the company reporting fiscal first-quarter results

The trend of store sales spiking and declining could begin to play out at a number of other retailers, not just Macy's. Apple is already closing stores for a second time in states including South Carolina and Florida. Microsoft has decided to close all of its bricks-and-mortar stores forever. 

In Texas, Macy's said sales were ticking up as the local economy was reopening. But about two weeks ago and with Covid-19 cases surging, the company saw a 15-point sales drop in the state, according to Gennette. 

"I'm very hopeful that it will be better than the down 35, but we wanted to pick a prudent approach," the CEO said about expectations for the rest of the year. 

Meantime, Macy's will take a hit from people not traveling from overseas to the U.S. and shopping at some of its stores, such as its flagship Herald Square location in New York, which are normally a draw for tourists. 

Interim CFO Felicia Williams said the company expects no international tourism sales for the remainder of the year. In 2019, she said international tourism made up a little more than 4% of total sales, "so the impact is quite significant." 

Macy's did say it is seeing especially strong sales in luxury goods at Bloomingdale's as stores reopen during the pandemic, however, in part because of the reduction in travel. 

"Part of it is because you have a lot of domestic tourists that buy ... that would go to other countries," Gennette said. Now, they're forced to stay put and shop local, he said. 

One more result of the pandemic could be Macy's accelerating its store closing plans, as many retailers are doing. In February, Macy's said it planned to close 125 stores over the next three years

Williams said Wednesday that Macy's is considering more closures at it assesses the "competitive landscape." It is a matter of timing, she said. 

Macy's said it expects to report fiscal second-quarter earnings on Sept. 2. 

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