Dive Brief:

• Shares of Macy’s fell roughly 8% on Tuesday after the department store retailer acknowledged in a presentation that falling gross margins were a risk to its earnings guidance.
• Karen Hoguet, Macy’s CFO, said during the company's investor meeting that gross margin rates could fall short of February’s guidance, with the best estimate of rates of 60 to 80 basis points below the same period last year, with the second quarter rate 100 basis points below last year. Hoguet added that Macy’s management had already anticipated margins in 2017 would fall short of last year, but there was a risk that they could be even worse than anticipated.
• As reasons for the for declining margin rates, Hoguet cited excess inventory from the holiday season, the increasing “promotional nature” of the beauty business, competitive pricing in the home category and growth in technology, notably tech watches. However, Hoguet said the company saw opportunity to offset some of those margin compressions through cost cuts and sales of the company’s real estate assets.

Dive Insight:

Tuesday’s investor conference held little earth-shattering news about the iconic retailer’s current situation, which is gloomy but not as grim as that of other retailers. Still, the revelation about gross margin risk spooked a market already leery of retail stocks as mall traffic declines and department stores try to forge a new path in a complicated, declining and ever-changing sector.

The meeting follows a first quarter during which total sales at Macy’s fell by 7.4% (to $5.3 billion) compared to the prior-year period same-store sales fall of 5.25%. Earnings per share also fell in the first quarter to 23 cents from 37 cents in the year-ago quarter. For the year, Macy’s expects comparable sales to decline somewhere between 2% and 3%, according to Tuesday’s presentation. At the same time, Macy’s executives said they believe new marketing strategies and their loyalty program will add to sales in 2017.

To try to boost its performance and profitability, and to ensure its long-term survival, Macy’s has been closing stores by the dozens and selling its owned property where the company thinks doing so makes sense. The company made $673 million from asset sales in 2016 and expect sales to continue into 2017, according to the investor presentation. Macy’s has also been making investments in its e-commerce and mobile platforms.

In May, GlobalData Retail managing director Neil Saunders said Macy’s “feeble numbers” for Q1 added to a sense that the retailer was on “a slippery slope.”

“As prudent as the re-engineering of the store fleet is, Macy's main problems are centered on issues of product and store environment,” Saunders said in an email to Retail Dive. “On both fronts, there has been very little movement. Indeed, inventory levels this quarter were far too high, resulting in continued sharp levels of discounting and rather cluttered shop-floors. Against this backdrop, customer traffic and conversion rates continued to fall at pace.”