Shares of Macy's (M) and other retail stocks were under pressure in pre-market trading after the company cut its guidance for fiscal 2018 in conjunction with its holiday sales report.
HOLIDAY SALES: Macy's reported this morning that its owned plus licensed same-store sales for the November/December holiday period were up 1.1%, with comparable sales on an owned basis up 0.7% for the period. In a statement, Chairman and Chief Executive Officer Jeff Gennette commented that the retailer delivered its second consecutive year of positive holiday comparable sales, driven primarily by the traction of its strategic initiatives: Backstage, Vendor Direct, Store Pickup, Loyalty and Growth50. He said Macy's experienced another period of double-digit growth in its digital business, and saw continued strength in the Growth50 stores. Gennette further added that the holiday period "began strong," calling out Black Friday and Cyber Week as particularly strong, but said it weakened in the mid-December period "and did not return to expected patterns until the week of Christmas." In November, Macy's raised its FY18 EPS view to $4.10-$4.30 from $3.95-$4.15, saying it was on track to deliver a "strong" holiday season and fourth quarter.
LOWERED GUIDANCE: As a result, Gennette announced that Macy's was lowering its previously provided guidance and "will continue to take the necessary steps in January to ensure a clean inventory position as we enter fiscal 2019." Macy's cut its FY18 earnings per share view to $3.95-$4.00, which excludes settlement charges, impairment and other costs, from $4.10-$4.30, which is well below analysts' consensus estimates of $4.23. Macy's now sees net sales approximately flat for the year compared to its previous guidance of an increase of 0.3%-0.7%, which compares to analysts' estimates of $25.01B. Additionally, Macy's lowered its comparable sales on an owned plus licensed basis view to up approximately 2% compared to previous guidance of up 2.3%-2.5%, and now sees SSS with the 53rd week shifted calendar up about 2.3%. Macy's also sees FY18 gross margin down slightly from its previous view of up slightly. Gennette further commented that "Looking back at 2018, we met our goal of returning the company to growth. Our revised guidance is above the expectations we set at the start of the fiscal year, and we expect to deliver our fifth consecutive quarter of positive comparable sales, including 'comping the comp' of the 2017 holiday season. The North Star Strategy is gaining traction, and the entire organization is engaged and motivated to continue improving our performance in 2019."
WHAT'S NOTABLE: Mall-based retailers, including Macy's, have been hurt by the increasing popularity of fast-fashion retailers like Zara, Forever 21 and H&M, as well as online shopping at Amazon (AMZN). Amazon said in late December that it had a "record-breaking" holiday season with more items ordered worldwide than ever before. Amazon customers shopped at record levels from a wide selection of products across every department, it said. "This season was our best yet, and we look forward to continuing to bring our customers what they want, in ways most convenient for them in 2019. We are thrilled that in the U.S. alone, more than one billion items shipped for free this holiday with Prime," said Jeff Wilke, CEO Worldwide Consumer at Amazon, said at the time.
PEERS: J.C. Penney (JCP) on Wednesday said its comparable store sales for the nine-week period ending January 5 fell 3.5% on a shifted basis, with sales falling 5.4% on an "unshifted" basis. The retailer said it still expects to "generate positive free cash flow in fiscal 2018, reduce inventory in excess of $225M, or 8%, and expects to end the year with liquidity in excess of $2B." Kohl's (KSS) on Thursday said its sales for the holiday period were up 1.2% compared to growth of nearly 7% during the same period a year ago. CEO Michelle Gass said in a statement the company was pleased with reporting a "very strong holiday" on top of "last year's' exceptional holiday season." She added the retailer saw double-digit sales growth online this past November and December. Target (TGT), meanwhile, said its holiday sales increased 5.7% over last year, saying it expects to delivery profitable growth throughout 2019.
PRICE ACTION: In pre-market trading, shares of Macy's are down over 18%, with its peers also under pressure.