Department Stores See Worst Drop Since Macy’s Last Cut Its Outlook

(Bloomberg) -- U.S. department store stocks cratered Wednesday after Macy’s cut its annual outlook, fueling the worst trading day for the index since the last time the Bloomingdale’s parent slashed its forecasts in January.

The 12% plunge in the S&P 1500 Department Store Index comes as Macy’s lowered its fiscal 2020 earnings view. Its new forecast doesn’t yet account for the next round of Chinese tariffs, some of which will take effect as soon as Sept. 1. The company cited high inventory levels due to a fashion miss in its women’s sportswear private brands, slow sell-through of warm weather apparel and an worsening decline in international tourism. The 5-member index is trading at the lowest levels since 2009, while Macy’s dropped to its lowest since 2010.

Macy’s is typically the first department store operator to report quarterly results. Next up is J.C. Penney Co. on Thursday, followed by Kohl’s Corp. on Aug. 20 and Nordstrom Inc. Aug. 21. Retail giant Walmart Inc. is also due to report its earnings Thursday.

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Analysts don’t have high hopes that the story will be different. Even before Macy’s reported, department stores showed indications of weakness in the second quarter, Bloomberg Intelligence analyst Poonam Goyal said, citing falling credit card point-of-sale data. “I wouldn’t be surprised if J.C. Penney comes out with a weak quarter as well.”

Last week, Credit Suisse’s Michael Binetti told clients that slower industry traffic may force retailers to cut sales and earnings targets for the second half which includes two major shopping events -- back-to-school buying and the December holiday season.

“We’re negative on department store stocks in the near term, and expect a wave of lowered guidance as U.S. department stores start reporting next week,” Binetti said.

--With assistance from Jordyn Holman and Elena Popina.

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Courtney Dentch

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