Macy's misses on Q2 sales as it opts for doubling down on new strategy over buyout deal

Macy's ( M ) is reporting another quarter of declining sales, a month after turning down a $6.9 billion buyout offer.

On Wednesday, Macy's reported a 3.8% year-over-year decline in net sales to $4.9 billion, missing estimates of $5.06 billion. Same-store sales fell 4%, worse than the expected 0.27% drop. Its stock plummeted over 7% in premarket trading.

Adjusted earnings beat Wall Street's expectations by $0.24, coming in at $0.53. CFO and COO Adrian Mitchell told Yahoo Finance the consumer "in discretionary" is still "under pressure" and looking for value.

This report comes after the company ended conversations around a potential buyout bid from one of its shareholders, Arkhouse, and its partner Brigade Capital Management on July 15. The offer first became publicly known early last December.

Mitchell said "there was not enough evidence to indicate that any potential transaction was actionable... you have to have the financing to do a transaction."

He added that the offer of $24.80 was "not compelling" given Macy's potential. The management is now focused on its turnaround strategy, dubbed "A Bold New Chapter."

The offer represented a roughly 60% premium over Macy's share price on Nov. 30, 2023. Mitchell said he's confident the strategy will make Macy's more valuable than the proposal.

The reset of its large real estate portfolio, one of Arkhouse's main targets, is underway. The company is set to announce the first wave of 55 store closures this year, more than the 50 projected earlier this year. It plans to close a total of 150.

"We're getting a lot of traction on real estate monetization," he said. "We had a range originally of $90 to $115 million in asset sale gains this year. We're now improving that outlook... to approximately $115 million."

In Q2, the company saw $36 million in asset sale gains and it's forecasting another $30 million of gains in Q3, and $67 million in Q4.

CEO Tony Spring, who took the role this February, introduced "A Bold New Chapter" in Q1. The strategy includes closing underperforming stores, improving remaining "go forward" locations, and investing in digital sales.

Spring said in the release that same-store sales have increased in the first 50 locations that Macy's has prioritized.

In these 50 locations, where the company is testing new strategies, sales increased 0.8% year over year.

"We saw that traffic and conversion in these first 50 Macy stores [that] were noticeably better than the other stores. When we look at customers, we're seeing a larger number of absolute customers show up in these stores. That's up to the prior year," he said.

Other go-forward stores that did not get an upgrade saw sales decline 3.8%. In the group of stores it plans to close, sales dropped 6.5%.

Morgan Stanley analyst Alex Straton expects "higher market conviction" when "visibility" on the P&L starts to show from its turnaround plan in mid-2025, following initial store closures and investments in 50 high-performing stores.

Shares of Macy's are down nearly 12% this year, compared to the S&P 500's ( ^GSPC ) 17% rise.

Macy's Q2 earnings come as shoppers are growing weary of higher costs and remain on the hunt for deals.

Per a report from Placer.ai, Macy's year-over-year monthly visits were down through most of 2024.

"The chain’s weekly foot traffic has remained at or above 2023 levels since the middle of the month [July] — likely spurred by back-to-school shopping and sales," Placer.ai wrote in a post.

Same store sales for its luxury subsidiary Bloomingdale's dropped 1.1%, but jumped 2% for its cosmetics chain Bluemercury.

"The reality is that a luxury consumer has the dollars to spend, but is not immune to being discerning about how they're thinking about their spend," Mitchell said. "We have seen some headwinds with regards to some of the more luxury brands."

He said Blumercury and the beauty business is "a solid category, even with some of the pressures that we're seeing."

UBS analyst Jay Sole said Macy's "structural challenges" will "cause it to lose share to Off-Price retailers, brands, and Amazon."

Discount retailer TJX Companies, Inc. ( TJX ), the parent company of TJ Maxx, Marshall's, and Home Goods, is set to report Wednesday before market open as well.

Merchandise margin increased 210 basis points, driven by lower year-over-year discounts, the company said.

The earnings rundown

Here's what Macy's reported, compared to Wall Street estimates:

The company is expecting ongoing pressure in the back half of 2024, lowering its outlook for the year.

It now expects net revenue to come in between $22.1 billion and $22.4 billion, lower than the previously expected range of $22.3 billion to $22.9 billion.

Same-store sales are expected to be down 2% to 5% year over year. It previously expected same-store sales to be in the range of up 1% to down 1.5%.

Mitchell said the "realization of second quarter sales results" and the "need to navigate the uncertainty that we see with regards to discretionary spending," was the reason behind the lowered outlook.

"Given all the indicators that we've seen in the economy, the things that we hear from economists [and] the proportion of discretionary spend versus essential spending, that makes us shifted quite a bit."

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BrookeDiPalma