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Financial Roundup: Macy’s Disappoints, Kohl’s Shows Improvement, Dillard’s Edges Out Expectations

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Macy’s

Department stores continue to try to fight significant retail headwinds, and the first round of quarterly reports for FY17 reveal which of those stores are on the right path and which may need to reassess their strategies.

Macy’s losses outpace analysts’ expectations

It doesn’t look like Macy’s efforts toward improving customer experience, strengthening omnichannel services and refining its marketing and pricing strategies have provided the retailer with any traction.

The store’s balance sheet for the first quarter FY17, ended April 29, showed earnings of 23 cents per diluted share for the period. That’s a 39 percent decrease from 37 cents per diluted share during the same timeframe in FY16, and far off from Thomson Reuters analysts’ expectations of 35 cents.

Sales for the quarter decreased by 7.5% to $5.3 billion versus $5.7 billion in the same period last year, owing, in part, to store closures in 2016.

Comparable store sales were down 4.6% on an owned and licensed basis, off from the 3.5% decrease analysts were expecting.

“We are encouraged by the performance of the pilot programs we tested last year in categories like women’s shoes, fine jewelry, and furniture and mattresses,” Jeff Gennette, president and chief executive officer of Macy’s, Inc. said in a statement. “We look forward to expanding these successful initiatives nationally this year and anticipate they will have a measurable impact on our performance starting in the second quarter, building through the fall.”

Gennette also alluded to plans for more pilot programs to bolster physical stores as well as an investment in e-commerce to foster aggressive growth.

The company’s results include $96 million in real estate transactions and booked $68 million of real estate gains, of which $47 million were related to the sale of its downtown Minneapolis property. Macy’s also anticipates the sale of two additional floors in its downtown Seattle store, where floors five to eight were sold in 2015, in the fall.

The company opened two new Macy’s stores, 10 freestanding Bluemercury locations and 11 Backstage shop-in-shops in the period. The retailer also launched a Bloomindale’s location in Kuwait.

Macy’s affirmed its previously reported guidance for the full year. On an owned basis, comp sales are expected to decline between 2.2% and 3.3%. Total sales for the 53-week fiscal year are predicted to be down by 3.2% to 4.3%. The company puts adjusted diluted earnings per share between $3.37 and $3.62, excluding the impact of the anticipated settlement charges related to the company’s defined benefit plans and premiums and fees associated with debt repurchases.

Excluding the impact of the anticipated fourth quarter gain on the sale of the Union Square Men’s building in San Francisco, the anticipated settlement charges related to the company’s defined benefit plans and premiums and fees associated with debt repurchases, adjusted diluted earnings per share of $2.90 to $3.15 are expected in 2017.

Inventory management buffers Kohl’s Q1 results

Though sales were down in the first quarter of FY17 ended April 29, Kohl’s sees signs that it’s on the right path.

Net sales dropped 3.2% to $3.8 billion in the quarter, or 39 cents per share.

Comparable store sales for the quarter were down by 2.7% compared to a 3.9% drop during the same period last year. On the earnings call, CEO, chairman and president Kevin Mansell acknowledged that February sales were weak but called it an “outlier” due, in part, to colder weather. He said the improved performance in March and April, which saw comps down by just 1 percent, were a better indicator of where he expects business to be going forward.

Mansell also noted the company’s recent launch of Under Armour product “exceeded expectations in every category,” and said it confirmed for him that Kohl’s commitment to the active and wellness space is a solid strategy.

Gross margin for the period was up 83 basis points to 36.4% compared to 35.5% during the same quarter of FY16.

The company attributes gains in the quarter to a focus on inventory reduction and an improvement in its promotional markdown strategy, which resulted in a marked improvement over the same time period a year ago, which saw the department store grappling with a glut of winter overstock.

Going forward, the company will continue to try to lower general expenses by looking at its operational efficiencies and its organizational structure with an eye toward speeding up decision making. To that end, the retailer has combined its online and offline merchandise teams.

Kohl’s is also investing in IT to make its stores more efficient when it comes to functions like ship from store and buy-online, pickup in store. The company’s new e-commerce fulfillment center is expected to be three times as efficient as the existing locations, making it a prototype the company can learn from.

Dillard’s beats earnings predictions

Dillard’s released its first quarter results, highlighting a strong performance in women’s apparel followed by solid juniors’ and children’s clothing sales. On the other hand, categories like cosmetics, home and furniture pulled overall performance down.

The company reported net income of $66.3 million, or $2.12 per share, compared to net income of $77.4 million, or $2.17 per share during the first quarter of the prior year. The results beat analysts’ $2.02 prediction.

Net merchandise sales, which excludes the company’s construction business, dropped by 4 percent to $1.4 billion. Comp store sales also declined by 4 percent.

“While our sales decline weighed heavily on our operating results, we remained active in returning cash to shareholders through $93 million of share repurchase and dividends. We still ended the quarter with $302 million of cash largely due to better cash management,” Dillard’s CEO William T. Dillard, II, stated.

Gross margin was up 65 basis points compared to the first quarter of FY16.

The company operated 268 Dillard’s locations during the quarter as well as 25 clearance centers. It purchased a Macy’s location in Utah and a store in Texas that will open in the fall.

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