Better, but not enough — the department store storm hasn’t passed yet.
Macy’s Inc. and J.C. Penney Co. Inc. both showed signs of life in the holiday season with comparable sales increases. Macy’s said its comp sales for the November/December stretch rose 1 percent while J.C. Penney comped up 3.4 percent. (L Brands Inc. also comped up 1 percent for December, but felt the sting of higher promotions at its Victoria’s Secret division).
At department stores, Wall Street is looking for more than a little momentum, with analysts prodding retailers to continue to adjust their businesses as more sales go online.
There would seem to be some time for retailers to push that evolution along since the consumer economy is generally seen as steady and strengthening, fueled in part by the still-rolling stock market, where the Dow Jones Industrial Average jumped above 25,000 for the first time on Thursday.
Craig Johnson, president of Customer Growth Partners, believes that the solid holiday 2017 season portends robust consumer spending in 2018. “With the broad-based sales growth and rising real disposable incomes — and now the new tax cut legislation—all the ingredients are in place for a sustained rebound in consumer spending well into 2018 and perhaps beyond,” Johnson said.
According to Johnson, retail spending growth is at its best since 2005, with widespread gains in stores and online. CGP estimates that total holiday spending reached a record $672 billion, a 5.7 percent year-over-year increase. That’s slightly higher than Johnson’s mid-December estimate of $671 billion, or a 5.6 percent increase. His holiday forecast is based on shopper surveys nationally in malls and other shopping venues, and census data. It excludes sales of autos, auto parts, fuel and at restaurants.
Holiday sales were paced by online/direct-to-consumer sales, up 11.7 percent; home improvement, up 9.5 percent; off-pricer stores, 8.4 percent; superstores/clubs, 5.6 percent; apparel, 5.1 percent. However, women’s apparel retailers and sporting goods saw sluggish sales at best, Johnson said.
Investors, though, remain cautious on department stores and retailers in general and shares of Macy’s fell 3.3 percent to $24.49, while J.C. Penney’s stock dipped 0.3 percent to $3.69 on Thursday.
Oliver Chen, a Cowen retail analyst, acknowledged “green shoots” at department stores and attributed Macy’s and Penney’s comp improvement to “improved inventory management and flow; good category momentum in beauty, activewear, and outerwear and digital strength.”
Chen said retailers are making progress in closing stores, cutting costs and reinvesting in their businesses, but acknowledged that traffic is falling in stores, which need to be quick and flexible.
“We also believe the apparel category needs reinvention and new kinds of partnerships are essential with vendors and brands in order to drive differentiation versus both Amazon and low-cost alternatives,” Chen said.
Jeff Gennette, chief executive officer of Macy’s, played up the company’s sales rebound and signaled that changes would keep coming, including store closures, cost cuts and plans to invest $300 million in annualized cost savings back into the business.
“Macy’s had a solid holiday shopping season and we are pleased that our November-December performance resulted in positive comp sales for the period, setting us up for a positive fourth quarter,” Gennette said.
The retailer said it would close 11 Macy’s stores as part of the August 2016 plan to shutter 100 doors. With these closures, the company will have closed 81 of the 100 stores. Since 2015 Macy’s has eliminated 124 doors.
Macy’s is also planning to cut costs through a new plan that will see staffing adjustments across the store’s organization, with locations losing headcount and others gaining. The effort will also lead to a streamlining of non-store functions as well as a onetime charge of about $160 million in the fourth quarter.
Macy’s will benefit from a lower tax bill in the final month of its fiscal year and, taking that and better sales into account, updated its earnings guidance. Excluding charges associated with the restructuring, the impact of tax reform and a gain on the sale of its Union Square store in San Francisco, Macy’s nudged up its range for earnings per share for 2017 to $3.11 to $3.21 from the previously forecast of $2.91 to $3.16.
Penney’s didn’t give any bottom-line updates, but chairman and ceo Marvin Ellison did feel comfortable enough to tout its holiday sales.
“We are very encouraged with our overall comp-sales performance during the holiday season, which was led by home, beauty and fine jewelry,” Ellison said. “Additionally, our apparel categories continue to demonstrate improved comp performance, particularly in women’s and kids. We are also pleased by our e-commerce business that continues to outpace prior-year results with double-digit sales growth, largely driven by sought-after gifting categories such as fine jewelry, home decor and luggage, toys, boots and athletic footwear.”
At L Brands, investors were clearly looking for a little bit more, especially after the company’s long-churning restructuring at Victoria’s Secret was showing signs of life at the beginning of the holiday season.
Victoria’s Secret comped down 1 percent in December overall, while comps at its brick-and-mortar stores fell 6 percent. Amie Preston, L Brands’ investor relations officer, said the brand’s merchandise margin rate was “down significantly” compared to last year due to increased promotions, which will continue at least until Victoria’s Secret starts to focus on Valentine’s Day. Inventory per square foot is up 7 percent for the lingerie retailer.
The reaction was strong on Wall Street, with L Brand shares dropping 12.3 percent to $51.
Mark Altschwager of Baird Equity Research said the drop in shares “reflected some expectation for upside” and that overall, the sales update was “disappointing.”