Two of the country's biggest department stores, Macy's Inc. and
Kohl's Corp., posted another quarter of declining sales as the
chains struggle with changing shopping habits and competition from
discount rivals.
Macy's booked a 2.7% decline in same-store sales, the seventh
straight quarter in which sales and profits have declined. The
retailer also struck a deal Thursday with Brookfield Properties
that could further shrink its retail footprint.
Kohl's same-store sales fell 1.7% in the period, its third
straight drop, despite what it said was a strong back-to-school
shopping period. Unlike Macy's, most of the chain's locations
aren't part of traditional shopping malls and the company doesn't
plan to shrink its store base.
Executives at both chains, however, said shopping trends were
improving and gave upbeat outlooks for the key holiday season.
Shares of the companies rallied in Thursday morning trading, giving
a lift to other retail stocks.
"We have momentum coming out of October," said Kohl's Chief
Executive Kevin Mansell. "We feel we're very well positioned for
the upcoming holiday season."
Shoppers are increasingly opting to make purchases online,
especially at Amazon.com Inc. or at fast fashion chains like
H&M Hennes & Mauritz AB, leaving department stores
scrambling with lower foot traffic.
Both Macy's and Kohl's have tried to adapt. Macy's has been
closing weaker stores and adding kiosks that sell Apple Inc.
watches or other electronics. Kohl's has brought in more national
brands, such as Nike Inc. and American Girl dolls. But both still
rely on heavy discounts to drive foot traffic.
Neil Saunders, the chief executive of Conlumino, a retail
research firm, noted that Macy's made just 2 cents for every $1 in
revenue in the latest quarter. The results, Mr. Saunders said,
"show a company grappling with what looks like a terminal
decline."
Some brands, such as Coach Inc. and Ralph Lauren Corp., that
have historically relied heavily on department stores are starting
to pull back from those chains in an effort to sell more goods at
full price. On Thursday, Ralph Lauren reported that sales to
department stores fell 10% in its latest quarter.
Macy's said the average purchase price of an item increased
during the quarter, which helped offset fewer transactions, and
that online sales continued to grow by double digits. Inventory
declined 3% putting the company on stronger footing heading into
the holidays than last year, when it resorted to discounting to
clear unsold goods. Macy's reaffirmed its profit forecast for the
year, and said it now expects sales to decline less than
expected.
Chief Executive Terry Lundgren said its strategy of adding more
exclusive products has helped apparel sales recover, and added that
Macy's was also seeing strong sales in technical watches, in part
due to having an Apple kiosk in its Herald Square store, and new
offerings from Michael Kors Holdings Ltd. in the category.
Mr. Lundgren, who has announced plans to step aside next year,
said it was too soon to tell what impact the presidential election
would have on sales. "To have a group of the population feeling
like their voices have been heard is a positive thing," he said.
With wages rising and unemployment low, he added, "there is a
potential for consumers to spend in our categories in the fourth
quarter."
Over all, Macy's reported a third-quarter profit of $17 million,
down from $118 million a year earlier, hurt by restructuring costs.
Sales fell 4.2% to $5.63 billion.
On the real estate deal, Macy's said Thursday Brookfield will be
able to redevelop up to 50 properties, either by adding on to a
particular store or redeveloping the entire site. Financial terms
weren't disclosed. "They will reimagine not just some of our store
locations, but our parking lots, and property we own," Mr. Lundgren
said.
The Brookfield deal is part of Macy's strategy to generate value
from real estate as many of its stores underperform in a rocky
retail environment. Over the summer, Macy's said it would shut 100
more stores, about 15% of its base, on top of 40 closures announced
earlier this year. Activist investors have called for Macy's to
generate more value from its real estate.
Macy's shares, which have climbed 13% in the past three months,
popped up 5.9% while shares of Kohl's rose 11%. That helped buoy
other retail stocks that will report financial results in the
coming days. J.C. Penney Co. increased 6.7% and Nordstrom Inc.
gained 5.8%.
Kohl's profit rose 22% to $146 million. Revenue fell 2.3% to
$4.33 billion.
Mr. Mansell, the CEO, said better inventory management could
help shield the company from seasonal or political volatility. "We
are doing things with an eye to the long-term and that it's
benefiting us and it will continue to benefit us regardless of
whether or not you think the consumer is in a buying mood for
holiday or is still not so much."
For the period ended Oct. 1, Ralph Lauren reported a profit of
$45 million, down from $160 million a year earlier. Revenue
declined 7.6% to $1.82 billion. Sales at the company's retail
stores excluding newly opened and closed locations declined 8%.
Earlier this year the luxury apparel and accessories company
embarked on a turnaround plan that included refocusing on its core
Ralph Lauren, Polo and Lauren brands, as well as store closings and
job cuts.
Joshua Jamerson and Ezequiel Minaya contributed to this
article.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
November 10, 2016 12:45 ET (17:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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