By Evan Clark
with contributions from Sharon Edelson, Kellie Ell
 on January 11, 2019
macy's holiday sales

When it comes to retail, Wall Street has officially lost the holiday spirit.

Macy’s Inc.’s stock dropped 17.7 percent to $26.11 Thursday as the company missed holiday sales growth targets, leading the retail sector dramatically lower. The department store said its annual comparable sales gain, including licensed departments, would tally 2 percent, down from the 2.3 percent to 2.5 percent increase projected just before Thanksgiving. (Macy’s combined comps for November and December rose 0.7 percent, or 1.1 percent when licensed departments are factored in).

The season started out with high hopes and a solid Black Friday/Cyber Monday rush, but the December lull was more pronounced than usual during the long season and costs associated with more e-commerce sales, price promotions to move goods and other issues have stoked profit margin fears.

And Macy’s isn’t the only one feeling pinched. Victoria’s Secret continued its string of tough sales reports with a 6 percent comp drop in December and J.C. Penney Co. Inc. turned in 3.5 percent “shifted” decline for the nine-week holiday period earlier this week.

Off the mall, the November/December trend looked better, with Target Corp. comping up 5.7 percent and Kohl’s Corp. rising 1.2 percent (a modest decline that nonetheless was enough for it to boost its annual profit guidance).

But it seemed investors — already wary of retail — were largely in a “sell first, ask questions later” mode.

Among the decliners were Abercrombie & Fitch Co., down 8.2 percent to $19.26; Kohl’s, 4.7 percent to $66.54; J.C. Penney, 4.5 percent to $1.28; L Brands, 4.4 percent to $26.99; Dillard’s Inc., 4.2 percent to $65.02; Nordstrom Inc., 4.1 percent to $47.30; Capri Holdings, 3.8 percent to $40.28, and Target, 2.9 percent to $68.29.

“Many shoppers took a pause in the middle of the longer holiday season and the need for promotions and expensive and fast fulfillment were key negatives,” said Oliver Chen, an equity research analyst at Cowen.

Chen said the holiday results gave investors “confirmation of anxiety given lack of substantial upside.”

“There is a list of margin-related concerns investors are wary of,” he said. “Margin headwinds retailers are planning around include: promotional levels, labor and transportation costs, exposure and planning to tariffs, digital and shipping handling and fulfillment costs, and new costs to clear incremental inventory if comps missed at mall retailers.”

Despite all the handwringing, 2018 actually ended up much stronger than it started.

Macy’s, for instance, started off last year projecting comp sales would range from flat to up 1 percent — well below the projected 2 percent increase that now has investors unhappy.

But investors and everyone else have nanosecond memories and in the here and now, sales are weaker than hoped for and Macy’s is clearing inventory.

“We are revising the guidance we provided in November and will continue to take the necessary steps in January to ensure a clean inventory position as we enter fiscal 2019,” said Jeff Gennette, chairman and chief executive officer of Macy’s.

Adjusted earnings per share are now expected to range from $3.95 to $4 for the year, below the $4.10 to $4.30 projected in November.

If Macy’s was looking for the holiday season to show its strength, Victoria’s Secret was looking to demonstrate signs of desperately needed turnaround, and fell short.

Victoria’s Secret’s in-store comp sales dropped 8 percent and the brand saw declines came in both the core lingerie business and Pink.

The brand, with its waiflike models and bejeweled underwear offerings, has been struggling to maintain market share as consumer preferences shift to brands with basic fashions that promote inclusivity. The company has employed a number of methods to try to revive the brand, including a move to reintroduce swimwear this spring. In addition, John Mehas, formerly of Tory Burch, was tapped to run the company after former Victoria’s Secret ceo Jan Singer left the firm in November.

But even the annual Victoria’s Secret fashion show, once one of the most anticipated fashion spectacles of the year, couldn’t help resuscitate the brand’s dying image. Television viewership for New York’s November show, which aired Dec. 2, was down.

“Victoria’s Secret’s big holiday miss reaffirms our view that significant progress toward a Victoria’s Secret turnaround in [the first half of] 2019 seems unlikely,” Michael Binetti, an analyst at Credit Suisse, wrote in a recent note.

Meanwhile, Target had to prove that it could break away from the retail pack and made headway on that score.

Target’s omnichannel strategy paid off during the holiday stretch, when online orders picked up in stores and drive-up areas fueled brick-and-mortar traffic.

The 5.7 percent comp jump for the two months came on top of a 3.4 percent gain a year earlier and was driven by foot traffic and a small increase in average ticket sales.

Store pick-up and drive-up grew 60 percent and accounted for one-fourth of the company’s total sales. Comparable digital sales shot up 29 percent and Target said it expects 2018 to be the fifth consecutive year in which its digital sales grew more than 25 percent. The retailer said it saw the strongest performance in toys, baby and seasonal gift items.

“This performance demonstrates the benefit of placing our stores at the center of every way we serve our guests, including both in-store shopping and digital fulfillment,” said Brian Cornell, Target’s chairman and chief executive officer.