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Department stores: Macy's sales fall, Kohl's profit drops

By: ANNE D'INNOCENZIO, Associated Press
November 9, 2017 Updated: November 9, 2017 at 5:00 pm
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photo - This Tuesday, May 2, 2017, photo shows corporate signage at Macy's flagship store in Manhattan, in New York. Macy's Inc. reports earnings Thursday, Nov. 9, 2017. (AP Photo/Bebeto Matthews)
This Tuesday, May 2, 2017, photo shows corporate signage at Macy's flagship store in Manhattan, in New York. Macy's Inc. reports earnings Thursday, Nov. 9, 2017. (AP Photo/Bebeto Matthews) 

NEW YORK (AP) — Macy's sales fell as it had a hard time pulling shoppers through its doors and Kohl's reported a drop in quarterly profit Thursday, underscoring just how challenging the holiday shopping season will be for department store chains. Even Nordstrom saw a key sales measure fall and trimmed its outlook.

Like many retailers, Macy's and Kohl's have wrestled with weak sales as customers go online. Department stores, which are heavily dependent on clothing sales, are seeing more competition there as Amazon expands further into fashion and so-called off-price chains like T.J. Maxx add more stores.

Macy's Inc. reported that its third-quarter earnings more than doubled as it cut costs, which include eliminating jobs, scaling back on inventory and closing some locations. It's been expanding into off-price stores and launched a loyalty program last month that it hopes will attract more shoppers. Still, revenue at stores open at least a year fell for the 11th straight quarter. The drop of 4 percent was worse than the 2.9 percent analysts expected.

At Kohl's Corp., hurricanes and unseasonal weather weighed on sales, but it did have a strong back-to-school shopping season and it raised its outlook for the year. Same-store sales edged up 0.1 percent, better than the 0.6 percent decline analysts had expected. And it said business was helped by picking up market share from store closures of rivals in certain regions.

Upscale department store Nordstrom Inc. reported a third-quarter profit of $114 million after reporting a loss a year ago. Nordstrom has been among the best performers among department stores, though its discount stores, called Nordstrom Rack, have been faring better than its department stores. For the latest quarter, it saw sales at established stores across the chain decline 0.9 percent. The results at Nordstrom Rack unit were somewhat more encouraging, with a 0.8 percent improvement in established-store sales.

J.C. Penney is scheduled to report its quarterly results Friday. Penney announced late last month that it had to liquidate poor-selling merchandise, primarily women's clothing, a move that it said will hurt profits.

It's been a tough year for retail overall, with store closings on pace to top the worst year of the recession and several well-known chains filing for bankruptcy protection because of their debts. Mall shopping is down, and that hits department store chains particularly hard. So the holiday season, always important, is even more critical.

Stores are planning early holiday promotions and some are opening earlier on Thanksgiving than last year to try to scoop up some traffic. Kohl's and J.C. Penney are both opening an hour earlier on Thanksgiving than a year ago, but Penney is trying to outdo its department store rivals. J.C. Penney said it will open at 2 p.m. on Thanksgiving and stay open until 10 p.m. on Friday. Kohl's is opening at 5 p.m. and will be open straight through midnight on Black Friday.

Most Macy's stores will open at 5 p.m. local time on Thanksgiving and close at 2 a.m., similar to last year. They will reopen 6 a.m. local time on Black Friday. Macy's is increasing the number of temporary workers it's hiring for distribution and warehouses for the holiday season as it chases fast-growing e-commerce sales.

Kohl's, meanwhile, has expanded its partnership with Amazon to sell devices like the Echo and Fire tablets at some stores. It also will pack and ship eligible Amazon return items for free at stores offering the service.

"We believe both of these tests have the potential to drive incremental traffic to our stores, which as you know is our No. 1 priority," CEO Kevin Mansell said during the call with analysts Thursday.

Analyst Neil Saunders, managing director of managing director of GlobalData Retail, said he was encouraged that Kohl's "is innovating with both new products and services," but criticized Macy's for "the patchiness of its turnaround program."

"While there is no doubt that the company has made progress across some areas, change is far from comprehensive or far-reaching," he wrote. "We get the sense that Macy's fixes issues in a piecemeal way and that it lacks a unified vision for the future of the business."

Macy's earned $36 million, or 12 cents per share, in the third quarter. Earnings adjusted for one-time gains and costs, were 23 cents per share. The results topped Wall Street expectations, but the bar was set low. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of 19 cents per share.

The Cincinnati-based department store operator posted revenue of $5.28 billion in the period, which missed Street forecasts. Macy's said the weakest areas were coats, boots and other winter accessories because of unseasonably warm weather.

CEO Jeff Gennette told analysts that the early results of its loyalty program are "promising." The program is designed to enhance the store's relationship with its best customers, who account for 10 percent of its shopper base but make up half of total sales. It's also aimed at reaching out to new shoppers.

Macy's shares rose nearly 11 percent to $19.50 in trading Thursday. Kohl's shares rose nearly 1 percent to $41.17. Nordstrom shares fell 1.1 percent in extended trading.

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