What Happened

Macy's (NYSE: M) stock is in free fall today -- and the bad news doesn't end there.  

After missing earnings pretty badly this morning, with adjusted profits falling to just $0.28 per share versus the $0.45 per share that Wall Street had expected in Q2, Macy's stock is down 17.4% as of 10:15 a.m. EDT. Following Macy's lower are fellow retailers Kohl's (NYSE: KSS) and Urban Outfitters (NASDAQ: URBN), down 10.1% and 6.9%, respectively.

So What

What happened to Macy's, and why might it be to blame for the sell-offs at Kohl's and Urban Outfitters? The answer can be pinned on both actual earnings (for last quarter) and guidance (for the rest of this year). 

Macy's matched analyst expectations for Q2 2019 revenue of $5.55 billion, but that revenue still declined by 0.5% year over year. Same-store sales growth was up only 0.3%. Worst of all was the news about profits.

Macy's earnings per diluted share as calculated according to generally accepted accounting principles (GAAP) declined 47% from last year's Q2 to $0.28 per share. Adjusted profits, which are the earnings Wall Street analysts tend to focus on because they don't count one-time items, fell even harder, down 60% year over year.

And then there was the guidance. Again giving its numbers in terms of adjusted earnings, Macy's warned investors that its profits will almost certainly fall below its own previous guidance for this year, and will range from $2.85 to $3.05 per share. The entirety of that range falls short of the $3.07 per share that Wall Street will be looking for. In a nutshell: Macy's is on track to miss earnings for all of 2019.

Now What

But why should this bad news concerning one of their rivals hurt the stock prices of Kohl's and Urban Outfitters? Simply for this reason: Both companies are scheduled to report their own quarterly earnings results in less than a week, on Aug. 20.  

Granted, Wall Street is already bracing for an earnings decline at both chain stores, with predictions calling for a 12.5% earnings drop at Kohl's and a 30% slump at Urban Outfitters. Of course, these same analysts thought they were prepared for the bad news that Macy's would report -- and were unpleasantly surprised at the magnitude of Macy's decline.  

With Macy's management now warning of "mounting" inventories and a general lack of consumer "appetite" to spend, they may be right to worry.   

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