Advertisement

Q3 Financial Report: Weak Performance By Macy’s, Nordstrom, JCPenney Spotlights Sector’s Challenges

Although the recent Thanksgiving weekend festivities have certainly given a boost in both revenue and traffic to major department stores, it probably won’t be sufficient to reverse shrinking sales and Wall Street’s bearishness. Q3 earnings reports and stock prices from Macy’s, Nordstrom and JCPenney all indicate that these retailers are not hitting the expectations set for them at the beginning of the year. In fact, these three retailers are expected to only grow revenue 1.2% in Q4, according to a USA TODAY analysis of data from S&P Capital.

With these leading department store retailers all showing disappointing results, there are now questions as to whether the sector as a whole is faltering. In comparison to department store earnings, discount stores in the S&P 1500 are expected to grow 10%, while apparel retailers and computer/electronics retailers are expected to grow 3.8% and 2.3% on average, respectively.

The introduction of more apparel and pure play e-Commerce retailers offering specific product lines and unique offerings has given shoppers more choices as to where they can shop.

Advertisement

“Department stores for the most part are being ‘out-retailed’ by the specialty retailers,” said Kevin Graff, President of industry consultancy Graff Retail, in a discussion on RetailWire. “You can typically find better selection, better prices (both higher and lower), better merchandising, better in-store experiences and much better service everywhere else. The concept of the middle of the road, ‘middling’ retailer just isn’t viable anymore.”

However, newer players in the industry aren’t the only factors contributing to department stores’ relative weakness. Analysts have noted warm weather in September and October, weak tourism, excess inventory, a larger consumer focus on entertainment, and Amazon’s continued push into fashion as additional reasons why major department stores are declining in sales.

Macy’s, JC Penney, Nordstrom Take Stock Hits Following Q3 Reports

On top of these challenges, Macy’s CEO Terry Lundgren attributes the decline of the department store to a general decrease in mall shopping in favor of spending on more high-ticket items these stores don’t sell.

“It’s obviously troubling,” Lundgren said in an interview with Bloomberg. “My sense is, if customers want to spend, they can. And once they’ve finished buying their cars and finished remodeling their houses, there’s room for them to spend in our categories as time goes on.”

Macy’s stock fell as much as 15% on Nov. 11 after the retailer reported a 5.2% sales decline, to $5.87 billion, in Q3. This sales total trailed the $6.1 billion revenue projections from Wall Street analysts, and marked the biggest decline since Q2 2010. To date, Macy’s stock has lost more than 45% of its value since its 2015 peak on July 17.

Early in 2016, Macy’s is set to close 35 to 40 of its namesake brand department stores. While these stores represent approximately 5% of the brand’s stores, the locations were only generating 1% of company sales.

Macy’s is instead opting to open new smaller format stores, including a rollout of 50 off-price Macy’s Backstage stores by 2016 and 40 Bluemercury brand stores by 2017.

JCPenney had by far the best quarter of the major department stores, posting a total sales gain of 4.8% and a 6.4% boost in same-store sales. However, even with these positive trends, stock prices fell 15% when the Q3 data was released on Nov. 13. While the retailer has dug itself out of a hole, the company still lost $137 million in the quarter, and it isn’t expected to turn a profit until 2017.

JCPenney recently laid off 300 employees at its corporate headquarters, and the retailer has aimed to transform its omnichannel offering to make the web site experience easier for the consumer. The retailer’s CEO, Marvin Ellison, revealed that the department store is presently undergoing a three-year recovery plan to reach a target of $1.2 billion in profitability.

Nordstrom received a boost of 6.6% in total sales but only a paltry 0.9% increase in same-store sales. Both these totals trailed initial Wall Street expectations, with the company initially projecting a 3.6% growth in same-store sales. Nordstrom has since adjusted its full-year outlook from what had been an 8.5% to 9.5% net sales increase to a 7.5% to 8.0% boost. And as with JCPenney, stocks dipped 16% when the company released its earnings report on Nov. 12.

In the earnings conference call, Nordstrom attributed the dip in sales to an overall decrease in store traffic, a result which remains consistent with Lundgren’s complaint of fewer customers heading to Macy’s.

Worthy of note, the retailer opened 16 of its Nordstrom Rack off-price stores in Q3, bringing the number of new openings over the past year to 27. The count of Nordstrom full-line stores in the U.S. has remained flat over the same time span at 118.

Kohl’s And Dillard’s Show Promise, But Investors Remain Bearish

The final major department store in the S&P 1500, Kohl’s, actually performed above expectations for the quarter, reporting a 1.2% sales increase and a 1% climb in same-store sales. While the company reported $120 million in net income, that represented a 15% decrease from Q3 totals for the previous year of $142 million.

Since peaking in stock price in April 2015, Kohl’s has since dipped 39% in value, illustrating that the department store has evoked similar emotions from investors that its peers have.

Another major U.S. department store, Dillard’s, has generated disappointment akin to its peers: total sales decreased 3% and same-store sales decreased 4%. While net income for Q3 totaled $45.7 million, or $1.19 per share, the earnings total fell from 2014’s $55.2 million, or $1.30 per share total.

Similar to Kohl’s, Wall Street analysts valued Dillard’s at its highest-ever price per share in April 2015, but the company’s stock has plummeted more than 44% since. The company is focused on buying back stock under a $500 million share repurchasing program, with the repurchases totaling $175 million in Q3.

Neiman Marcus Postpones IPO

In the midst of the stock market volatility that these department stores have been a major part of, Neiman Marcus decided to push back its IPO to 2016. The luxury department store initially filed for an IPO in August, but reneged after four out of five companies that went public in early October priced below their indicated range.

In its pre-IPO earnings report, Neiman Marcus stated that it took a net loss of $32.9 million for the quarter, an improvement over the $42.1 million in losses during the same period of 2014. Total revenues have increased 5.3% to $4.8 billion, while same-store sales increased 3.9%.

Featured Event

Join the retail community as we come together for three days of strategic sessions, meaningful off-site networking events and interactive learning experiences.

Advertisement

Advertisement

Access The Media Kit

Interests:

Access Our Editorial Calendar




If you are downloading this on behalf of a client, please provide the company name and website information below: