Macy’s taking more markdowns, dips into red ink
November 12, 2008,
Cincinnati – Macy’s Inc. saw its average unit retail decrease in October “for the first time that I can remember,” evp and cfo Karen Hoguet said.
“We believe those areas [cold weather items] were boosted both by fashion trends and also due to the fact that they are practical purchases,” she explained.
Another bright spot in the period was the “resurgence” in sales of moderately priced goods, led by strength in private brands, especially in apparel. And, Hoguet said, Macy’s everyday value priced items “also did very well in the third quarter.”
But the decrease in average retail units was a sore point, as was “another concerning trend” in October: a slip in the store’s regularly priced goods.
“Earlier in the year, the weakness in sales was more in our clearance than regular priced businesses,” Hoguet said. “All of these factors point to the fact that the consumers are pulling back in reaction to the economic weakness. This should not surprise any of you.”
The “most significant” negative trend change in the third quarter came in the forms of the furniture and mattress businesses as well as at Bloomingdale’s.
And yet despite this, Bloomingdale’s “still continued to outperform the more upscale competition in the third quarter,” she asserted.
Macy’s Inc. recorded a quarterly net loss of $44 million, or 10 cents per share, steeply down from a net profit of $33 million, or 8 cents per share in the same period one year ago.
For the nine months year-to-date, Macy’s recorded a net loss of $30 million, a major bump down from its first-three-quarters’ net profit of $143 million last year. The EPS fell to a loss of 7 cents from the year-ago gain of 31 cents.
Sales in the quarter ending Nov. 1 were down 7.0% to $5.49 billion, with a comp drop of 6.0%. Sales year-to-date were off 4.3% to $17.0 billion, with a 3.5% comp drop.
Looking ahead to the next, critical 60 days – a “nail biter” of a holiday much like any other, Hoguet said, Macy’s remains somewhat optimistic and stoically “very prepared. Our assortments are looking great and full of great values and newness,” she elaborated. “Our price points are sharper than ever, our promotions are powerful, and marketing is strong. And our stores and sales associates are providing better service than ever before, based on our consumer surveys.”
Still, she warned, “We can only control so much. We will have to see how it plays up, but we still hope to improve on our third-quarter sales trend.”
To help this along, the store is admittedly taking “more markdowns than planned to keep our inventory current.”
Inventory at the end of October was down approximately 2.5% on a comp store basis.
Looking further ahead, to the spring, Hoguet said she had to caution “that we are less confident” for post-New Year. “We will be year-rounding weakness, but we are increasingly concerned that we won’t see the improvements we had anticipated as recently as a month ago. Now, that doesn’t mean that we are expecting further deterioration, but we might not get as much improvement as we had hoped. Until we are through the next 60 days, won’t know how to guide you about 2009. But we are taking a conservative approach and planning those longer lead time items.”
In defense of this, Macy’s is postponing some capital projects to keep cash more readily available and is also reducing plans related to merchandise receipts and its expense budget for both spring and fall 2009, “given this uncertainty,” she added. “If trends improve, we will be able to add back some of these capital projects and order more merchandise. But at this point we don’t see any upside at being optimistic.”