Major department stores, battling against declining mall traffic and seeing Amazon and off-price chains gain market share, took a beating on Wall Street on Thursday after reporting top-line sales decreases.
Nordstrom Inc., Macy’s Inc., Dillard’s Inc., Kohl’s Corp. and Hudson’s Bay Co. all reported sales declines for the first quarter, despite some better results in men’s and women’s apparel at certain, but not all, of the stores.
Macy’s and Dillard’s reported profit declines while Kohl’s and Nordstrom reported gains. HBC will report earnings in June.
Macy’s, registering a 39 percent drop in net earnings along with a 7.5 percent decline in sales for the quarter ended April 29, seemed to drag retail stocks down Thursday, though the outlook generally among department and specialty stores is for soft sales this year.
Kohl’s stock was down 7.9 percent to $37.16, Nordstrom was down 7.6 percent to $46.21, Dillard’s fell 17.5 percent to $47.77 and Macy’s dropped 17 percent to $24.35.
Macy’s net earnings came to $70 million versus $115 million in the year-ago period. Sales reached $5.34 billion versus $5.77 billion a year ago. Macy’s said the decline in total sales reflects, in part, store closings revealed in 2016. Comparable sales were down 4.6 percent on an owned-plus-licensed basis.
However, Jeff Gennette, Macy’s president and chief executive officer, said, “Our first-quarter sales and earnings results were consistent with our expectations, and we remain on track to meet our 2017 guidance.”
He also said the company was “encouraged by the performance of the pilot programs tested last year in categories like women’s shoes, fine jewelry and furniture and mattresses. We look forward to expanding these successful initiatives nationally this year and anticipate they will have a measurable impact on our performance starting in the second quarter, building through the fall. Additionally, our digital platforms showed continued strong growth in the first quarter.”
Last quarter, the best-performing categories at Macy’s were women’s apparel, specifically active and dresses; fine jewelry; fragrances; women’s shoes, and furniture and mattresses. On the other hand, handbags, fashion jewelry, watches, housewares, tabletop and color and treatment were weak, though Bluemercury and the Impulse department have been exceptions. There are particular margin pressures in beauty, fashion watches and housewares.
This year, Gennette added, “We are focused on taking actions to stabilize our brick-and-mortar business, including the testing and iteration of additional pilot programs in order to bring them to scale in future years. At the same time, we will invest to aggressively grow our digital and mobile business, while continuing the integration of our online and off-line experience to allow our customers to shop the way they live.”
The retailer is continuing with its Backstage off-price strategy, developing a new model for enhancing the store experience, is furthering the pilots for footwear and fine jewelry and is amplifying private brands and exclusive designer capsule collections, such as CR by Cynthia Rowley and Anna Sui later this fall.
The first-quarter results include real estate transactions of $96 million, which were booked at $68 million, including $47 million from selling the downtown Minneapolis property. Macy’s plans to sell two more floors of its downtown Seattle store after having sold floors five through eight in 2015.
Looking ahead, Macy’s affirmed previous guidance of comparable sales, both owned and leased, declining between 2 and 3 percent this year. Total sales are expected to be down between 3.2 and 4.3 percent. Total sales for fiscal 2017 reflect a 53rd week, whereas comparable sales are on a 52-week basis.
Excluding the sale of the Union Square men’s building in San Francisco, anticipated settlement charges related to benefit plans and premiums and fees associated with debt repurchases, adjusted diluted earnings per share of $2.90 to $3.15 are expected in 2017. Last year, earnings per diluted share on an adjusted basis were $3.11.
In the first quarter, the company opened Macy’s stores in Murray, Utah, and Los Angeles, as well as 10 freestanding Bluemercury beauty stores and 11 Macy’s Backstage off-price stores inside existing Macy’s stores. Additionally, one Bloomingdale’s store opened in Kuwait under a license agreement with Al Tayer Group.
Macy’s is closing 63 stores this year, and will shutter about another three dozen over the next few years.
Of the four retailers, Nordstrom Inc. had the most positive quarterly report, indicating that first-quarter earnings met expectations, though sales fell short.
The Seattle-based retailer said net earnings for the period ending April 29 rose 37 percent to $63 million, compared to $46 million in the year-ago period. Earnings before interest and taxes were $151 million, or 4.6 percent of net sales, compared to $106 million in the year-ago period.
“While we’re pleased with our inventory and expense execution, we’re not satisfied with our top-line results,” Blake Nordstrom, copresident, said during a conference call with investors. “Total sales increased 2.7 percent while comps decreased 0.8 percent. This was generally consistent with the trends we’ve experienced over the past year.” Total sales came to $3.3 billion for the first quarter compared with $3.2 billion during the year-ago period.
Nordstrom added that “from a merchandise perspective, we had strength in our men’s and women’s apparel while accessories remained soft. Our expansion and full-price gross margin reflected the continued strength of our regular-price sales. Our focus on expanding product with limited distribution helps us provide customers with the most sought-after brands while mitigating our business from the promotional environment.”
Earnings per diluted share were 37 cents, including an interest expense charge of $18 million, or 6 cents, related to a $650 million debt refinancing completed in the first quarter of 2017, which was not part of the company’s outlook.
