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Macy’s falls 3% in pre-market trade after weak Q2 earnings

Profit for the quarter fell 25% to $217 million from a year earlier.

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Lundgren said the company was disappointed with its second-quarter results, but said Macy’s expects improvement in the second half of the year. Gross margin narrowed to 40.9% from 41.4% a year earlier, because of delayed receipt of goods from the port slowdown and additional markdowns taken to spur sales. On the other hand, Macy’s will become the first US department retail chain to run a premium store on Tmall.

The retailer also announced a joint e-commerce venture with the Hong Kong-based Fung Retailing Ltd., expected to begin later this year. The joint venture will allow Macy’s to join Alibaba’s Tmall Global platform, where it will be able to sell its products to Chinese shoppers.

Macy’s shares were trading at $66.35 before the bell. Total sales in 2015 are now expected to drop 1%, compared to prior guidance that called for a 1% increase.

Second-quarter sales and earnings were bad when compared with analysts’ estimates. Year-to-date it’s down just 1.1%.

“We have been watching and studying the China market for several years, especially given the explosive growth of e-commerce in China”, said Jim Sluzewski, a spokesman for Macy’s. Telsey Advisory Group downgraded Macy’s from an “outperform” rating to a “market perform” rating and lowered their price target for the company from $78.00 to $72.00 in a report on Thursday, May 14th.

The Macy’s partnership announced today helps with this plan, and appeals to Chinese consumers that have visited Macy’s stores in the U.S.-a win for both companies.

Macy’s chief executive, Terry Lundgren, said the joint venture with Fung Retailing offers a controlled way to build gradually.

“This is especially so given that the latest results undo some of the very solid progress the company had previously made on stabilising and improving profitability”.

The company’s same-store sales, including licensed departments, fell 1.5 percent in the second quarter. During last 3 month period, -1.16% of total institutional ownership has changed in the company shares.

Accelerating Macy’s online business through integrated omnichannel buying and planning of merchandise, as well as more strategic placement of inventories in stores and online fulfillment centers. Under the terms of the deal, Macy’s will own and operate the first four floors and lower level of the building housing its Brooklyn store, and the real estate developer will own the top floors to renovate into offices space.

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Macy’s ended the quarter with cash and cash equivalents of $843 million, long-term debt of $7,181 million, and shareholders’ equity of $4,844 million.

A shopper with a Macy's bag in New York