Macy's, Kohl's slash 2016 profit forecasts citing weak holiday sales

Macy's, Kohl's slash 2016 profit forecasts citing weak holiday sales

Brendan McDermid

(Reuters) - Department store chains Macy's Inc and Kohl's Corp both cut their 2016 profit forecasts on Wednesday, after holiday season sales fell more than expected, pushing down shares in the retail sector in extended trading.

Macy's shares were down 10.7 percent at $32 and Kohl's shares plunged 15 percent to $44.11 after hours. Other retailers were also down sharply, with J.C. Penney Co Inc off 5.3 percent and Nordstrom Inc down 5.4 percent. U.S. department stores have continued to miss out on the spending uptick experienced by many retailers and have suffered heavily from competition by online rivals including Amazon.com Inc .

Department stores have also been hurt by a drop in demand for clothes and accessories like watches and handbags as consumers spent more on big-ticket items such as home renovations and cars.

Macy's said it is closing 68 stores, part of a plan announced last August to shutter 100 stores. The closures, three of which have already occurred, may result in layoffs of about 3,900 employees and a $575 million impact on 2017 sales, the company said on Wednesday.

The closures are the latest in a long list of moves by Macy's to spur growth. It would be the fastest pace at which the company has closed stores, after shutting a net 77 stores over six years.

"Revitalizing the business will not be easy," said Neil Saunders, chief executive at retail consultancy Conlumino. "Shopping trends are firmly against Macy's, and its brand, while not completely diminished, is most certainly tarnished."

Macy's Chief Executive Officer Terry Lundgren said traffic at its stores continued to decline even though the online business performed well.

"While our sales trend is consistent with the lower end of our guidance, we had anticipated sales would be stronger," Lundgren said.

Macy's also said it is implementing various efforts to restructure management and reduce costs, which it expects to result in the reduction of about 6,200 jobs.

Macy's cut its adjusted profit forecast for the 2016 fiscal year ending Jan. 30, 2017, to $2.95-$3.10 per share from $3.15-$3.40 per share previously. Comparable sales on an owned plus licensed basis fell 2.1 percent in November and December.

Macy's said it will take charges of about $250 million in the 2016 fourth quarter that were not previously included in its earnings guidance.

Macy's said the store closures would bring in total cost savings of approximately $550 million, starting this year, enabling it to invest $250 million to expand its digital business, among other initiatives.

Rival Kohl's said sales were volatile throughout the holiday season, even though it saw strong sales on Black Friday and the week before Christmas.

The retailer's comparable holiday sales fell 2.1 percent, forcing it to cut its adjusted profit forecast for the fiscal year ending Jan. 30 to $3.60-$3.65 per share from its previous forecast of $3.80-$4.00.

The National Retail Federation expects holiday sales to rise 3.6 percent. A jump in spending in the final stretch of December is likely to offset a slow start to the holiday shopping season.

(Reporting by Nandita Bose in Chicago and Gayathree Ganesan in Bengaluru; Editing by Jo Winterbottom and Leslie Adler)

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