Macy's warning on margins hits department store shares

Macy's Inc margins could end the year as much as 80 basis points lower than in 2016, Chief Financial Officer Karen Hoguet warned on Tuesday in comments that sent shares of the department store chain sliding to five-year lows, and also pressured other retail stocks.

Hoguet's comments, made during an investor meeting, sent Macy's shares dropping as much as 7.7 percent.

Competition from Amazon.com Inc and other online retailers is growing, forcing brick-and-mortar chains to close stores and cut costs.

Macy's full-year gross margin could be 60 to 80 basis points lower than in 2016, Hoguet said, and second-quarter gross margin would be down 100 basis points from the year-ago period.

The margin was 39.4 percent in the fiscal year ended Jan. 28, and 40.9 percent in the fiscal 2016 second quarter.

Macy's, an American retail icon that also owns luxury chain Bloomingdale's, has struggled with several quarters of declining sales even as Executive Chairman and former CEO Terry Lundgren made changes in operations.

"I think this is proof that while Macy's talks a good game, on the ground very little has changed in stores," Neil Saunders, managing director of GlobalData Retail, said.

"It isn't really a surprise but it is slightly disappointing because the company has been doing some things to try and turn itself around."

Macy's is closing underperforming stores, revamping its beauty business, simplifying pricing, building up its Backstage discount business, and improving its e-commerce site.

CEO Jeff Gennette, who took charge of the retailer in March, is planning for 40 percent of store merchandise to be exclusive to Macy's by 2020. The company is also looking to monetize its real estate assets, and hired Brookfield Asset Management in November to create development plans for about 50 Macy's real estate properties.

Macy's is "doing everything it can to be productive," Hoguet said, adding that she hoped cost reduction efforts would improve margins.

In May, Macy's blamed its lower first-quarter gross margin mainly on higher-than-expected inventory levels at the end of 2016.

Another executive on Tuesday's call told investors that Macy's still has too much inventory in stores and that the company was working on reducing this.