Dismal holiday sales at Macy’s, Kohl’s spell gloom for US retail sector

Department stores suffer as shoppers buy online and spend less on clothes

A Macy’s department store in Fairfax, Virginia. Photograph: Getty Images

A Macy’s department store in Fairfax, Virginia. Photograph: Getty Images

 

Disappointing holiday season sales at US retailers Macy’s and Kohl’s underscored the uphill task department stores face in winning back shoppers, who are increasingly turning to online retailers and spending less on clothes.

Macy’s shares were down 14.4 per cent in morning trading on Thursday and Kohl’s 18.3 per cent after both reported lower-than-expected sales for November and December and cut their full-year profit forecasts.

Shares of other department store operators, including JC Penney and Nordstrom, also fell as the dismal showing came as a shock to investors, given heightened expectations of a bump in holiday spending this year.

“The strength around Thanksgiving and Christmas was insufficient to offset the sales weakness in the balance of the quarter,” said Stifel, Nicolaus & Co analyst Richard Jaffe.

Sears reported on Thursday a 12-13 per cent drop in same-store sales for November and December. However, shares were up 4 per cent after the company agreed to sell its Craftsman tools business to Stanley Black & Decker for $900 million.

The National Retail Federation forecast 2016 US holiday sales to rise 3.6 per cent to $656 billion. A jump in spending in the final stretch of December was seen likely to offset a slow start to the holiday shopping season.

Department stores have been hit severely by changing customer habits – people are preferring to shop at online stores such as Amazon. com rather than at brick-and-mortar stores.

Shoppers are also spending more on experiences such as dining out and travelling, and big-ticket items such as homes than on clothes – a key sales driver for department stores.

Apparel retailers such as Victoria’s Secret owner L Brands and American Eagle Outfitters also posted weak same-store sales.

Amazon.com said last week it had its “best ever” holiday season, shipping more than 1 billion items worldwide.

At least seven brokerages, including Deutsche Bank, cut their price targets on both Macy’s and Kohl’s.

Deutsche Bank’s Paul Trussell downgraded Macy’s stock to “hold” from “buy,” saying the company’s turnaround initiatives continued to fall short of expectations and core earnings, excluding gains from asset sales, was declining at an “alarming pace.” – Reuters