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Q3 Sales Miss Lets Air Out of Macy’s Stock Price

Macy’s balloons

Department store operator Macy’s, Inc. (M) today reported a third-quarter financial performance that beat earnings expectations but missed sales estimates, setting its stock tumbling by as much as 7 percent on the day.

Sales in the quarter fell by 5.2% to $5.87 billion, missing Wall Street estimates of $6.15 billion. Comparable sales declined by a worse-than-expected 3.9%.

Year-to-date sales of $18.21 billion are down 2.8% compared to the same period last year, with comps off by 2.2%.

The three months ended October 31 represented the third straight quarter of sales declines and eighth quarter of lower-than-expected sales.

“We are disappointed that the pace of sales did not improve in the third quarter, as we had expected,” CEO Terry J. Lundgren said in a statement. “Spending by domestic customers remained tepid, especially in key apparel and accessory categories. Simultaneously, the slowdown in buying by international visitors continued to significantly impact Macy’s and Bloomingdale’s stores in tourist centers, which are some of our company’s largest-volume and most profitable locations.”

Gross margin in the quarter contracted by 60 basis points to 39.8%.

Net income fell to $118 million, or $0.36 per share, from $217 million, or $0.51 per share in the prior year period. Excluding asset impairment charges related to the previously announced plans to close 35 to 40 stores in early 2016, earnings were $0.56 per share, beating analyst estimates of $0.54 per share.

“We have begun testing and learning from new sales growth initiatives that we believe will begin yielding incremental results in the quarters and years ahead. This included the opening of the first five Macy’s Backstage off-price stores in the New York City metro area (with a sixth opening planned in the fourth quarter),” Lundgren said.

In the third quarter, the company opened a new Macy’s store in Ponce, Puerto Rico, five Macy’s Backstage stores in metro New York City and 10 new Bluemercury freestanding specialty stores. The company closed Macy’s stores in Bedford, New Hampshire, and Owings Mills, Maryland.

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In the fourth quarter, scheduled store openings include a full-line Bloomingdale’s in Honolulu, three Bloomingdale’s Outlets and one Macy’s Backstage. A Macy’s store in Los Angeles is scheduled to close in the fourth quarter of 2015 in preparation for a new store to be built in the same mall.

“Heading into the fourth quarter, we are shifting our organization into overdrive to focus on sales-driving activities in the holiday shopping season, when Macy’s and Bloomingdale’s shine as destinations for gift-giving and self-purchase,” he added.

The company has revised its 2015 earnings guidance down by $0.50 per share to the range of $4.20 to $4.30, and assumes a comparable store sales decrease of 2.2%, compared to previously flat guidance, and a total sales decline of between 2.7% and 3.1%, compared to a previously expected 1 percent decline.

After extensive review, the company has decided not to pursue the formation of a real estate investment trust (REIT) at this time, concluding that it does not offer sufficient upside potential for value creation.