Investors will be eying a flurry of 2nd quarter earnings reports from retailers over the next few weeks. As the first major to report, department store retailer Macy’s provided some hope that cost-cutting and inventory management will help stop the bleeding on the bottom line for the sector. However, there are still few signs of a demand recovery, and most retailers will continue to see year-over-year sales declines through the holidays.
For the fiscal 2nd quarter, Macy’s reported a 9.7% decrease in net sales to $5.164 Billion from the year ago period, while same-store sales declined 9.5%. Net income was $7 million ($.02 diluted EPS) compared to $73 million ($.17 diluted EPS) last year. Excluding restructuring charges, diluted earnings of $.20 per share beat consensus estimates by a nickel.
The company raised their full-year guidance to a range of 70 to 80 cents per share from a view of 40 to 55 cents per share (excluding restructuring costs), while analysts expect the company to earn 78 cents for the year. For the 2nd half of 2009, Macy’s expects same-store sales to be down 5-6%, which would result in a comparable sales decline for the full year of 7-7.5%.
Commenting on the results, CEO Terry Lundgren said the following:
“We were able to exceed our expectations with strong earnings and cash flow in the second quarter, despite lower sales in an economic environment that continues to be very difficult. In particular, we successfully lowered inventories and managed expenses to align more closely with current levels of business. Our second quarter same-store sales performed as well as or better than most department store retailers even while we were completing the largest organizational transition in Macy’s recent history. Most of that transition work is behind us now.
Our new unified organizational structure is settling in and working well. It has allowed us to streamline decision-making and build closer relationships with our key vendor resources. And we continue to be very pleased with results from the My Macy’s initiative, which began to roll out to 49 new districts nationwide in the second quarter. Same-store sales performance in the 20 pilot districts launched in 2008 continued to outpace the remainder of the company, and the gap continued to widen in the second quarter. Going forward, we expect the gap to become less meaningful as the 49 new districts launched in 2009 come up to speed and begin producing results that parallel the pilot districts. As previously stated, we expect to see some improvement in these new districts in the fourth quarter of 2009 and especially in spring 2010.”
While the company was able to beat on the bottom line, this marks the 4th consecutive quarter of deteriorating sales performance, and they have now posted 9 straight quarters and 15 consecutive months of negative same-store sales results:
Next up on the radar: Thursday we will get U.S. Retail Sales for July from the Commerce Department, as well as earnings reports from Kohl’s, Nordstrom, Urban Outfitters, and Wal-Mart. Retail stocks have surged in anticipation of a recovery, with the S&P Retail SPDR (XRT) more than doubling from its November lows. Even a company like Stein Mart, considered on the verge of collapse only a few months ago, has seen an almost 12-fold rise from under a buck to a 2-year high near $12/share. Now is the time for these retailers to prove they have navigated the worst consumer environment in decades, and to validate their lofty equity valuations.
