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Macy’s Earnings Suffer Double-Digit Drop on Weak Tourist Traffic, Ports Slowdown

Macy’s, Inc. (M) reported disappointing sales in the first quarter, which it blamed on unseasonably cold weather, the West Coast ports slowdown, and the strong dollar.

Net sales in the three months ended May 2 totaled $6.23 billion, a decrease of 0.7% from the same period last year, missing Wall Street estimates of $6.3 billion. Comparable sales on an owned basis dropped by .7% and on an owned plus licensed basis by .1%.

Weak sales in fashion jewelry and watches, tabletop and housewares failed to offset strong trends in active, dresses, and furniture.

“We had expected our first quarter sales to grow at a rate lower than our guidance for the full year. We fell short because of a confluence of factors,” said Terry J. Lundgren, Macy’s, Inc. chairman and CEO, in a statement. “Delayed merchandise shipments from the West Coast port slowdown and severe winter weather early in the quarter restrained business levels. Moreover, sales were negatively affected by lower levels of spending by international tourists visiting major U.S. cities.”

Gross margin increased by 10 basis points to 39 percent of net sales. SG&A expense rose by $23 million to just over $2 billion, or 32.4% of net sales, from 31.8% of net sales in the prior year period.

CFO Karen Hoguet told analysts on the company’s quarterly earnings conference call that roughly 5 percent of the company’s annual sales come from international tourists, and that sales from those tourists were down by double digits in the quarter, impacting comp growth by about one full percentage point. The impact of the strong dollar is expected to persist through the summer vacation period. Gross margin in the second quarter is also expected to suffer from the impact of goods received late in the first quarter due to the West Coast port slowdown.

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Operating income declined by 7.6% to $409 million, or 6.6% of sales, from $443 million, or 7.1% of sales, in the first quarter of 2014.

Net income dropped by 13.8% to $193 million, or $.56 per share, from $224 million, or $.60 per share, in 2014, missing analyst expectations of $.62 per share.

The company repurchased approximately 5.9 million shares of its common stock for a total of approximately $385 million in the first quarter of 2015.

The company’s board of directors authorized an almost five cent increase in the quarterly dividend on Macy’s common stock to 36 cents per share. This represents the fifth increase in the dividend in the past four years. Over that period, the quarterly dividend has increased more than seven-fold from 5 cents per share to 36 cents per share.

The retailer continues to expect comparable sales growth of approximately 2 percent in fiscal 2015 and total sales growth of approximately 1 percent in 2015. The company also reiterated its EPS guidance of $4.70 to $4.80 for fiscal 2015.

In fiscal 2015, as previously announced, the company expects to open a new Macy’s store in Ponce, PR, a Bloomingdale’s in Honolulu, HI, a new Bloomingdale’s Outlet store in Manhattan, four Macy’s Backstage off-price stores in the New York metro area, and a total of 18 Bluemercury locations (including four opened in the first quarter).

“Looking ahead, we have many reasons to be encouraged about the growth prospects for our business. We are excited by the range of new initiatives being put in place today–both organic and through our new business development organization,” Lundgren said, noting a planned push in both the activewear and dresses categories, as well as a renewed focus on its top-performing stores.

He added, “The launch of our new Plenti loyalty rewards program last week was very strong, far exceeding our expectations. Our new Thalia Sodi private brand in ready-to-wear, shoes and fashion jewelry clearly is resonating with customers and selling very well.”