Macy's looks like it's spiraling into 'terminal decline'
Macy's is struggling.
The retailer this week announced its seventh straight quarter of declines in both profits and sales.
Net income for the third quarter fell by 87% to $15 million, following a 46% decline over the same period last year, and sales dropped to 4.2% to $5.63 billion. Same-store sales, or sales at stores open at least a year, fell 3.3%.
The company's performance, while slightly better than the first half of the year, paints a grim picture, according to Neil Saunders, CEO of the consulting firm Conlumino.
"These figures show a company grappling with what looks like terminal decline," Saunders wrote in a note to clients Thursday.
He highlighted the fact that Macy's made just $0.27 cents for every dollar of sales, saying, "This is a weak position that, given the general direction, puts the company on a pathway to long term unprofitability."
Macy's could not immediately be reached for comment.
The issues plaguing Macy's are the same ones that have brought Sears close to extinction : falling traffic, underinvestment in stores, and a reliance on excessive discounting to attract customers.
On a more positive note, however, Macy's said earlier this week that it's seeing improvement in its apparel sales and now expects same-store sales declines to slow in the fourth quarter.
"Our growth strategies are beginning to gain traction," Macy's Chief Financial Officer Karen Hoguet said Thursday in response to the company's third quarter earnings. "Plus, we are seeing a meaningful improvement in our apparel businesses."
Macy's must keep this momentum going by giving shoppers a reason to visit its stores, or else it risks getting crushed by Amazon, according to Cowen & Co analysts.
Amazon is poised to surpass Macy's next year as the biggest apparel seller in the US.
"We do believe Macy’s is working quickly to bring excitement back into stores, and this will need to happen through a combination of product, convenience, service, food/beverage offerings, beauty, and other un-Amazonable offerings which are not easily replicated online," Cowen & Co. analysts wrote in a note to clients. "If this does not happen, we believe Macy's will lose share and ultimately consumer relevance over time. We continue to believe store traffic is the question, opportunity, and risk for the long-term investor."
In another potentially positive sign for the business, Macy's is teaming up with Brookfield Asset Management to redevelop at least 50 stores. The partnership is meant to make existing stores more profitable.
The decision was praised by analysts at several banks, as well as Saunders.
"We are encouraged by the fact that Macy’s will use some of the capital to invest and develop locations it sees as having future potential," Saunders wrote. "This is unlike the position of Sears which has used asset monetization to fund the day to day operations of the business, something that in our view suggests a company circling the drain."
No comments:
Post a Comment