Lights shine near a closed Macy’s Herald Square as people remain at home to stop the spread of coronavirus on March 29, 2020 in New York City.
Noam Galai | Getty Images
Its shares fell about 1.5% in premarket trading on the news.
In an investor presentation about its first-quarter forecast, the retailer also said it expects to have “sufficient liquidity” to execute on its 2020 priorities.
Macy’s has said it doesn’t expect to report fiscal first-quarter earnings until July 1 because of disruptions stemming from the pandemic.
America’s department store chains have, by and large, been battered by the crisis. They were struggling even before it hit. Neiman Marcus, Stage Stores and J.C. Penney have filed for bankruptcy protection. Kohl’s earlier this week reported first-quarter sales were down 44%. Nordstrom, which is set to report earnings next week, said it is permanently closing 16 stores.
Macy’s said it expects to report an operating loss of between $905 million and $1.11 billion, compared with net income of $203 million a year ago. And it has forecast first-quarter sales to be in the range of $3 billion to $3.03 billion, down from $5.50 billion a year ago.
“We expect business to recover gradually,” CEO Jeff Gennette said in a statement.
But the worst is not behind it. The company is expecting profits during the second quarter to be pressured even more-so than during the first quarter, management said Thursday morning during a virtual fireside chat with J.P. Morgan analyst Matt Boss. Promotional activity is going to be heightened to try to sell stale merchandise, it said.
“The scale of the deterioration underlines the fact that Macy’s has a very high cost base that, even with furloughs, simply drains the business when trade declines,” GlobalData Retail Managing Director Neil Saunders said in a note to clients.
“Macy’s struggles to maintain sales levels because much of what it sells is just not that compelling,” Saunders said.
Macy’s stores were temporarily shut during the coronavirus pandemic on March 18, and are just beginning to reopen across the U.S., in states including South Carolina and Georgia. The company is also offering curbside pickup at a number of stores.
As of this week, Macy’s said roughly 190 of its namesake department stores and Bloomingdale’s shops have fully reopened. The company said another 80 Macy’s stores will be open for the upcoming Memorial Day weekend. It said it expects to have most of its locations open again by late June.
“With two weeks of results from reopened stores, customer demand is moderately higher than we anticipated,” Gennette said.
He added that the company saw a “steady uptick” in online sales during April, but that “only partially offset the loss of sales from the stores.” Categories that have shown strength on the web include active wear, home goods and kids’ apparel, the company said.
Meantime, Macy’s has been well into the financing process to raise debt, to come up with additional liquidity to weather this crisis.
“We notified our banking partners early on of our plans to access additional financing, and this process is on track,” Gennette said Thursday. “We are confident we will obtain this financing before it is needed, allowing us to improve our financial flexibility.”
The company is estimating it will end the first quarter with $1.52 billion in cash on hand, compared with $737 million a year ago. It expects the total debt on its balance sheet to be $5.66 billion, compared with $4.72 billion a year ago.
Macy’s has also appointed Felicia Williams, who currently serves as senior vice president, controller and enterprise risk officer, as interim CFO, effective May 31. As the company previously announced, current CFO Paula Price is set to depart at the end of this month.
Macy’s shares as of Wednesday’s market close are down more than 70% this year. The company has a market cap of $1.6 billion.