Macy's reports weak holiday sales, drags down retail sector

The retailer's disappointing guidance update sent retail stocks tumbling across the board, with Kohl's, Target and Nordstrom all experiencing declines in Thursday trading.

Digital growing pains continue in the retail sector, with department store chain Macy's reporting weaker than expected holiday sales on Thursday and slashing its 2018 earnings outlook. The disappointing guidance update sent retail stocks tumbling across the board, with Kohl's, Target and Nordstrom all experiencing declines in early trading. 

Macy's said its holiday sales season kicked off with a strong Black Friday weekend, but sales "weakened in the mid-December period and did not return to expected patterns until the week of Christmas," CEO Jeff Gennette said in a statement. Macy's also struggled with fulfillment at some points following a fire in one of its distribution centers. Despite this, the Cincinnati-based retailer's comparable sales in November and December were up a combined 1.1 percent.

As the end of its fiscal year approaches, Macy's is lowering its sales forecasts for 2018 and now expects net sales to come in flat. Guidance for same-store sales also declined a bit, with the company now expecting a rise of roughly 2 percent in fiscal 2018, compared to its prior forecast for an increase of between 2.3 to 2.5 percent.

Earnings wise, Macy's is now calling for diluted EPS to fall between $3.95 to $4 per share, down slightly from its previous expectations for $4.10 to $4.30 a share. Analysts were expecting earnings of $4.23 a share. Macy's shares dropped as much as 18 percent on Thursday.

Looking ahead, Gannette is still touting the importance of the company's turnaround effort called the "North Star" strategy, which he said "is gaining traction". Nevertheless, it's still unclear whether Macy's will ultimately succeed in executing its digital transformation strategy and creating an in-store experience that can bolster sales.

Elsewhere in the retail sector, Kohl's said comparable sales rose 1.2 percent in November and December, drastically lower than last holiday season when the company saw comparable sales growth of nearly 7 percent. The retailer's shares fell nearly 9 percent following Thursday morning's report.

Shifting to the more positive numbers, Kohl's CEO Michelle Gass highlighted the retailer's omnichannel strategy, which he said prompted double-digit digital growth for the holiday period.

"The strong performance we achieved this holiday reflects the compelling product offering, great marketing strategy, and consistent execution in stores and online. We are particularly pleased with the positive transaction growth and the double-digit digital growth we experienced this holiday, as our customers continue to embrace the omnichannel investments we are making." Gass said.

Meanwhile, Target said comparable sales grew 5.7 percent in November and December, up from 3.4 percent a year earlier. Target also reported strong results from its store pickup and drive-up options, which grew more than 60 percent from a year ago and accounted for a quarter of the company's digital sales in those two months. Despite the solid performance, Target's shares dipped nearly 5 percent on Thursday.

In terms of guidance, Target said fiscal year earnings should come in between $5.30 and $5.50 a share, compared to analyst estimates for EPS of $5.39. Going forward, Target said it is maintaining its profit outlook for the fourth quarter and fiscal 2018. 

"This performance demonstrates the benefit of placing our stores at the center of every way we serve our guests, including both in-store shopping and digital fulfillment," said Target chief executive Brian Cornell.