Lower spending from international tourists hurts Macy’s 1Q sales and profit

CINCINNATI – Macy’s says the strong dollar isn’t causing any miracles on 34th Street.

Lower spending by international tourists at stores in big cities like New York, Las Vegas and Chicago dampened sales and helped send profits for the retailer down 13 per cent in the first quarter.

The company said bad winter weather and a slowdown at West Coast ports also hurt sales.

Shares of Macy’s fell nearly 3 per cent in late morning trading Wednesday even as the company raised its quarterly dividend.

Sales from international tourists account for 5 per cent of Macy’s business, Macy’s Chief Financial Officer Karen Hoguet said on a conference call with analysts. She said spending by international tourists fell by a double-digit percentage in the latest quarter because the stronger U.S. dollar made handbags, clothing and other goods more expensive for tourists visiting from overseas.

“Unfortunately, this impact will likely stay with us at least through the summer vacation period,” Hoguet said.

Macy’s huge flagship stores, such as the iconic store on New York’s 34th Street and the former Marshall Field’s flagship on Chicago’s State Street, attract many tourists. Macy’s also operates luxury seller Bloomingdale’s, which draws wealthy out-of-towners.

The company, which has been a standout in retailing throughout the economic recovery, is the first of the major retailers to report first-quarter results. But the results show the challenges Macy’s and other retailers face.

Some factors are temporary. The West Coast port dispute cost Macy’s and other retailers sales when merchandise didn’t arrive on time. Macy’s also cited unusually cold weather for hurting sales of early spring merchandise.

Macy’s also noted its reorganization of merchandising, planning and marketing caused some temporary disruption as executives in those areas learned new roles.

Macy’s is also still dealing with a slow economic recovery and changing consumer behaviour. While gas prices are low and unemployment has dropped, stagnant wages have kept a lid on shopping sprees.

Shoppers also are spending money on other things, like health care, and stores are also dealing with a shift toward online shopping.

But Macy’s says it has many reasons to be encouraged. The company is looking to expand to new areas. It announced earlier in the year that it was buying Blue Mercury, a Washington, D.C.-based beauty retailer.

It also is getting into the outlet business. Last week, it announced the first four test stores will open this fall in New York City and the surrounding area. The new stores will be called Macy’s Backstage.

“We are moving fast to test, learn and bring the most successful ideas to scale quickly,” said Terry Lundgren, chairman and CEO of Macy’s in a statement.

But Macy’s first-quarter results show it has its work cut out for it.

The company reported first-quarter net income of $193 million, or 56 cents per share.

The results missed Wall Street expectations. The average estimate of 12 analysts surveyed by Zacks Investment Research was for earnings of 61 cents per share.

Macy’s said revenue at stores open at least a year slipped 0.1 per cent in the first quarter. Hoguet told investors the drop in spending from international tourists depressed the figure by a full percentage point.

Macy’s posted revenue of $6.23 billion in the period, which also did not meet Street forecasts. Eight analysts surveyed by Zacks expected $6.3 billion.

Macy’s is raising its quarterly dividend to 36 cents from the current 31.25 cents. The new dividend will be payable July 1 to shareholders of record at the close of business on June 15.

The company’s shares fell $1.50, or a little more than 2 per cent, to $63.83 Wednesday morning.

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Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on M at http://www.zacks.com/ap/M

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Keywords: Macy’s, Earnings Report, Priority Earnings

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