Macy’s Inc. led a retail stock sell-off Wednesday, kicking off the second-quarter retail earnings season with a profit miss and a warning for the second half.

But behind the numbers, there were signs of continued movement at Macy’s Inc. as chairman and chief executive officer Jeff Gennette embraced resale with a pilot that brings thrift store ThredUp to 40 stores for back to school. He also said that the Bloomingdale’s ‘My List’ subscription rental business, which is being launched with CaaStle, could ultimately lead to a rental concept at Macy’s as well.

In an interview with WWD, Gennette said the push into resale and rental was an effort to bring younger shoppers who “don’t really consider Macy’s one of their shopping destinations” into the fold.

The new initiatives come on top of other changes at Macy’s — from the expansion of the Backstage offprice concept to the experiential Story acquisition — that might signal a transformation in the meaning of department stores for the company, which is growing into a collection of business models instead of a collection of merchandising categories.

“We’re very open to that,” Gennette said. “We’ve got very smart teams that are working on this intently. We test, we iterate. We do all those things thoughtfully, but the Macy’s brand is taking on a new strength. We are going to move into new territory based on where the consumer takes us.”

Jeff Gennette

Jeff Gennette  Courtesy

But to get to that future, Macy’s has to navigate the here and now — where the U.S.-China trade war, weaker tourist spending, the evolution of digital and other big changes set a scene in which mistakes can be very costly.

Macy’s net second-quarter earnings fell to $86 million, or 28 cents a diluted share, from $166 million, or 54 cents, a year earlier. That had profits coming in well below the 55 cents Wall Street analysts projected on average. Sales for the three months ended Aug. 3 dipped slightly to $5.55 billion from $5.57 billion, but comparable sales inched up 0.2 percent.

Macy’s was caught with excess inventory after a fashion miss in its private label sportswear brands — including INC, Alfani and Style & Co. — slow sell-through of warm weather apparel and the decline in tourism.

The company is also facing increased pressure in the key New York market, but so far has fended off the competition.

Gennette said the Bloomingdale’s 59th Street flagship was prepared for the Nordstrom men’s store on 57th Street and the Neiman Marcus at Hudson Yards and has not seen an impact.

Still, the Nordstrom women’s store set to open on 57th Street in October will be a test.

“When you’ve got this Nordstrom’s, which is a huge competitor to Bloomingdale’s coming in with the full enchilada, we’re anticipating that it’s going to have an impact on our business, but we’re ready for it,” Gennette said.

But after the second-quarter setback, Macy’s revised its estimate for adjusted earnings this year to a range of $2.85 to $3.05 a share, down from the $3.05 to $3.25 previously forecast after logging what was described as a “good start” to the year.

Macy’s led the retail market even lower in what was a bad day for Wall Street, where investors pored over weak global economic data and were spooked by moves in the bond market.

In trading on Wednesday, shares of Macy’s fell 13.1 percent to $16.82, followed by Kohl’s Corp., down 10.9 percent to $45.14; Nordstrom Inc., 10.5 percent to $26.08; PVH Corp., 7 percent to $69.45 and Gap Inc. 7.6 percent to $16.58.

Investors have become increasingly skeptical of retail in the digital age and now grown only more so as tariffs on Chinese imports of apparel products loom. There has been a slight reprieve — President Donald Trump threatened to apply 10 percent tariffs on all apparel and footwear imports in September, but this week pushed that back until Dec. 15 for some key items.

A 25 percent hike to tariffs has also been threatened and could still be in the offing given Trump’s brash negotiating style.

Gennette said he tried to pass along higher prices to consumers on some categories already hit, such as luggage, but that consumers weren’t having it. So he said Macy’s is working on ways to mitigate additional tariff costs or absorb them, taking just a 5-cent hit to annual earnings per share.

And he expects other to do the same.

“I would be surprised if my competitors decided to raise the price based on the 10 percent tariffs. I don’t think the customer is going to feel” a tariff hike at that level, Gennette said.

But that might be about the limit.

“My sense is that 25 percent is a game changer if that were to happen across all the remaining imports,” he said.

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