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Macy’s, Kohl's shares drop as sales declines raise turnaround concerns

A Macy's store in Boston, Massachusetts, U.S.

Brian Snyder/REUTERS

Shares of department store chains Macy's Inc and Kohl's Corp tumbled on Thursday as the companies continued to report a drop in quarterly same-store sales, stoking concerns that their turnaround may still be a long way off.

While the declines in same-store sales were not as bad as feared, gross margins at both the companies slipped as they continued to rely on heavy discounting and promotions, while spending more on shipping online orders.

Macy's second-quarter gross margins fell to 40.3 percent from 40.9 percent a year earlier, while those of Kohl's fell to 39.4 percent from 39.5 percent.

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Macy's also took a grim view of its same-store sales in the current quarter, estimating a drop of 2.5 percent or more as it expects to remain "very promotional" in the fall season.

"We are operating in an environment of intense and disruptive competition, and our customer ... has more shopping options than ever," Chief Executive Jeffrey Gennette said.

Department store chains have been struggling with declining mall traffic and tough competition from off-price retailers and ecommerce behemoth Amazon.com Inc, leading to a tenth straight quarter of falling same-store sales at Macy's and sixth straight drop at Kohl's.

To boost traffic, Macy's plans to launch a new marketing strategy in September, followed by a new loyalty program, while taking Backstage, its off-price discount concept, to more stores.

However, Macy's did not announce any new deals to monetize its real estate, a key source of capital to help turn its business around.

Sales at stores open more than 12 months fell 2.5 percent at Macy's and 0.4 percent at Kohl's. Analysts polled by research firm Consensus Metrix had estimated a 3 percent drop at Macy's and 1.5 percent at Kohl's.

A beat was widely expected, but the longer-term concerns of department stores in secular decline remain unresolved, Susquehanna analyst Bill Dreher said.

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"Negative comps still reflect market share losses, most likely to off-price retailers TJX Cos Inc and Ross Stores," Dreher said.

Macy's reported an adjusted profit of 48 cents per share and revenue of $5.55 billion. Analysts were expecting earnings of 46 cents and revenue of $5.52 billion, according to Thomson Reuters I/B/E/S.

Kohl's reported a profit of $1.24 per share and revenue of $4.14 billion, both of which topped estimates.

Macy's shares were down 8.3 percent at $21.12 on Thursday, while Kohl's fell 7 percent to $38.97.

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