Macy’s Flop Lets Investors Indulge Their Worst Fears

(Bloomberg Opinion) -- Macy’s Inc. didn’t have as merry a Christmas as it expected, and now all of retail is under the microscope.

The department store giant on Thursday released disappointing holiday sales results, with comparable sales rising 0.7 percent, or 1.1 percent including licensed departments, over a year earlier. The results forced the company to slash its annual earnings guidance.

Macy’s shares plummeted more than 18 percent in early trading, and took shares of chains from Nordstrom Inc. to Kohl’s Corp. down with it. Even Target Corp., which had released robust holiday sales figures earlier Thursday morning, saw its shares sink lower on Macy’s woes.

Notably, Macy’s comparable sales figure isn’t as ghastly as the nosedive in the stock would indicate. But that’s not the biggest issue: even more alarming is the volatility in Macy’s business that is suggested by the details of its report.

For one, the chain had just bumped up its full-year guidance as recently as Nov. 14. Now that its view has darkened so notably in such a short time frame, it is fair to wonder whether executives really have a handle on what it needs to do to be competitive in a cut-throat retail environment, and whether its turnaround initiatives have as much long-term promise as they’d thought.

There were other details, too, that hinted at patchiness and uncertainty throughout Macy’s empire. CEO Jeff Gennette said in the press release that Macy’s roared during the Black Friday and Cyber Monday rush, as well as at the end of the season. But sales, he said, slipped in mid-December. And while categories such as dresses, outerwear and home performed well in November and December, the company saw lackluster sales in departments such as cosmetics and women’s sportswear. None of that makes it sound like this store has an easy glide path to growth in 2019. 

Also, it’s important to note that gross margin, which Macy’s had said in previous guidance would be up slightly for the full year, is now expected to be down slightly. This raises questions about how sustainable its previous progress on reducing markdowns and managing inventory really is.

Essentially, Macy’s just gave investors reason to indulge all the fears that had started to simmer about the sector at the end of last year. After strong results from many retailers throughout much of 2018, investors had started to worry they were in something of a Goldilocks moment that couldn't last. After all, it would get difficult for retailers to post such eye-popping growth numbers as they “lapped” their previous improvements.

Plus, higher tariffs loom in 2019, threatening to crimp retailers’ profits. And reduced revenue guidance from Apple Inc. surely helped stoke concerns about the potential impact for consumer companies of trade tensions between the U.S. and China. Meanwhile, a softening housing market suggests a dimmer economic picture may be in store in the U.S., which could put a lid on some consumers’ spending.

Welcome to the retail industry’s choppy 2019. I don’t expect things to get much smoother any time soon. 

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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