Quite a day. Three major retailers announced second-quarter sales and earnings Thursday that showed improvements over the first quarter. While sales were still negative there was more momentum providing an encouraging outlook for the rest of the year. Initiatives that should help future growth were discussed. A consensus emerged that there will be an acceleration of sales in the fourth quarter.
Macy’s announced plans to close about 100 out of its 728 stores by the end of the current fiscal year, a 14% reduction. I think this is good as it will allow management to focus on the more profitable stores, making them destination locations where customers will enjoy the shopping experience. It is the beginning of a new era of added customer service, renovation, and excitement across the remaining 628 units. Management hopes to transfer some of the customers from the closed stores to the nearby locations. Some of the headquarter stores will be spruced up with more fashion brand concessions. As I recently wrote in my Industry Trend Blog, concessions are going to help retailers own less inventory while filling their stores with very current merchandise provided by the vendors. Terry Lundgren’s legacy, as he retires from his leadership position next year, is putting the company on a new track. It will be a leaner company with exciting growth potential.
Net sales for the second quarter were $5.8 billion. This was a decrease of 3.9% over the second quarter last year. Comparable sales on an owned plus licensed basis declined 2.0 percent. For the quarter earnings were $0.03 per share after asset impairment and non-cash settlement charges resulting from the projected store closing. Last year the company earned $0.64 in the quarter. However, despite lower income from the sale of the Flatbush store in the current year, management maintained a forecast of $3.15 to $3.40 for the full year. Last year Macy’s earned $3.77 excluding asset impairment. I am optimistic it will achieve near the top of the range.
Kohl’s reported $4.2 billion in sales in the second quarter. Comparable store sales decreased 1.8%, an improvement versus the first quarter when the company reported a drop of 2.8 %. The company operates 1,150 Kohl’s, 12 FILA Outlet stores and three OFF/Aisle clearance centers compared to 1,164 stores last year. Net income excluding non-recurring items was $221 million ($1.22 per fully diluted share) compared to $211 million ($1.07 fully diluted share) in last year. However, management reduced guidance to $3.80 to $4.00 from $4.05 to $4.25. I am optimistic that the weather will turn, and that there will not be a mild winter like last year. Inventory and expense control contributed to the earnings increase. Gross margin jumped to 39.5% from 38.9%.
Management is excited about the Active and Wellness classification which did very well. Nike, New Balance, and Stride Rite were all good performers in the quarter. Plans to build the active business include the addition of Under Armour in the coming year. The shift in focus to this very wanted merchandise is significant especially in light of other classifications, like home, which did not do well in the quarter. “Speed to market” is another important factor for the company’s future growth. During the earnings conference call management indicated in order to be competitive in the future, this is a major priority for the company.
Kohl’s closed 12 stores in the quarter and plans no further closing this year or next. This stands in contrast to Macy’s plan to close 100 units which I applaud. Frankly, I am surprised that Kohl’s does not have any stores it should close to reflect the impact of omnichannel shopping.
Nordstrom reported a small decrease in sales due to a shift in the company’s important anniversary sale. Unlike last year when the sale was at the end of the second quarter, this year the second week of the sale fell into the third quarter. I expect third quarter sales to be boosted substantially by this shift. Sales were $3.6 billion, a drop of 0.2%. Comparable sales decreased 1.2%. Sales at Nordstrom Rack and Nordstromrack.com/Haute Look increased 11.2% with comparable sales up 5.3% showing the strength of the value oriented customer. Last year The Rack group had 6.5% comparable store growth. On the other hand, full line U.S. and Canadian store sales decreased 0.4% and comparable stores dropped 2.3%. Net earnings fell to $117 Million ($0.67 fully diluted share) compared to $211 Million ($1.09 per fully diluted share).
Sales in the quarter were strong in beauty and shoes, particularly boots. In addition, demand for sweaters and denim apparel for young people was good. The Rack expansion continues to be in full swing. At the end of this fiscal year there will be 215 units and management projects about 300 units by 2020. In Fall 2016 two new full-line stores in Toronto, Canada, and Austin, Texas, will be opening. Another unit will open in Toronto in 2017. Going forward, new mobile features including visual search and greater use of mobile apps will play a role in creating a more personalized customer experience.
Looking ahead management revised its outlook upward based on the strong showing in the second quarter which was robust enough to largely offset the loss of 250 basis points due shift of the anniversary sale. Excluding the impact of any future share repurchases the company now projects earnings between $2.60 and $2.75 compared to its former expectation of $2.50 to $2.70. Last year the company reported $3.15.
See also: 'The Future Of Retailing: The Technology Revolution Is Now'
