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Macy's reports fiscal Q2 2019 earnings


Shoppers cram into a Macy's store ahead of the holidays.

Charles Sykes | AP

Macy's second-quarter earnings fell way below analysts' expectations, as heavy markdowns used during the spring season to clear unsold merchandise weighed on profits.

Macy's also lowered its profit outlook for the full year and now is expecting to earn between $2.85 and $3.05 a share, down from a range of $3.05 to $3.25.

Its shares fell more than 12% in premarket trading on the news.

Here's what Macy's reported for the fiscal second quarter ended Aug. 3 compared with what analysts were expecting:

*Earnings per share: 28 cents vs. 45 cents expected
*Revenue: $5.546 billion vs. $5.542 billion expected
*Same-store sales: up 0.3% on an owned plus licensed basis vs. 0.4% expected

"Rising inventory levels became a challenge based on a combination of factors: a fashion miss in our key women's sportswear private brands, slow sell-through of warm weather apparel and the accelerated decline in international tourism," CEO Jeff Gennette said in prepared remarks.

"We took markdowns to clear the excess Spring inventory and are entering the Fall season with the right inventory to meet anticipated customer demand," he added.

Net income dropped to $86 million, or 28 cents a share, from $166 million, or 53 cents, a year ago. That missed analysts expectations for 45 cents, based on Refinitiv data.

Net sales fell to $5.546 billion from $5.572 billion a year ago, slightly beating expectations for $5.542 billion.

Sales at Macy's stores and its website operating for at least 12 months were up 0.3%, short of expectations for growth of 0.4%.

Department stores are increasingly under pressure with more people shopping online, renting clothes and accessories from places like Rent the Runway and buying directly from brands instead of going to the mall. Macy's certainly hasn't been immune to these struggles. Though the company has been trying to refresh its stores, amass more loyal customers through its updated app and membership program, and is adding stop-in shops to some locations for popular brands.

Credit Suisse already warned earlier this month department stores could be in for a "sobering" holiday season, calling out the fact that, at Macy's in particular, the second quarter was "much more promotional than planned."

Retailers also have been pressured by the threat of tariffs on a wide range of consumer goods made in China. A 10% tariff was set to go into effect on Sept. 1 on clothing, apparel and other items, but the tax on some items has now been delayed until Dec. 15.

Macy's said it's "evaluating the details of these tariffs and is actively working with its vendor partners and suppliers in China to help mitigate potential impact."

In an interview with CNBC Wednesday morning, Gennette added: "The customer has no appetite for price increases." He said Macy's had accelerated some shipments of holiday inventory from overseas to get them into the U.S., but that "a bulk" of the retailer's holiday goods still remain off-shore.

Macy's is still calling for net sales to be about flat for the year, with same-store sales expected to be flat to up 1%.

Macy's shares are down more than 50% from a year ago. The stock, which is valued at $6 billion, fell to a 52-week low of $18.86 on Tuesday.


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