Macy’s (M) reported another quarterly sales decline, one month after turning down a $6.9 billion takeover offer.
Macy’s said on Wednesday that net sales fell 3.8% year over year to $4.9 billion, below expectations of $5.06 billion. Same-store sales fell 4%, worse than the forecast of a 0.27% decline. The company’s shares plunged more than 7% in premarket trading.
Adjusted earnings came in at $0.53, beating Wall Street expectations by $0.24. CFO and COO Adrian Mitchell told Yahoo Finance that “discretionary” consumers remain “under pressure” and looking for value.
The report comes after the company closed discussions on July 15 regarding a takeover bid from one of its shareholders, Arkhouse Ltd, and its partner, Brigade Capital Management Ltd. The proposal was first made public in early December last year.
“There was insufficient evidence to show that a potential deal was viable. You need capital to make a deal,” Mitchell said.
He added that the $24.80 per share offer was “not attractive” given Macy’s future prospects, and that management is now focused on a turnaround strategy it has dubbed “A Bold New Chapter.”
The offer was about 60% above Macy’s stock price as of Nov. 30, 2023. Mitchell said he believed the strategy would value Macy’s more than the offer.
A large real estate portfolio that is one of Arkhouse’s main targets is undergoing a restructuring, with the company planning to announce 55 store closures in the first wave this year, up from the 50 it predicted earlier this year, for a total of 150 store closures.
“We’re seeing a lot of traction with real estate monetization,” he said. “It was in the $90 range initially. [million] “We had expected the gains from asset sales to reach $115 million this year. That outlook has now improved and been revised upwards to approximately $115 million.”
The company recorded a $36 million gain from asset sales in the second quarter and expects a further $30 million in the third quarter and $67 million in the fourth quarter.
Tony Spring, who took over as CEO in February, announced a “bold new chapter” in the first quarter, a strategy that includes closing underperforming stores, revamping remaining “moving forward” stores and investing in digital sales.
Same-store sales have increased in the first 50 stores that Macy’s prioritized, Spring said in a statement.
Sales at these 50 locations where the company is testing the new strategy increased 0.8% year over year.
“The traffic and conversion rates in Macy’s first 50 stores have obviously been good compared to our other stores. When we look at customers, we’re seeing higher absolute foot traffic in those stores, which is consistent with previous years,” he said.
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Sales at remaining stores that weren’t upgraded fell 3.8%. Sales at stores slated for closure fell 6.5%.
Morgan Stanley analyst Alex Straton expects “market confidence to grow” once the company starts to see “impact” on its income statement from its turnaround plan in mid-2025, following initial store closures and investment in 50 well-performing stores.
Macy’s shares are down about 12% this year, compared with a 17% gain for the S&P 500 (^GSPC).
Macy’s second-quarter results came as shoppers are frustrated by rising costs and continue to look for bargains.
Macy’s monthly visitor numbers declined year-over-year through most of 2024, according to the Placer.ai report.
“The chain’s weekly foot traffic has remained above 2023 levels since the middle of this month. [July] “This is likely due to back to school shopping and sales,” Placer.ai said in a post.
Same-store sales at luxury goods subsidiary Bloomingdale’s fell 1.1 percent, while sales at cosmetics chain Bluemercury rose 2 percent.
“The reality is that luxury consumers have money to spend, but they’re being cautious about how they think about spending,” Mitchell said. “There are headwinds for some luxury brands.”
He said Bluemercury and the beauty business “are strong areas despite some of the pressures that we’re seeing.”
UBS analyst Jay Sohl said Macy’s “structural challenges” will “lead to it losing share to off-price retailers, brands and Amazon.”
Discount retailer The TJX Companies (TJX), parent company of TJ Maxx, Marshalls and HomeGoods, is also scheduled to report earnings on Wednesday before the market opens.
The company said product margins increased 210 basis points due to lower discounting compared to the prior year.
A man holds a Macy’s paper bag in Manhattan, New York on July 5, 2024. (Beata Zawrzel/NurPhoto via Getty Images) (NurPhoto via Getty Images)
Revenue Breakdown
Here’s how Macy’s reported compared to Wall Street expectations:
Net sales: $4.9 billion vs. $5.06 billion
Adjusted EPS: $0.53 vs. $0.29
Same-store sales: -4.0% vs. -0.27%
The company expects pressure to continue in the second half of 2024 and lowered its outlook for this year.
The company now expects net revenue to be between $22.1 billion and $22.4 billion, lower than the previously expected range of $22.3 billion to $22.9 billion.
Same-store sales are expected to decline 2% to 5% year over year. The company had previously forecast same-store sales to be in the range of 1% increase to 1.5% decrease.
Mitchell said the downgrade was due to “the realization of second-quarter sales results” and “the need to address the uncertainty we see around discretionary spending.”
“Given all the indicators we’ve seen in the economy, and what we’re hearing from economists, [and] The ratio of discretionary to essential spending changes our situation quite a bit.”
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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow @ on X.Brooke DiPalma Or email me at bdipalma@yahoofinance.com
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