Macy’s Takes $3.1 Billion Charge, Pins Hopes on Gradual Recovery

(Bloomberg) -- Macy’s Inc. recorded a $3.1 billion charge in the first quarter as the pandemic ravaged retail, even as sales have since started to show signs of recovery.

The department-store chain’s business has tracked ahead of expectations in the two months since the quarter ended. The company said it continues to expect a “gradual sales recovery.”

Macy’s shares rose 2.4% to $7.05 at 9:37 a.m. in New York.

The retailer was particularly affected during the quarter by store closures, including at its flagship in Manhattan’s Herald Square, which relies heavily on international tourists.

“When you look at the magnets and when you look at the flagships, that’s where the tourism business is really being done,” Chief Executive Officer Jeff Gennette said on a conference call. International tourism “has just disappeared.”

The company took the pre-tax goodwill charge, in addition to an $80 million impairment charge related to long-lived assets, after its long-term projections and market capitalization were hit by the Covid-19 pandemic that has battered traditional retailers across the world.

Net sales in the period ended May 2 -- amid the peak of the pandemic -- were $3 billion, a 45% plunge from the same period last year. It had previously disclosed that number in a preliminary report. This was the chain’s third sales update in as many months as the retailer tries transparency in an effort to assuage Wall Street about the impact of the pandemic shutdowns.

Poonam Goyal, a retail analyst with Bloomberg Intelligence, said the only surprise in Wednesday’s report was the charges. “That’s the only piece of the puzzle that wasn’t broken out in the last releases,” she said.

Nearly all Macy’s stores, including the Herald Square flagship, have reopened after being shut to stem the spread of the coronavirus outbreak. For the stores that have resumed operations, in general, they have performed better than anticipated, according to a company presentation. It added, however, that “large urban and flagship stores are opening more slowly than earlier stores.”

The pandemic “will continue to impact the country for the remainder of the year,” Gennette said in a statement. “We do not anticipate another full shutdown, but we are staying flexible and are prepared to address increases in case on a regional level.”

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