As we approach the holiday season, Macy's is looking more and more grim. The department store chain cut its annual profit forecast last week after its quarterly sales declined 5.2%, causing its shares to drop 14%—its biggest one-day decline in seven years.
"We had a very tough quarter, and we are clearly disappointed," Macy's CEO Terry Lundgren said. The retailer's chief number cruncher, CFO Karen Hoguet, broke down the disappointing quarter into four parts:
1. Weak interest in apparel due to unusually warm weather.
"The weather has not helped with the warm temperatures experienced across the country," Karen says. Sales of items such as coats, sweaters and boots were "significantly below last year in the quarter."
2. Tourists aren't spending as much.
This greatly impacts Macy's because international stores are its most profitable locations.
3. Growth at Macy's namesake stores is slowing.
Karen relates this to the lack of tourist spending.
4. Demand for some of Macy's biggest brands is weakening.
The company is planning to offer deep discounts on these brands but that will also put pressure on its margins.
"I wish I could say it's going to get ice cold across the country, I wish I could say that tourists are going to begin to show up and start spending, but you can see in our forecast for the fourth quarter, we're not expecting that," Karen says. Maybe it's not the season to be jolly for Macy's. [BI]
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