Hurricanes Harvey and Irma hit department store sales in the third quarter and the winds of change are still whipping through the sector — but they haven’t blown away all signs of life.
Nordstrom Inc. continued to lead with both top- and bottom-line improvements. And Macy’s Inc. chief executive officer Jeff Gennette told WWD: “The consumer is out there shopping in our categories. I am encouraged by that.”
Sales slipped at Macy’s, which has shuttered stores as it focuses its business, but profits rose. The rest of the players weighing in with third-quarter results muddled the picture more. Kohl’s Corp. logged just a modest sales gain and lower profits and Dillard’s Inc. turned in both top- and bottom-line declines.
While the sector’s immediate focus has turned to the Black Friday rush and the all-important holiday season, broader shifts are clearly underway.
Kohl’s is developing a brick and clicks relationship with online giant Amazon with a new ceo in the wings, Macy’s is looking to redevelop some of its doors and once the Christmas rush is done the Nordstrom family is expected to look again options to take the chain that bears their name private.
However the Christmas sales shake out, it’s clear that the sector is in flux and will continue to be so next year.
Here, a rundown of the third-quarter results reported Thursday.
Macy’s is “feeling good” about what’s right around the corner, despite last quarter’s depressed sales.
“Here is the good news. The consumer is out there shopping in our categories. I am encouraged by that,” Gennette told WWD on Thursday.
That was right after the $26 billion department store chain reported a lift in third-quarter net income to $34 million from $15 million a year ago, while comparable sales fell 3.6 percent. Earnings per diluted share reached 12 cents, or 23 cents per share, excluding restructuring and other costs and noncash retirement plan settlement charges. This compares with 5 cents per share in the third quarter of 2016, or 17 cents excluding noncash retirement plan settlement charges.
Investors were also feeling pretty good, driving Macy’s stock up 11 percent to $19.50.
Sales in the three months ended Oct. 28 totaled $5.3 billion, a decrease of 6.1 percent, compared with sales of $5.6 billion in the third quarter of 2016. Macy’s said the decline in total sales reflects, in part, the closure of stores previously announced by the company.
“I think there is growth for us,” Gennette said. “The fourth quarter is going to be good. I feel good about the mood of the consumer and our holiday plans.”
Comp sales were worse than expected due to the hurricanes and warm fall weather. Sales of cold-weather merchandise were $50 million below what was expected.
Gennette said Macy’s inventory is “in a good place” and that “overlapping” discounts and promotions of a year ago have been “cleaned up.”
Macy’s is expecting comparable sales to be down 1.9 percent in the fourth quarter, significantly less than last quarter. According to Gennette, the improvement would stem from continued digital sales gains as well as the loyalty program launched Oct. 2, some post-hurricane recovery and colder weather ahead. The loyalty program is important since 10 percent of Macy’s customers account for half the revenues.
While several of Macy’s initiatives, such as Backstage and its steady diet of exclusive capsule collections from designers and brands, seem to be taking, it remains to be seen whether the $26 billion Macy’s can get back to posting positive revenue gains.
Without the benefit of sales improvement in the third quarter, Macy’s was largely able to lift income through margin improvement and cost controls. There was also a $65 million gain in asset sales.
In another significant development, Macy’s, through its year-old partnership with Brookfield Asset Management, has determined that about two-thirds of the 50 properties being examined will in one way or another get redeveloped. “There are a lot of negotiations going on,” Gennette said during the interview. Gennette acknowledged there’s a range of redevelopment possibilities that in some cases could involve creating “a ring of restaurants” on a property, or converting a parking lot for mixed use. Macy’s is also examining potential ways to monetize some upper floor space at the Herald Square and Chicago flagships. — DAVID MOIN
Nordstrom Inc., paced by its online and off-price operations, turned its third quarter around, posting net earnings of $114 million compared with a net loss of $10 million a year ago.Earnings before interest and taxes were $208 million, or 5.9 percent of net sales, for the quarter ended Oct. 28, compared to $55 million, or 1.6 percent of net sales, during the same period in fiscal 2016.
Total sales increased 2 percent to $3.5 billion; comparable sales decreased 0.9 percent. The estimated lost sales impact from the hurricanes was approximately $20 million, or 60 basis points.
Earnings per diluted share came to 67 cents, which include a 4 cent reduction due to hurricanes Maria, Irma and Harvey, which affected stores in Puerto Rico, Southeast Florida and Houston.
