Macy’s Stock Plummets Amid Disappointing Sales Growth and Profit Warnings

The renowned department store chain, Macy’s, reported its fourth-quarter earnings on Thursday, revealing adjusted earnings per share of $1.80, surpassing analysts’ expectations of $1.54. However, the company’s same-store sales growth was a mere 0.2%, falling short of the anticipated 1.23%. This disappointing performance has raised concerns among investors, particularly as the company faces external pressures from recent tariff implementations.

Impact of Tariffs on Macy’s Performance

In light of the current economic climate, investors are closely monitoring Macy’s guidance. This week, the Trump administration imposed a 25% tariff on imports from Mexico and Canada, following a brief 30-day pause, and introduced a second round of 10% tariffs on Chinese goods. CEO Tony Spring emphasized during the earnings call that Macy’s is adopting a cautious outlook due to the uncertainties affecting both the company and its consumers.

CFO Adrian Mitchell highlighted the inflationary pressures resulting from these tariffs, stating, “There were some unexpected factors in the early part of the quarter with the fires and cold weather that impacted results for the business.” He reassured investors that Macy’s is collaborating closely with partners to navigate both known and unknown variables, aiming to identify emerging opportunities.

Analysts Weigh In on Macy’s Challenges

Citi analyst Paul Lejuez noted that while private-label brands account for only 15% of Macy’s sales, the tariffs on national brands such as Nike, Steve Madden, and Adidas could significantly affect the company’s costs and pricing strategies. He remarked, “Management has indicated in the past that its consumer is focused on value, and it will be interesting to hear management’s view of whether they would try to pass higher costs through to consumers.”

Morningstar analyst David Swartz echoed these sentiments, describing tariffs as yet another hurdle for Macy’s amidst its ongoing challenges. As of Wednesday’s market close, Macy’s stock had declined by 20% year-to-date and 34% over the past 12 months, while the S&P 500 index has remained relatively stable, gaining 15% in the same timeframe.

Strategic Changes and Future Outlook

Last July, Macy’s announced it had terminated discussions with Arkhouse Management and Brigade Capital Management, who had proposed taking the company private at $24.80 per share. The stock ended Wednesday at $13.31, prompting investors to scrutinize the company’s turnaround strategy, which has been dubbed a “reinvigoration plan.” This strategy includes closing 150 underperforming stores in the near term, with plans to reinvest some of the savings into enhancing existing locations and digital experiences.

In the fourth quarter, same-store sales increased by 1.2% in the first 50 stores where Macy’s invested in additional marketing and staffing. As part of its reinvigoration plan, the company intends to close 66 unprofitable stores this year. Spring stated, “Investments in the customer experience enabled us to achieve our highest comparable sales of the year [and] our best performance in 11 quarters.”

Consumer Health and Market Conditions

Despite these efforts, Spring acknowledged that consumer health is currently “under pressure,” as shoppers navigate rising food prices, housing costs, and persistent inflation rates. Activist shareholders have expressed concerns that the current share prices do not reflect the potential for a resurgence in the Macy’s brand.

As the retail landscape continues to evolve, Macy’s faces significant challenges ahead. Investors and analysts alike will be watching closely to see how the company adapts to these market conditions and whether its strategic initiatives can turn the tide for its stock performance. For more details, visit the original article.