Macy’s suffers some indigestion
The ghosts of Robinsons-May, Foley’s and Marshall Field’s continue to haunt the newly expanded Macy’s chain.
Macy’s parent, Federated Department Stores Inc., signaled trouble Wednesday, reporting a fiscal third-quarter loss and lower-than-expected sales as it struggles to digest the 2005 acquisition of May Department Stores and its 11 chains.
Federated completed the changeover of more than 400 former May stores to its flagship Macy’s brand in September, and the retailer warned last week that sales were lagging at the converted locations.
“There have been challenges from the get-go on the May side of the house,” said Craig Johnson, president of retail consulting firm Customer Growth Partners. “I think everybody expected that it would take some time to turn things around.”
As the crucial Christmas shopping season approaches, company executives said, Macy’s will stock more gift merchandise such as electronics, a strategy it borrowed from the old May brands. “We do feel very well-positioned for the fourth quarter,” Chief Financial Officer Karen M. Hoguet told analysts in a conference call.
Federated’s $3-million net loss was the second in the last three quarters for the Cincinnati-based retailer. Both losses were blamed on the costs stemming from the May purchase.
The retailer, which also owns the Bloomingdale’s chain, has stumbled while trying to retain May’s former clientele, analysts said.
Those customers are a diverse group, including shoppers who patronized Robinsons-May in California, Filene’s in Boston, Foley’s in Houston and Marshall Field’s in Chicago. They haven’t all migrated to the Macy’s banner, Johnson said.
Although Federated denies it, Johnson said the converted Macy’s locations feature higher average prices than the stores they replaced.
“You can stretch customers up-market somewhat,” he said, “but if you stretch them too much, it’s like a rubber band -- you break it.”
Johnson thinks some former Robinsons-May customers may have defected to Kohl’s, a mid-range department store that has expanded aggressively in Southern California in recent years.
Federated said sales at its stores open for at least one year -- a key measure of retail performance -- rose 5.9% during the third quarter, the best in two years.
However, the company won’t begin including the former May stores in these so-called same-store sales figures until next spring and declined to break them out Wednesday.
Federated executives said sales of furniture and other home goods were especially weak at the former May stores. They blamed lower sales promotions, the need to train sales personnel and overall weakness in the category.
However, Macy’s private-label brands such as the Hotel Collection of upscale linens and the Tools of the Trade line of cookware and kitchen gadgets are doing well in the converted stores.
“It’s important to note that private-brand merchandise sold well in both the new and old Macy’s stores across all families of business, which gives us confidence in our vision,” Hoguet said.
Hoguet reiterated the company’s previous profit and sales forecast for the fourth quarter, in which Federated expects sales of $9.1 billion to $9.4 billion and adjusted earnings of $1.40 to $1.50 a share.
For the three months ended Oct. 28, Federated recorded a loss of $3 million, or a penny a share, compared with a profit of $436 million, or 90 cents, in the third quarter of 2005. The results included one-time charges of $145 million associated with integrating the May stores into its lineup.
Sales rose 6% to $5.89 billion, below the $5.98-billion forecast by analysts.
Excluding the one-time merger costs, Federated earned 20 cents a share in the third quarter. Analysts were expecting profit of 25 cents a share, according to Thomson Financial.
Federated’s stock price fell 47 cents to close Wednesday at $39.87.
*
