November 12, 2015 / 10:26 AM / 2 years ago

REFILE-UPDATE 5-Macy's cuts full-year forecast, sends shivers through retail (Nov 11)

4 Min Read

(In Nov. 11 story, corrects spelling of Michael in paragraph 4)

* Seeks partnerships or joint ventures for flagship properties

* 3rd-quarter same-store sales take unexpected fall

* Shares down nearly 14 percent

By Nandita Bose and Sruthi Ramakrishnan

Nov 11 (Reuters) - Warm weather, low spending by tourists and a pileup of unsold inventory prompted Macy's Inc to cut its full-year forecast on Wednesday, raising wide concerns about the retail sector's financial health.

Macy's in a quarterly report also said it would not create a real estate investment trust for its stores, disappointing some investors and helping to push down shares 14 percent for the day.

The long spell of warm weather in September and October, which hurt sales of cold weather apparel like coats and jackets, could also affect retailers like Urban Outfitters Inc, while a drop in spending by tourists is likely to impact Tiffany & Co and Hudson's Bay Co, which runs chains like Saks Fifth Avenue, said Oliver Chen, analyst with Cowen Equity Research.

Analysts also expect slowing sales of accessories like handbags, shoes and cosmetics to hurt brands including Fossil Group and Michael Kors Holdings Ltd.

Urban Outfitters shares ended down 7.4 percent, Tiffany & Co closed 3.37 percent lower and Michael Kors and Fossil both fell over 4 percent.

Macy's Chief Executive Terry Lundgren said on a conference call he was not happy with the company's performance in the quarter ended Oct. 31.

Sales at stores open at least a year fell 3.6 percent in their third straight quarterly decline. Analysts on average had expected 0.2 percent growth, according to research firm Consensus Metrix.

Macy's said it expected same-store sales to fall by 1.8 percent to 2.2 percent for the year ending in January.

The company cut its full-year profit forecast to $4.20 to $4.30 per share, excluding special items, from a prior range of $4.70 to $4.80.

"We are disappointed that the pace of sales did not improve in the third quarter, as we had expected," Lundgren said.

Macy's slide in sales has lasted several quarters and Lundgren said the company would increase the focus of its turnaround plan, including product mix in stores and more experimentation with online sales.

"We are wary of a drop in traffic but remain confident of the measures management is taking to fix some of its core problems," said Efrain Levy, equity analyst at S&P Capital IQ who reiterated his "hold" rating on the stock.

Real Estate

Activist investor Starboard Value had urged Macy's in July to consider spinning off its real estate assets, valuing them at about $21 billion. The investor had said a REIT would trade at a higher multiple than the stores.

"We and our board concluded there was not enough value to be created from the establishment of a REIT at this time," Lundgren said.

Instead, he said, Macy's would focus on forming potential partnerships or joint ventures for its four major flagship properties in New York's Herald Square, Union Square in San Francisco, State Street in Chicago, and downtown Minneapolis. The retailer will also look for ways to profit from or redevelop its real estate.

Net income attributable to shareholders fell 45.6 percent to $118 million, or 36 cents per share, partly due to a charge for some planned store closings.

Net sales fell 5.2 percent to $5.87 billion, the third straight quarter of declines and below the analysts' average estimate of $6.09 billion, according to Thomson Reuters I/B/E/S.

Excluding items, Macy's earned 56 cents per share, exceeding analysts' expectations of 54 cents.

Reporting by Nandita Bose in Chicago and Sruthi Ramakrishnan in Bengaluru; Additional reporting by Ramkumar Iyer; Editing by Kirti Pandey, Lisa Von Ahn and Meredith Mazzilli

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