Macy's reports rocky Q3, looks to omnichannel for future growth

Macy's CEO Terry Lundgren said the retail industry "is going through a tough period" that is typical of a swing experienced every five to seven years.


Department store giant Macy's will pour more resources into its e-commerce and omnichannel efforts in an attempt to offset disappointing third quarter sales.

The retailer on Wednesday reported Q3 net income of $117 million, or 36 cents per share, down from 61 cents per share, or $217 million for the same period last year.

Adjusted earnings were 56 cents per share on revenue of $5.9 billion. Wall Street was looking for earnings of 54 cents per share on revenue of $6.2 billion.

Macy's also cut its 2015 adjusted earnings per share guidance to $4.20 to $4.30.

The company's shares fell 10 percent in early trading as a result of the report.

On a conference call with analysts, Macy's Chief Executive Terry Lundgren said the retail industry "is going through a tough period" that is typical of a swing experienced every five to seven years.

Still, Lundgren the company was disappointed in its stagnant sales pace in the third quarter, blaming the slump on weak consumer demand that he said was made worse by a slowdown in spending by international tourists at its flagship Macy's and Bloomingdale's stores.

But as the critical holiday shopping season ramps up, Lundgren said Macy's plans to shift into overdrive to better pursue "sales-driving activities."

"This includes building on our strength as a leading omnichannel innovator with consistent growth in online sales," Lundgren said.

"We intend to fully push the digital frontier utilizing our innovative culture with more and more testing and faster learning. We also are helping customers get merchandise however they wish, whether it be same-day delivery, buy online and pickup in store, whatever is their preference."

Macy's also said it will not pursue a spin-off of its real-estate assets, but noted that it may consider the option again down the road. According to Macy CFO Karen Hoguet, some of the key factors of the anti sell-off decision include "the quality of the properties, the diversification of geography and brand as well as the lease terms themselves."

Over time, Macy's expects it will continue to reduce its store base -- and for good reason.

It makes sense for retailers with expansive footprints and shrinking in-store sales to offload pricey real estate that's no longer serving a purpose, and to replace it with technology initiatives geared toward the modern consumer.

Shares of the retail giant have taken a big hit this year, tumbling more than 25 percent to date. The drop off is not exactly a shock when looking at the retail landscape as a whole, but it does raise some concerns over whether Macy's previous omnichannel strategy is actually paying off.

Macy's is widely viewed as an omnichannel early adopter. The company has utilized image recognition, beacons, mobile payments, same-day delivery and event-driven mobile commerce. Earlier this year Macy's underwent a sweeping reorganization in an effort to be more agile when it comes to choosing and presenting its merchandise across buying channels.

Macy's doesn't break out its e-commerce or mobile sales, so it's unclear how material the segments are to the company's bottom line. But with in-store sales sagging, the digital channel is likely the retailer's most promising respite.

Separately, Macy's announced Wednesday an agreement to open LensCrafters locations in as many as 500 U.S. stores over the next three years, with the first shop set to open in April 2016.