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Kohl’s looking better in Q2

BY Marianne Wilson

Increased traffic gave a boost to Kohl's, which reported sales and earnings that topped analysts’ estimates in the second quarter.

The company's net income rose to $208 million, or $1.24 per share, in the quarter ended July 29, from $140 million, or 77 cents per share, in the year-ago period.

Net sales declined 1%, to $4.14 billion. It was the chain's sixth straight quarter of decline. Same-store sales fell 0.4%, not as steep as analysts had expected, compared to a drop of 1.8% last year.

"The traffic momentum that we saw in the combined March/April period accelerated in the second quarter," stated Kohl's chairman and CEO Kevin Mansell. "Though transactions for the quarter were lower than last year, July transactions increased. We are also excited by the sequential sales trend improvement in all our lines of business, all geographic regions, and in both our proprietary and national brand portfolios. Gross margin and SG&A expenses were consistent with our expectations and we are seeing benefits from our ongoing inventory initiatives and the early stages of our cost-saving initiative."

GlobalData Retail analyst Anthony Riva said that even though Kohl's sales continue to decline, the results are still encouraging.

"The much smaller dip in revenues indicates that the business is going in the right direction and has gained momentum since the start of the year," he said. "Meanwhile, Kohl's ongoing work on expense reduction and more careful management of inventory continues to boost profit lines."

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Macy’s makes progress in Q2

BY Marianne Wilson

Macy's appears to be making some headway in its turnaround efforts, reporting second quarter sales and profit that topped estimates. But the retailer still reaffirmed its downbeat guidance for the year.

Net income increased to $116.0 million, or 38 cents per share, up from $11.0 million, or 3 cents per share, in the year-ago period. Adjusted earnings per share was 48 cents.

Sales totaled $5.55 billion for the quarter, better than expected, down 5.4% from $5.87 billion last year. Same-store sales on an owned basis fell 2.8%, the 10th straight quarter of decline, and were down 2.5% on an owned-plus-licensed basis. The declines were not as bad as analysts had expected.

"Macy's second quarter numbers come as a relief," said analyst Neil Saunders, managing director of GlobalData. “Certainly, a same-store sales decline of 2.8% is far from good, but it is one of the better performances Macy's has turned in over recent periods. Of course, the question is whether this gentler decline represents a genuine turning point for Macy's, or whether it is simply a bottoming out after years of sharp deterioration." (For more, click here.)

Macy's new CEO Jeff Gennette said the company's second quarter performance benefitted from a notable contribution related to the full execution of its new women’s shoe and jewelry models and the continued successful testing of its off-price Backstage format in Macy's stores. He also said he anticipated the fall launch of a new loyalty program and the new marketing strategy will further improve Macy's sales trend in the back half of the year."

"We are working with a mindset of continuous improvement and will adapt our business in order to reach our goal of stabilizing the brick-and-mortar business while investing for accelerated growth in digital and mobile," Gennette stated. “Key to this strategy is engaging our customers with an improved experience that includes more elevated and exclusive assortments, a better integration of technology both online and in the store, and additional enhancements intended to drive traffic and sales. There is still work ahead of us, however, I’m encouraged by the progress we’re making on overall performance.”

Looking ahead, Macy's expects comparable sales for the full year to decline by 2.2% to 3.3%.

Total sales are expected to be down by 3.2% to 4.3%, and earnings and expected to fall within $3.37 and $3.62 per share.

Macy's opened 16 freestanding Bluemercury beauty stores and 12 Macy's Backstage stores in existing Macy's stores during the second quarter.

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Commentary: Real chance of a turnaround at Macy’s, but…

After a torrid opening quarter, Macy's second quarter numbers come as a relief. Certainly, a same-store sales decline of 2.8% is far from good, but it is one of the better performances Macy's has turned in over recent periods. Of course, the question is whether this gentler decline represents a genuine turning point for Macy's, or whether it is simply a bottoming out after years of sharp deterioration.

One of the factors that has benefitted comparable sales is the program of store rationalization. As much as this is painful to total sales growth, Macy's has retained some of the sales as loyal shoppers have transferred their custom to other stores. This impact was not present in the first quarter as Macy's was in the midst of closing down stores, but is now coming through more strongly. This is encouraging as it indicates that Macy's rationalization will ultimately deliver higher levels of store productivity without severe damage to volumes.

Positively, the ebbing sales tide has also slowed at a time when some of Macy's long talked about strategic initiatives are finally coming into play. In our view, this suggests that the company may now be getting its act together in improving the quality of the in-store experience. We are hopeful that this energy and drive is a function of the new leadership of Jeff Gennette, although we recognize that it is still far too early in his tenure to pass fair judgment.

The revamped women's shoes offer is an example of an initiative which is helping Macy's regain some momentum. Here, the company has advanced the proposition and moved to an open-sell self-serve model. After a successful pilot, which resulted in double digit sales growth, the strategy is now in more stores and will be rolled out to all shops by the end of August.

Jewelry is another area of progress, albeit one that has been in play for quite some time. The edited assortment, improved training, and higher staffing levels have all helped to provide momentum to the category and have increased sales. As this has been successful, we have previously lamented the fact that Macy's has not rolled out the initiative faster; however, we are pleased that there is now a concerted effort to get it into all stores by the end of summer.

As much as these steps are positive, they are but small drops of success in a vast ocean of challenges. Alone, they will not transform the business, and they do not put Macy's on a growth footing. For that to happen a more radical and fundamental rethink of other categories — including the problem child that is apparel – needs to happen.

On this front, some good thoughts are coming from Jeff Gennette. He has recognized that stores carry too much assortment, that ranges are not adequately curated and coordinated, that inspiration is lacking, and that Macy's is not a place for ideas and the exploration of exciting products. These are all issues we have long since flagged and that we believe need to be remedied if Macy's is to get back on a path to growth.

As might be noted, the list of things to do is long. It cannot be delivered overnight. As such, we see more short-term pressure for Macy's, albeit not on the highly negative scale of the first quarter. There is now a real chance of a turnaround, but it has to be actively worked for.

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