“The damage in Puerto Rico was particularly extensive, requiring us to close the store as we continue our repair efforts,” said Blake Nordstrom, copresident, during a conference call. “When adjusting for this impact, our overall sales performance was generally in line with our expectations. This reflected consistent trends at our full-price business while on off-price, we experienced of deterioration relative to recent trends. In our Nordstrom brand, total sales decreased 1.2 percent and comps decreased 1.9 percent.
At Nordstrom Rack, total sales increased 5.5 percent and comps increased 0.8 percent. He said Rack was too aggressive with its sales plan at the beginning of the year. “As a result, we found ourselves overinventoried with the fluidity necessary to chase the business. This impacted our ability to provide newness, which led to softer results in the third quarter. We have made significant adjustments to our receipt plans to bring our inventories in line and believe we’re well-positioned for the fourth quarter in this regard.”
He said Nordstrom Rack “remains a highly productive model” and is approaching $5 billion in sales for the year.
He also commented on Nordstrom Local, a test retail concept focused on services. It’s located in West Hollywood, Los Angeles, and offers personal stylists, alterations, online ordering and other services.
“In the four weeks since opening, we got thousands of customer interactions and are applying the learnings to innovate further,” Nordstrom said. “Ultimately, our goal is to drive increased customer engagement and market share.”
He also said that reserve online service has expanded to more than 50 stores. “Our customers appreciate its speed and convenience. It frees up their time. And if they choose to do additional shopping in our store, this results in a material lift in their spend.”
Next month Nordstrom will offer 24-hour curbside pickup in major markets including Seattle, Chicago, Dallas and San Diego, adding to Nordstrom’s litany of services.
Nordstrom had no comment on the decision to postpone efforts on exploring taking the company private until next year. — DAVID MOIN
Kohl’s Corp. logged a modest sales gain during the third quarter, despite millions in lost sales from record hurricanes as profits fell once again.
The mixed results saw shares of the company yo-yo throughout the day, falling to a monthly low of $38.15 before rising 1 percent to close at $41.17.
Kohl’s posted net sales for the quarter ended Oct. 28 of $4.33 billion, compared with $4.32 billion during the same period last year, but net income came in at $117 million, down from $146 million. Comparable sales rose by 0.1 percent, compared with a 1.7 percent decline last year.
Bruce Besanko, Kohl’s chief financial officer, noted during a call with financial analysts that store traffic improved steadily throughout the quarter, leading to the slight comp increase, but said a record hurricane season forced the temporary closure of more than 100 stores. These closures accounted for an estimated $15 million in lost sales.
Kohl’s recently launched a tie-up of sorts with Amazon — it’s dedicating space in a number of stores to the e-tailer and its branded products and accepting online returns in 82 stores — which could have played a part in the traffic, but outgoing chief executive officer Kevin Mansell didn’t give any details on how the deal is going.
“The objective from our perspective is very simple and very straightforward, we believe both of these tests have the potential to drive incremental traffic to our stores, which is our number-one priority,” Mansell said.
The ceo did cite back-to-school and activewear, where sales grew 20 percent, driven by Nike Inc., Adidas Group and Under Armour Inc., for the sales boost, but he admitted most of September was “weak.”
Mansell added “unseasonably warm weather throughout almost all of our regions” to impact from hurricanes as the cause, but said things turned positive again in the latter half of October, driven by lower levels of clearance merchandise and an uptick in regular-priced sales.
He also pointed to Kohl’s “targeted efforts to capture share from competitive store closures in some of our trade areas,” and said this will continue and even “accelerate” throughout the rest of the year.
Kohl’s effort to transition many of its stores to a smaller format is also paying off, and Mansell said recent openings of 35,000-square-foot stores has been “extremely successful,” while driving lower overall inventory levels and a related improvement in profitability.
“Beyond the potential for growth these stores provide us, they importantly provide us insights into how we can operate our other stores more effectively in the future,” Mansell said.
Brian Tunick of RBC Capital Markets said he found it “encouraging” that traffic improved again in the third quarter, but he’s still “skeptical of a material improvement in [fourth-quarter] comps given the still very challenging environment.” — KALI HAYS
Dillard’s Inc. continued to see sales and profits slide during the third quarter, but Wall Street expected worse.
The Arkansa-based department store chain posted net income of $14.5 million for the period ended Oct. 28, a 36.4 percent drop from net income of $22.8 million the same time last year. This quarter’s income also included $4.8 million from the “disposal” of store property and an insurance payout on a damaged location in Missouri.
Equal to 50 cents per share, income beat Wall Street estimates of 21 cents, and shares of Dillard’s hit $60 in after-hours trading, the highest level since early September. Sales for the period totaled $1.35 billion, a 1 percent drop from $1.37 billion last year. Comparable-store sales also fell by 1 percent. — KALI HAYS