Macy’s reported FY1Q16 adjusted EPS of $0.40 versus consensus of $0.38. Total revenue was $5.77B versus consensus of $5.93B. Total comp sales were down 5.6%, driven by a 6.1% decline in owned stores. On a two-year basis, the comps sales were down 2.9%.The sales and comps results were below the company’s initial expectations. Sales headwinds come from the 20% decrease in international tourist spending and weak sales in apparel related categories. Weak international tourism spending had a near 1% negative impact on its comps.  The company also saw the overall number of transactions decreased by 7%. Handbags, fashion watches, women’s footwear, kids, and luggage were among the weak performing categories while fine jewelry, dresses, activewear, home furnishing, and fragrances performed relatively well. The company continued to see weakness in its key tourists markets, which are also its biggest markets. Digital sales grew at double-digit rate, although slower than anticipated. Macy’s Backstage stores, its off-price channel, were the bright spot amid weak sales results. The company plans to open 15 Backstage locations (freestanding and inside existing Macy’s stores) by the end of this year.

2016 GUIDANCE

The company reduced adjusted EPS to a range of $3.15-$3.40 versus previous guidance of $3.80-$3.90. In fiscal year 2016, the company will continue to adjust its real estate portfolio and plans to open one Macy’s store, 42 Blue Mercury locations, and 16 Backstage locations (one freestanding and 15 inside existing Macy’s store). In the face of significant business challenges, Macy’s outlined a detailed turnaround plan, including scaling up its off-price business, introducing exclusive new merchandise in fashion and technology categories, and improving customer services.

Source: Company Reports