Macy's shares tumbled Wednesday morning despite the department store operator reporting quarterly earnings and sales that topped analysts' expectations and hiking its forecast for the full year.
Amid tax reform and strong employment, consumers have been spending more across the U.S. and are expected to do so through this holiday season. However, Macy's is still struggling to grow sales as foot traffic dwindles at traditional shopping malls and retailers must compete with Amazon's burgeoning e-commerce platform.
The results in the latest quarter showed some signs that its latest efforts to trim excess inventory, revamp stores and grow its off-price business are paying off. As a result, the department store operator raised its outlook for earnings and same-store sales for the full year, saying that strong consumer confidence in the U.S. should fuel purchases in stores and online as Macy's continues to invest back in the business.
Still, Macy's shares were falling more than 6 percent in early trading on the news. The retailer's stock has rallied more than 100 percent from a year ago, bringing its market cap to $12 billion. Shares have more than doubled since November alone, and many gains have come since results for the first quarter showed Macy's turnaround plans were taking hold.
The company has been working toward adding more local merchandise, refreshing in-store fixtures and looking for ways to lease out excess space at 50 locations, using this as a pilot test before a broader push of those initiatives. The plans helped drive momentum during the quarter, Macy's said Wednesday.
Here's what Macy's reported compared with what Wall Street was expecting, based on a survey of analysts by Thomson Reuters:
* Earnings per share: 70 cents vs. 51 cents expected
* Revenue: $5.57 billion vs. $5.55 billion expected
* Same-stores sales: an increase of 0.5 percent vs. a decrease of 0.9 percent expected
"There are reasons for the apparent slowdown," GlobalData Retail Managing Director Neil Saunders said. "[Macy's] is still losing market share across a number of categories. Moreover, with the closure of underperforming stores, a natural bounce to comparables is to be expected — especially as some of the trade from shuttered shops finds its way to both other locations and to the digital channel."
Net income for the second quarter ended Aug. 4 was $166 million, or 53 cents a share, compared with $111 million, or 36 cents a share, a year earlier. Excluding one-time items, Macy's earned 70 cents per share, far exceeding analysts' expectations for 51 cents a share, according to a poll by Thomson Reuters.
Revenue fell 1.1 percent to $5.57 billion from a year ago, but was ahead of the $5.55 billion analysts were expecting.
Sales at stores owned or licensed by Macy's that have been opened for the past 12 months inched up 0.5 percent, again better than an expected decline of 0.9 percent. This marked the third consecutive quarter of same-store sales growth for Macy's. The company further said all three divisions that it operates — Macy's, Bloomingdale's and Bluemercury — "performed well" during the quarter.
Looking to the full year, Macy's is now anticipating earning between $3.95 and $4.15 per share, 20 cents higher than the company previously forecast. Same-store sales are expected to increase by as much as 2.5 percent, compared with a prior target of between 1 and 2 percent growth.
"We … continue to be disciplined with inventory management, which allows us to give out customers more fashion and freshness, while increasing sales and improving gross margin," CEO Jeff Gennette said in a statement.
Pedestrians walk by Macy's flagship store in Herald Square in New York, New York.Faced with the threat of becoming irrelevant to shoppers, Macy's has been looking for ways to keep its stores and assortment of inventory appealing, especially to the millennial generation.
The department store chain recently acquired New York-based concept shop Story, bringing on Story Founder Rachel Shechtman to become "brand experience officer." Macy's has also been testing pop-up marketplaces within its stores in a handful of cities, where it's selling merchandise from some lesser-known e-commerce brands.
The company meanwhile has been adding its off-price concept, Macy's Backstage, to stores — including those at premium shopping malls. The goal is to find new uses for its real estate. Like other department store operators, Macy's has shuttered some of its locations in recent years, while it works with Brookfield Asset Management to consider selling or repurposing about 50 stores.
According to Gennette, Macy's will have about 180 Backstage stores open by the end of the third quarter, and the company is finding that shoppers like to buy items from there along with Macy's full-line locations. Shopping trips are up two times at stores that have a Backstage location inside, he said, and basket sizes are up by more than 30 percent at those shops.
Macy's is also in the process of rolling out mobile checkout to all of its shops by year's end.
Correction: Excluding one-time items, Macy's earned 70 cents per share in the second quarter. That outpaced analysts' expectations of 51 cents a share. A previous version of this story compared analysts' expectations to Macy's earnings that stripped out one-time items and real estate gains. On that basis, Macy's earned 59 cents a share during the quarter.
— CNBC's Courtney Reagan contributed to this reporting.
