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Macy’s warns customers could feel impact of trade war

May 15, 2019
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FILE- This May 2, 2017, file photo shows corporate signage at Macy's flagship store in New York. Macy's Inc. reports financial results Wednesday, May 15, 2019. (AP Photo/Bebeto Matthews, File)
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FILE- This May 2, 2017, file photo shows corporate signage at Macy's flagship store in New York. Macy's Inc. reports financial results Wednesday, May 15, 2019. (AP Photo/Bebeto Matthews, File)

NEW YORK (AP) — Macy’s customers may finally start to feel the impact of President Donald Trump’s trade war with China.

Like many department stores and general merchandise retailers, Macy’s had been left largely unscathed by the first several rounds of tariffs since they focused more on industrial and agricultural products. But products like furniture saw an increase in tariffs to 25% last week. And now the administration is preparing to extend the 25% tariffs to practically all Chinese imports not already hit with levies including toys, shirts, household goods and sneakers, which furnish Macy’s behemoth stores. That’s roughly $300 billion worth of products on top of the $250 billion targeted earlier.

Macy’s CEO Jeff Gennette told investors Wednesday the higher levies on furniture will have some impact on the department store business, but it can be mitigated. But he says if the potential fourth wave of tariffs are placed on imports, that could mean higher retail prices for both store label and national brands.

“Looking at all those categories and those brands that are included, it is hard to do the math to find a path that gets you to a place where you don’t have a customer impact,” Gennette told investors.

The escalating trade tensions put a damper on the news surrounding Macy’s fiscal first quarter performance, which smashed Wall Street estimates. Macy’s also put up its sixth consecutive quarter of increases in comparable store sales fueled by its robust online business after a three-year sales slump. However, even in a still strong economy, the question is how resilient shoppers will remain in the wake of higher prices. Walmart as well as other major retailers are set to report their quarterly earnings results in the next few days, shedding more light on the issue.

Macy’s report offered encouraging news after the department store chain struggled through a weak holiday season. It offered signs that the retooling of its loyalty program and the expansion of its off-price concept are enticing shoppers to buy. The company also delivered another quarter of double digit increases in online sales.

But in addition to the trade wars, Macy’s continues to face challenges.

Like many other mall-based stores, Macy’s is under pressure to reinvent itself as shoppers increasingly buy online. Macy’s has been expanding its store labels and opening more off-price Backstage stores. It’s rolled out technology that allows customers to skip the line at the register. The company’s revamped loyalty card program has helped keep its best customers engaged. And after closing more than 100 stores over the past several years, it’s going to see how a cluster of smaller stores work with today’s customers. The company is also expanding the list of stores that get new improved fixtures and more localized fashion to 150 from the original 50.

In February, the department store announced a multiyear money-saving restructuring program that it says will shrink its management structure and make the department store more nimble in a fiercely competitive environment.

Mobile is Macy’s fastest growing channel, with more than $1 billion in sales through its apps alone in 2018, the retailer has said.

Such efforts propped up quarterly results. The Cincinnati department store chain reported a first quarter profit of $136 million, or 44 cents per share. That far exceeds Wall Street’s per-share expectations of 31 cents, according to a survey by Zacks Investment Research.

Revenue was $5.5 billion, just shy of expectations.

Sales at stores opened at least a year rose 0.7%. That included business from licensed departments. Analysts were expecting a slight decline.

Macy’s stuck to its full year earnings projections of between $3.05 and $3.25 per share, about in line with expectations. However, Gennette told investors the company didn’t factor in the fourth potential round of tariffs into its guidance. He said that Macy’s has been working to shift some of the production out of China, and that it’s working with its national brand partners to figure out a solution.

Shares rose in premarket trading but then receded and closed at $21.68, down 12 cents.

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Portions of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on M at https://www.zacks.com/ap/M

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