We will likely see similar results from other retail operations in big U.S. cities like New York and Los Angeles.
Macy’s is feeling a big chill from international tourists because their money isn’t going as far as it used to.
The strong dollar has crimped spending by overseas visitors at Macy’s stores in big cities like New York, Las Vegas and Chicago. That contributed to a 13 percent decline in profit in the first quarter, the company said Wednesday.
The company said bad winter weather and a slowdown at West Coast ports also hurt sales.
Shares of Macy’s fell 2.5 percent Wednesday even as the company raised its quarterly dividend.
Sales from international tourists account for 5 percent of Macy’s business and fell by a double-digit percentage in the latest quarter, Macy’s Chief Financial Officer Karen Hoguet said on a conference call with analysts. The stronger U.S. dollar made handbags, clothing and other goods more expensive for tourists who were exchanging foreign currency.
“Unfortunately, this impact will likely stay with us at least through the summer vacation period,” Hoguet said.
Macy’s huge flagship stores, such as the iconic store on New York’s 34th Street and the former Marshall Field’s flagship on Chicago’s State Street, attract many tourists. Macy’s also operates luxury seller Bloomingdale’s, which draws wealthy out-of-towners.
The company, which has been a standout in retailing throughout the economic recovery, is the first of the major retailers to report first-quarter results. But the results show the challenges Macy’s and other retailers are facing.
Some factors are temporary. The West Coast port dispute cost Macy’s and other retailers sales when merchandise didn’t arrive on time. Macy’s also said unusually cold weather hurt sales of early spring merchandise.
Macy’s also noted its reorganization of merchandising, planning and marketing caused some temporary disruption as executives in those areas learned new roles.
Macy’s is also still dealing with a slow economic recovery and changing consumer behavior. While gas prices are low and unemployment has dropped, stagnant wages have kept a lid on shopping sprees.
Shoppers also are spending money on other things, like health care, and stores are also dealing with a shift toward online shopping.
But Macy’s says it has many reasons to be encouraged. The company is looking to expand to new areas. It announced earlier in the year that it was buying Blue Mercury, a Washington, D.C.-based beauty retailer.
Macy’s also is getting into the outlet business. Last week, it announced the first four test stores will open this fall in New York City and the surrounding area. The new stores will be called Macy’s Backstage.
“We are moving fast to test, learn and bring the most successful ideas to scale quickly,” said Terry Lundgren, chairman and CEO of Macy’s in a statement.
But Macy’s first-quarter results show it has its work cut out for it.
The company reported first-quarter net income of $193 million, or 56 cents per share.
The results missed Wall Street expectations. The average estimate of 12 analysts surveyed by Zacks Investment Research was for earnings of 61 cents per share.
Macy’s said revenue at stores open at least a year slipped 0.1 percent in the first quarter. Hoguet told investors the drop in spending from international tourists depressed the figure by a full percentage point.
Macy’s posted revenue of $6.23 billion in the period, also below Wall Street forecasts. Eight analysts surveyed by Zacks expected $6.3 billion.
Macy’s is raising its quarterly dividend to 36 cents from the current 31.25 cents. The new dividend will be payable July 1 to shareholders of record at the close of business on June 15.
The company’s shares fell $1.50, or a little more than 2 percent, to $63.83 Wednesday morning.
Elements of this story were generated by Automated Insights sing data from Zacks Investment Research. A
Photo credit: A shopper leaves the Macy's department store in New York. Frank Franklin II / Associated Press