Macy’s Bad Week Continues with Disappointing Earnings

Next week, millions of Americans will take part in watching the Macy’s Thanksgiving Day Parade. However, in sharp contrast to the pomp and pageantry of the parade, one of America’s iconic retailers is reeling after a week of news that has gone from bad to worse.

On Thursday Macy’s NYSE: M stock was down about 5% as the retailer posted an earnings report that was disastrous by any measure. The stock is down more than 50% year-to-date as opposed to the 24% gain in the S&P 500.

Reporting before the market opened on Thursday, Macy’s announced net income of $2 million (1 cent per share). This was down sharply from the $62 million (20 cents per share) that the company posted during the same quarter in 2018. The beleaguered department store change also posted a decline in same-store sales of 3.5% far below the FactSet estimate for a decline of just 0.5%. The company posted adjusted earnings per share (EPS) of 7 cents. The FactSet consensus was for breakeven.

The retailer also lowered its forward guidance for both EPS and revenue. Macy’s is saying that it now expects full-year sales to be down 2.0% to 2.5%. Prior guidance projected flat sales. The company also is projecting lower full-year same-store sales between 1.0% and 1.5%. This was also steeper than the company’s previous estimate for flat to down 1%.

Macy’s problems are further evidence that the department store model is dying         

Macy’s CEO Jeff Gennette cited weather and weak tourism as reasons for the poor results. The company also said their e-commerce business suffered a “temporary impact” based on work being done to the site in preparation for the fourth quarter. Gennette said that work is complete. But based on the company’s weak forward guidance it seems unlikely that the company is expecting a large boost in e-commerce.

So are Macy’s results a harbinger of growing consumer weakness? Not likely. The problems at Macy’s are part of the larger problem that is befalling department stores. This is particularly true of stores like Macy’s which are often tied to malls. Macy’s thrived on being a target of destination shoppers. But now destination shoppers are finding that destination shopping is on their phone. And in that regard, Macy’s has been late to embrace the e-commerce model.

Additionally, Macy’s has never really fit the “omnichannel” model of anywhere, anytime, anyway that is allowing a company like Target to thrive. The company introduced a Scan, Pay, Go mobile checkout experience before last year’s holiday season, but part of the problem for Macy’s is whether engagement with some of their new initiatives like virtual reality and augmented reality experiences to shop for beauty products and furniture will translate to meaningful sales.

Macy’s is the latest company to suffer a data breach

In a letter to customers dated November 14, the company has acknowledged that their corporate web site, Macys.com had been linked to a web site that stole customer payment data on two pages. Macy’s informed their customers about the breach which, according to the company, appears to be the end product of a third party attaching malicious computer code to the site on their “Checkout” and “My Wallet” pages.

“On behalf of Macy’s, we are writing to inform you about a recent incident involving unauthorized access to personal information about you on macys.com,” the company wrote in its notice. “We regret that this incident occurred and appreciate your time to read this letter.”

The attack was believed to have occurred on October 7. In the notice to their customers, the company said they were made aware of the potential breach on October 15 and immediately began an internal notification.

Macy’s says that only a small amount of customers were impacted by the breach. Those customers were offered consumer protection services at no cost.

Unfortunately, data breaches are becoming a commonplace occurrence. And while they are upsetting, consumers are becoming savvier about protecting their personal information. What I mean is that, from an investing standpoint, you should be more concerned about how a company responds to such an attack. On that front, it appears Macy’s has handled things just fine.

But the data breach comes on the heels of Kohl’s and Home Depot reporting weaker sales. The stock dropped by nearly 11% on November 18. While some analysts thought this was due to the poor showings of Kohl’s and Home Depot to kick off the retail earnings season, it was actually more due to the data breach.

Some analysts are seeing a buying opportunity

Macy’s stock has dropped below key technical levels. In its most recent drop, the stock is failing to stay above its 50-day moving average and is well below its 200-day moving average. Adding further pressure to the stock, the relative strength index (RSI) is still in the low 40s that suggests the stock may still have more room to fall.

But how far? Some analysts are suggesting that Macy’s stock may already be reflecting the bad news. However, Thursday’s sharp selloff after the release of earnings seems to be challenging that assumption.  With the stock falling in pre-market trading, investors will be looking to see if the stock can find support around $14. That would be about a 7% decline from its November 20 close. If, and that’s a big if, it can get support, investors may find a buying opportunity when the stock rises above its 50-day moving average at $15.70.