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Macy’s holiday sales stronger, but not enough to ward off dismal 2017

Macy’s said Thursday it had a “strong” holiday season thanks to fresher products and a renewed focus on customers, but the retailer’s full-year sales are still expected to decline against a backdrop of weakening foot traffic at malls and the growth of internet giants like Amazon.

The department store chain continues to whittle away at its store fleet,. It confirmed on Thursday that 11 locations are set to close early this year. With such a massive portfolio of stores, Macy’s has been forced to rethink its strategy and right-size its real estate, hoping those bets will pay dividends in the long run.

Macy’s stock fell more than 7 percent Thursday morning on the news.

Macy’s comparable sales on an owned basis rose 1 percent during the months of November and December compared with the same period last year. On a licensed and owned basis, same-store sales were up 1.1 percent.

Following the better-than-expected results, Macy’s narrowed the range of its prior fiscal 2017 sales guidance and raised its full-year earnings outlook. To be sure, the company has yet to return to same-store sales growth.

Macy’s now expects comparable sales on an owned basis to fall 2.4 percent to 2.7 percent, whereas total revenue is expected to drop 3.6 to 3.9 percent in fiscal 2017. Previously, Macy’s had forecast total comparable sales to decline by 2.2 to 3.3 percent, while annual revenue was projected to fall by 3.2 to 4.3 percent.

“Macy’s success comes with a few caveats,” GlobalData Retail Managing Director Neil Saunders wrote in a note to clients.

“The first is that growth remains relatively weak and comes off the back of soft prior year comparatives when comparable sales fell by 2.1%,” Saunders said. “The second is that while Macy’s grew, it did so by far less than the overall sector; as such it is still losing market share both in total and within a number of key categories.”

Macy’s said it expects full-year earnings to benefit from the recent federal tax reform, which will result in an effective annual tax rate that is about 1 point lower than the retailer previously estimated.

The company raised its fiscal 2017 earnings outlook to a range of $3.59 and $3.69 per share, excluding the impact of various store closings and other costs associated with debt repurchases. Excluding the impact of an anticipated fourth-quarter gain on the sale of a building in San Francisco, adjusted earnings should fall within $3.11 and $3.21 per share.

“We saw improved sales trends in our stores and continued to see double-digit growth on our digital platforms,” CEO Jeff Gennette said in a statement.

“Our primary focus in 2017 has been to continue the strong growth of digital and mobile, stabilize our brick & mortar business and set the foundation for future growth,” he added. “Looking ahead to 2018, we are focused on continuous improvement and will take the necessary steps to move faster, execute more effectively and allocate resources to invest in growth.”

In confirming the 11 locations that will shutter this year, Macy’s also said this path (along with other efforts) should save the company about $300 million in expenses annually, starting in fiscal 2018, which will be reinvested back in the business. Macy’s said it will begin reducing employees in some locations, while adding in others, and will work to “streamline” certain operations completed outside of stores.

“A healthy store base combined with robust digital capabilities is Macy’s recipe for success,” Gennette said.

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