Macy's, the largest department store in the United States, has warned of a potentially rocky year, although sales have improved slightly at all stores during the holiday season.
Macy's equivalent sales at its owned stores fell 1.1% in the fourth quarter and ended on February 1. This includes Bloomingdale and Bloomer Curry, as well as Licensed Business and Online Marketplaces, with sales growth of 0.2%, with the highest results in many quarters.
Macy's has entered the holiday season faced tough challenges including more cost-conscious consumers, reduced profitability and strange accounting errors. It's in the middle of a turnaround plan, which involves closing lower performance locations and improving the rest of the store with more staffing and better products. So far, about 66 of its 150 planned stores have closed.
Macy's sees signs of optimism, but the forecasts it provides showed that Wall Street expects to bring in less revenue than last year's fiscal year. The retailer said it expects net sales to range from $22.3 billion to $21.4 billion over the past year. We expect comparable sales to fall by 2%.
David Swartz, senior equity analyst at Morningstar, warned that investors and analysts like him “need to see more” to be sure department store strategies to reverse their assets are really working.
“When you own hundreds of stores, some of them are really good, some of them are in the middle and some of them are awful,” he said.
But there are factors that Macy's and other retailers have to navigate the previous year that are out of their control.
The tariffs that President Trump has recently imposed have loomed on retailers as they report their latest financials. These tariffs, which took effect on Tuesday, charge the US with 25% levy on most Mexican and Canadian imports, and another 10% on Chinese products.
Target noted on Tuesday that tariffs are a factor that could encourage customers to keep their spending down. Corie Barry, CEO of Best Buy, said that rising prices for American consumers is “very likely” as vendors expect “to hand over some tariff costs to retailers.”
Despite warning of the challenges that tariffs could pose, including additional costs, some retailers point out that they are already working to reduce the likelihood of exposure to tariffs.
Warby Parker's chief financial executive Steve Miller said on February 27 that the company has diversified its suppliers over the past five years to reduce tariff exposure, noting that China accounts for 20% of the cost of its products.
“There are multiple levers to manage a dynamic customs environment,” he said.
TJ Maxx and Marshalls owner TJX said on February 26 that they expect a “small negative impact” from the tariffs in the first half of the year, but John Klinger, the retailer's chief financial executive, said the company “is confident that it will be able to pass the current Chinese tariff environment with future Buys.”
Some brands acknowledge the uncertainty created by Trump's tariffs that could undermine business activities.
Sketchers Chief Financial Officer John M. Vandemore joked with investors before asking the question Tuesday, “When I left my hotel room and got off, I had to check and make sure there were no new Talis.” Still, he noted that footwear companies have a “pretty solid path” to absorb costs.
Morningstar analyst Swartz said retailers are concerned about tariffs, but it is not necessarily a new threat.
“When Biden was president, some of China's tariffs were never removed,” he said.
If investors believe the latest tariffs are the start of a long-standing, serious trade war, he said, “we'll see stocks crushed everywhere.”
Ultimately, he added that Trump “actually causes a recession that makes people very angry at him” and “that makes no sense.”