This compares to earnings per diluted share of 26 cents for the year-ago quarter, which included non-operational charges of $30 million, or 10 cents, primarily related to higher credit chargeback expenses associated with an industry change in liability rules.
Excluding non-operational charges of $30 million in 2016 and $18 million of debt refinancing costs in 2017, earnings per diluted share for the first quarter of the year increased 19 percent over the same period last year.
Online sales were 24 percent of total net sales, driven by 11 percent growth at nordstrom.com and 19 percent at nordstromrack.com/HauteLook.
At Nordstrom’s full-line stores and nordstrom.com, net sales when combined with Trunk Club decreased 1.7 percent. Comparable sales decreased 2.8 percent. Top-performing categories were men’s and women’s apparel, and the West was the top-ranking U.S. geographic region.
At Nordstrom Rack, which consists of Nordstrom Rack stores and nordstromrack.com/HauteLook, net sales increased 8.7 percent and comparable sales increased 2.3 percent. The West was the top region.
The company reiterated its annual outlook for earnings per diluted share of $2.75 to $3, a net sales increase of 3 to 4 percent and about flat comparable sales.
At Dillard’s Inc., net income for the quarter ended April 29 fell 14.3 percent to $66.3 million, or $2.12 a diluted share, from $77.4 million, or $2.17, a year ago. Net sales slipped 5.7 percent to $1.42 billion from $1.5 billion. Net sales include the operations of the company’s construction business, CDI Contractors LLC. The company said total merchandise sales, excluding CDI, fell 4.3 percent to $1.39 billion from $1.45 billion a year ago. Dillard’s said comparable-store sales fell 4 percent.
The retailer managed to beat Wall Street’s $2.02 consensus estimate, but missed the revenue projection of $1.47 billion.
William T. Dillard II, the retailer’s ceo, said, “While our sales decline weighed heavily on our operating results, we remained active in returning cash to shareholders through $93 million of share repurchase and dividends. We still ended the quarter with $302 million of cash largely due to better cash management.”
The company said that sales of women’s apparel “notably outperformed” other merchandise categories, followed by juniors’ and children’s apparel. Weaker performances were noted in cosmetics, home and furniture, as well as women’s accessories and lingerie, the company said.
Gross margin from retail operations improved 65 basis points of sales compared with the prior year’s first quarter. Further, inventory rose 4 percent at the end of the first quarter compared with year-ago levels.
Dillard’s said it purchased $91.1 million, or 1.7 million shares, of Class A Common Stock under its $500 million share repurchase program in the quarter. The remaining authorization under the February 2016 plan was $162.7 million at the end of the first quarter.
Kohl’s Corp. continued to struggle during the quarter. While the department store retailer saw net income rise to $66 million from $17 million a year ago — when that quarter included a number of impairment charges related to store closures — total sales dropped 3.2 percent to $3.8 billion. Comparable-store sales also fell, by 2.7 percent.
The decline comes off of a fourth quarter in which sales declined 2.8 percent and net income fell by 15 percent.
Kohl’s chairman and ceo Kevin Mansell admitted 2017 started off “weak,” but focused on a “significant improvement in sales and traffic for the March and April period,” which he said is encouraging. Sales for those months are still down by 1 percent compared to last year.
The increase in March and April over the first two months of the year is primarily due to a jump in activewear sales related to the recent launch of Under Armour in stores, according to the company, which noted its women’s and accessories categories “continue to be challenging.”
Nike also performed well during the quarter, Mansell said during a call with Wall Street analysts, adding that “there will be more opportunities for additional new brands in additional areas of the stores.”
Mansell also pointed to an increase in mobile traffic and online sales, including Kohl’s program for in-store pickup of online sales and fulfillment of online orders from store inventory.
“We have greater conviction than ever that leveraging our store assets as a longer-term strategy to provide best-in-class omnichannel experience is on target,” the ceo said.
The company is continuing “optimization” efforts for a number of stores, which include “remerchandising and refixturing” full-size stores into smaller operations. It’s already been rolled out to about 200 stores and another 100 are set to be altered over the second quarter.
Hudson’s Bay Co. said on a constant currency basis, consolidated comparable sales decreased 2.9 percent. By segment, Hudson’s Bay, Lord & Taylor and Home Outfitters had a comparable sales decrease of 2.4 percent; Saks Fifth Avenue’s comparable sales dropped 4.8 percent; Saks Off 5th and Gilt had a combined comparable sales decrease of 6.8 percent, and HBC Europe (Galeria Kaufhof, Galeria Inno and Sportarena) came out with flat comparable sales.
Comparable digital sales saw an increase of 5.4 percent on a constant currency basis.
Jerry Storch, HBC’s ceo, commented: “The first quarter of the year has remained difficult, particularly in the U.S., where we have seen lower store traffic across our banners. Compared to the fourth quarter of fiscal 2016, constant currency comparable sales trended lower at our North American banners, while improving at our European banners. Apparel retail has been further impacted by a highly promotional environment, and the continued channel shift of in-store sales to online sales. These and other factors will negatively impact our first quarter earnings. While the start of the year has been disappointing, we are reacting quickly so that we can better face these challenges going forward.”