Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

Macy's CEO Terry Lundgren is saying all the right things about how the struggling department-store chain can reverse plunging sales and profits. The problem is, none of his promises seem to be coming to fruition. 

Department Store Blues
Shares in the S&P 500 Department Stores index are down more than 40 percent this year
Source: Bloomberg

Let's take inventory of what Macy's has offered: Turnaround plan? Check. A timeline for a year-end comeback? Check. Plans to wring money out of its massive real-estate assets? Check. Stirring words about working harder to give customers more reasons to visit? Check. A fair share of excuses about the weather and foreign tourists? Check.

But none of these promises have yielded even preliminary rewards. In fact, the results are getting worse.

Macy's on Wednesday cut its full-year earnings guidance to a range of $3.15 to $3.40 a share, down from $3.80 to $3.90 a share. It now expects full-year comparable sales to fall between 3 and 4 percent from the year before, down from a 1 percent decline. Growth in digital sales is slowing.

On Discount
Year-over-year percentage change in sales at established Macy's stores
Source: Bloomberg Intelligence

But maybe the most worrisome thing in Wednesday's results is the dozens of store openings Macy's highlighted in its earnings press release, along with plans to grow its new, off-price Backstage brand to 200 to 300 stores. Yes, the company has been closing some stores. But not enough. And now is not the time for any massive retailer to talk about adding retail square footage.

Over-Stored
Macy's has pared down its real estate some, but it still has more stores now than it did in 2012
Source: Bloomberg Intelligence

Plus, Macy's keeps saying it's looking to monetize its mall-based properties and flagship stores. But after talking about this for the better part of a year, all we've seen so far is a new top real estate executive, hired in April. The company said on Wednesday he was "learning fast." Perhaps he needs to learn faster.

There are certainly industry forces at work beyond Macy's control. For instance, sales from international tourists continue to plunge -- down 20 percent in the quarter from the year before, on top of a 21 percent year-over-year drop during the first quarter last year. Macy's said it was no longer confident this would improve any time soon.

To keep merchandise moving, Macy's is offering a boatload of discounts. In fact, the one part of its stores Macy's said was doing well is a new centralized clearance area, where sales rose in high single digits from the year before.

That's hardly comforting to key vendors such as Coach, which are already considering pulling out of some department stores altogether to avoid the unwinnable promotions game. Macy's decision to add more private-label offerings -- when they already make up a fifth of the company's total sales -- has made it even less clear what purpose the department store wants to serve for customers. 

Investors aren't buying any of it. The stock plunged by more than 13 percent Wednesday, after already falling 44 percent in the past year. Its market value is now half of what it was at the end of its fiscal year 2015.

Shares in other department stores also took a hit Wednesday. Macy's was once seen as one of the strongest players in the industry. If it can't figure things out, then investors figure others will be challenged, too. 

It certainly didn't boost confidence when Macy's CFO Karen Hoguet -- typically an unsentimental master of numbers -- said she "hoped" consumers would "return to more aggressive discretionary spending" sooner rather than later, and that executives were "scratching our heads" over the disconnect between Macy's sales declines and positive macroeconomic consumer-spending data.

Macy's is going to need more than hope and head-scratching to get back in investors' good graces. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net