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Where Macy’s, Nordstrom and Other Department Stores Struggled This Quarter

Samantha McDonald

A flurry of traditionally brick-and-mortar retailers are scheduled to release their financial results this week and next, as the fourth-quarter earnings season comes to a close.

While Macy’s Inc. and J.C. Penney Company Inc. are expected to post their quarterly reports on Tuesday and Thursday, respectively, investors will also keep a close eye on Kohl’s Corp., whose results are due out next Tuesday, as well as Nordstrom Inc.’s numbers, to be delivered next Wednesday.

Shifting consumer demands and increasing competition from e-commerce giants continue to put pressure on major chains — many of which have faced slower foot traffic and resorted to widespread store closures. Further, the deadly coronavirus outbreak has brought about uncertainty in retail’s foreseeable future, while a number of big-name players continue to feel the effects of a mixed or disappointing holiday shopping season as they lose out to off-price and discount merchants.

“Larger picture, the narrative remains consistent,” JPMorgan analyst Matthew Boss explained in a distribution note on Monday. “The consumer [is] on solid footing, [and there is] a clear bifurcation between winners and losers across the retail sector — off-price, discount [and] athletic [are] greater than department stores [and] mall-based specialty.”

Other analysts, including Morgan Stanley’s Kimberly Greenberger, were more positive on the kickoff to the fiscal year. “Our store checks also suggest leaner inventory coming out of 2019 — a signal that department stores have worked through a portion of overhang and a positive for first-half 2020 merchandise margin,” she said in a note released Thursday. “While we don’t see potential for a complete turnaround, weather and traffic tailwinds could help offset ongoing sales deterioration for a few months.”

Here, what to expect from the retailers logging earnings results this week.

Macy’s

As it embarks on its ambitious turnaround plan, Macy’s has faced analysts’ skepticism. This month, both S&P Global Ratings and Fitch Ratings lowered the retailer’s long- and short-term issuer credit ratings. “While we believe management’s strategic plan is a necessary step toward rightsizing the enterprise, it demonstrates to us that the company’s competitive advantage has diminished more than we expected, and to a point that we no longer believe is consistent with an investment-grade rating,” S&P wrote in its research note.

S&P’s downgrade came two weeks after Macy’s outlined on its investor day a three-year turnaround plan that included trimming 125 stores from its total footprint, cutting 2,000 jobs — or about 9% of its corporate workforce — and ramping up investments in both higher-margin private labels and off-price through Macy’s Backstage. The retailer will also shutter its Cincinnati headquarters and San Francisco tech office, relocating some of these jobs to its new home base of New York City. Macy’s said it expects these moves to save the company $1.5 billion annually by the end of fiscal 2022.

“Over the past three years, we have shown we can grow the top line; however, we have significant work to do to improve the bottom line,” chairman and CEO Jeff Gennette said in a statement on Feb. 4. “We are confident the strategy we are announcing today will allow us to stabilize margin in 2020 and set the foundation for sustainable, profitable growth.”

Q3 performance: In its third-quarter earnings report ended Nov. 2, the company logged its first same-store sales decline in two years and slashed its guidance for the full year. Macy’s execs blamed the disappointing results on the warmer fall season, coupled with slowing foot traffic, amid a broader shift from brick-and-mortar to online retail.

Earnings and revenue estimates: Analysts are betting on earnings of $1.96 per share and $8.32 billion in revenues.

Nordstrom

Just last week, Nordstrom was ranked among the “most vulnerable” publicly traded retailers in America. The S&P Global Market Intelligence, which released on Wednesday its monthly retail outlook report, analyzed retailers’ one-year and two-year probability of default on loans, or the likelihood that the companies will not be able to make its scheduled repayments on time.

However, amid a rapidly changing retail landscape characterized by widespread store closures and the rise of e-commerce, Nordstrom has arguably managed to stay ahead of many of its competitors. The Seattle-based retailer has often been lauded for its innovative concepts and omnichannel savvy, including its pioneering of the “buy online, pick up in store” service, revamped loyalty program and experiential store offerings.

What’s more, in the past couple years, Nordstrom has invested more resources into BOPIS and curbside pickup, opened small-format stores. However, it has also expanded its brick-and-mortar footprint — a selling channel that, in the past few years, has been struggling to cope with the shift to e-commerce — with the October launch of its 320,000-square-foot women’s flagship in New York City.

Q3 performance: Nordstrom offered a glimmer of hope for a battered retail sector when it reported on Nov. 21 earnings that bested Wall Street’s forecasts and revenues that met consensus bets. The retailer noted improvements in its loyalty program, digital marketing efforts and merchandise assortment as well as touted its anniversary shopping event and off-price business.

Earnings and revenue estimates: Estimates put Nordstrom’s earnings at $1.47 per share and revenues at $4.56 billion.

Kohl’s

Amid sluggish sales, Kohl’s has made the decision two weeks ago to lay off 250 workers, including a number of regional store leaders and members of its merchant organization. The chain also announced changes to other positions in its corporate offices as part of its broader restructuring. (The firm said it would offer severance packages and outplacement services to the employees affected and will not be closing stores or offices.)

Despite the launch of niche labels and a high-profile partnership with Amazon, Kohl’s turnaround plan has yet to yield the anticipated results. Since she stepped into the top role in May 2018, CEO Michelle Gass has made it a top priority to win over millennial and Gen Z consumers. The chief has put an emphasis on growing the retailer’s digital sales, which increased at a mid-teens rate in the third quarter. Mobile served as the primary source of gains, with a particularly solid performance from the Kohl’s app. (The app nearly doubled in traffic growth and tripled in sales growth.)

“I think it’s absolutely critical for us to protect, preserve and grow the core customer base while we complement with this newer and arguably younger customer for the future,” Gass said in Kohl’s third-quarter conference call. “We have to do both.”

Q3 performance: For the period ended Nov. 2, Kohl’s recorded a mixed quarter with profits that missed forecasts and revenues that topped expectations. The company cited the heightened promotional environment in Q3 coupled with a decline in its women’s category as well as higher costs related to a significant number of brand launches, early holiday hiring and the Amazon Returns program.

Earnings and revenue estimates: Analysts anticipate earnings per share of $1.88 and revenues of $6.52 billion.

JCPenney

Like Nordstrom, JCPenney made the S&P Global Market Intelligence’s “most vulnerable” publicly traded retailers list last week. It was also among the retailers to announce store closures amid turnaround efforts. The Plano, Texas-based firm, which is currently undergoing “a careful and ongoing review of our store portfolio,” seeks to return to profitability following consecutive quarters of earnings losses. (JCPenney hasn’t logged a sales gain since the 2017 holiday season.)

Since taking the helm in October 2017, CEO Jill Soltau has shut down underperforming stores and hired new talent to revive the business. JCPenney also hired debt restructuring advisers in mid-July as part of its turnaround plan. It also announced a partnership with ThredUp in August, arranging for 30 of its stores to offer a selection of the online consignment firm’s secondhand apparel and accessories.

“As I’ve said, we are not simply running a business, we are rebuilding a business, and it will take time,” Soltau said during the company’s Q3 earnings conference call.

Q3 performance: A narrower-than-expected third-quarter loss and upgraded full-year outlook reported on Nov. 2 lifted JCPenney’s stock into the green. It signaled hope for the chain, which had struggled for multiple quarters with declining sales, leadership changes and digital competition that spooked investors and pushed its stock below $1 — putting it at risk of delisting from the New York Stock Exchange.

Earnings and revenue estimates: Wall Street is forecasting a loss of $0.06 with revenues of $3.44 billion.

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