Macy’s Dives Most in a Year as Gains Not Enough for Wall Street

(Bloomberg) -
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Macy’s has some momentum, but investors are spooked by the cost of maintaining it.

Although the department-store chain posted same-store sales that beat estimates and boosted its earnings and sales guidance, the stock tumbled more than 14 percent — the most in more than a year. The decline is another sign that retailers still face deep pessimism on Wall Street as consumers flock to e-commerce.

Macy’s has been spending to win back shoppers by offering discounts and cutting back on unnecessary inventory. Like its peers, the company is struggling with a broader shift by consumers to online shopping and away from brick-and-mortar stores. Even as comparable sales unexpectedly rose, net sales in the second quarter fell 1.1 percent.

While “the quarter is good, on sales and gross margins, expenses were a little on the high side,” Poonam Goyal, senior U.S. retail analyst with Bloomberg Intelligence, said.

To lure back shoppers who are defecting from traditional department stores, Macy’s has been pushing its discount-focused Backstage concept, which offers an array of off-price items for bargain hunters. The retailer has opened about 20 locations in existing department stores and plans 100 more this fiscal year. Macy’s is also expanding its Bluemercury cosmetics chain.

Those efforts helped the company report a surprise bump in comparable sales. Same-store sales at owned plus licensed locations rose 0.5 percent in the quarter, beating the 0.9 percent drop analysts had expected, according to Consensus Metrix.

That marks the third straight quarter of positive growth for the key metric. Before that, Macy’s was on a grueling slog — 11 straight quarters of declining comparable-store sales — until the crucial retail gauge turned positive in the last year-end shopping season.

The department chain raised its full-year profit outlook to between $3.95 and $4.15 a share, excluding some items. The low point of the new range was the high point of the company’s previous forecast.

But that growth comes at a cost, with the company spending about $100 million more in the first half of the year to fund growth.

Heading into the results, Macy’s stock has gained about 66 percent this year, as investors have looked past a data breach and instead focused on the company’s improving performance. That’s left some room for profit-taking.

“Shares have risen 37 percent over the past three months. So expectations were not low heading into this report,” said Brian Tunick, an analyst at RBC Capital Markets.

Tunick added in a research note that there may be confusion among investors about the profit estimates reported by data providers.

Chuck Grom, an analyst with Gordon Haskett, reiterated his buy recommendation for Macy’s and said that investors may have been looking for core same-store sales that were a “touch stronger.”