Macy’s (M) reported another quarter of declining sales, a month after the company rejected a $6.9 billion takeover offer.
On Wednesday, Macy’s reported a 3.8 percent year-over-year decline in net sales to $4.9 billion, below estimates of $5.06 billion. Store sales fell 4 percent, even more than the expected 0.27 percent decline. The company’s shares plunged more than 7 percent in premarket trading.
Adjusted earnings beat Wall Street expectations by $0.24, coming in at $0.53. CFO and COO Adrian Mitchell told Yahoo Finance that the consumer is still “under pressure” in the “discrete” space and looking for value.
This report comes after the company ended talks on July 15 about a potential takeover offer from one of its shareholders, Arkhouse, and its partner Brigade Capital Management. The offer was first made public in early December last year.
Mitchell said: “There was not enough evidence that any potential transaction was feasible… In order to complete a transaction, you have to have the necessary financial resources.”
He added that the $24.80 offer was “uncompelling” given Macy’s potential. Management is now focused on its turnaround strategy, dubbed “A Bold New Chapter.”
The offer was about 60 percent above Macy’s stock price on November 30, 2023. Mitchell said he was confident the strategy would make Macy’s more valuable than the offer.
The restructuring of its large real estate portfolio, one of Arkhouse’s main objectives, is underway. The company will announce the first wave of 55 store closures this year, more than the 50 planned at the beginning of the year. A total of 150 closures are planned.
“We’re having a lot of success monetizing real estate,” he said. “Originally, we had a gain on asset sales of $90 million to $115 million this year. Now we’re improving that forecast … to about $115 million.”
In the second quarter, the company recorded 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.
CEO Tony Spring, who took over in February this year, launched “a bold new chapter” in the first quarter. The strategy includes closing underperforming stores, improving the remaining “go-forward” locations and investing in digital sales.
Spring said in the press release that like-for-like sales increased in the first 50 stores that Macy’s prioritized.
At these 50 locations, where the company is testing new strategies, sales increased by 0.8 percent compared to the previous year.
“We found that the traffic and sales in these first 50 Macy’s stores were significantly better than in the other stores. When we look at the customers, we see a larger absolute number of customers showing up in these stores. That’s true year over year,” he said.
Other stores that were not modernized recorded a decline in sales of 3.8 percent. In the group of stores that are to be closed, sales fell by 6.5 percent.
Morgan Stanley analyst Alex Straton expects “higher market conviction” when the turnaround plan becomes “visible” in the income statement in mid-2025 after initial store closures and investments in 50 high-performing stores.
Macy’s shares have fallen nearly 12% this year, compared with the S&P 500’s (^GSPC) 17% rise.
Macy’s releases second-quarter results at a time when consumers are fed up with rising prices and continue to hunt for bargains.
According to a report from Placer.ai, monthly visits to Macy’s declined year-over-year for most of 2024.
“The chain’s weekly footfall has remained at or above 2023 levels since mid-month (July) – likely due to back-to-school shopping and sales,” Placer.ai wrote in a post.
Sales of the luxury subsidiary Bloomingdale’s fell by 1.1 percent in comparable stores, but rose by 2 percent at the cosmetics chain Bluemercury.
“The reality is that while a luxury consumer has money to spend, they are not immune to being critical about their spending,” Mitchell said. “We have seen headwinds from some of the more luxurious brands.”
He said Blumercury and the beauty business are “a solid category, even despite the pressures we are seeing.”
UBS analyst Jay Sole said Macy’s will suffer “share losses to off-price retailers, brands and Amazon” due to “structural challenges.”
Discount retailer TJX Companies, Inc. (TJX), the parent company of TJ Maxx, Marshall’s and Home Goods, is also expected to report its earnings report on Wednesday before the stock market opens.
The merchandise margin increased by 210 basis points, due to lower discounts compared to the previous year, the company said.
The results overview
Here’s what Macy’s reported compared to Wall Street estimates:
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Net sales: 4.9 billion US dollars compared to 5.06 billion US dollars
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Adjusted EPS: $0.53 versus $0.29
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Sales in comparable stores: -4.0% compared to -0.27%
The company expects continued pressure in the second half of 2024 and is therefore lowering its forecast for the year.
The company now expects net sales to be between $22.1 billion and $22.4 billion, down from the previously expected range of $22.3 billion to $22.9 billion.
Like-for-like sales are expected to decline by 2 to 5 percent compared to the previous year. Previously, like-for-like sales were expected to increase by between 1 and 1.5 percent.
Mitchell said the “realization of second quarter revenue results” and the “need to manage the uncertainty we see around discretionary spending” were the reasons for the lowered forecast.
“Given all the indicators we’ve seen in the economy, the things we’re hearing from economists (and) the ratio of discretionary spending to necessary spending, that gives us quite a shift.”
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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter at @Subscribe or email her at [email protected].
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