What's Behind the Parade of Poor Earnings at Department Stores - TheStreet

NEW YORK ( TheStreet) --  Macy's (M) - Get Report isn't the only department store retailer under pressure as consumers are shopping more selectively, buying online, or simply foregoing purchases due to a lack of money.

Retail sales at department stores are down 2% this year, according to the latest data from the Census Bureau. That represents the second-worst sales performance on an unadjusted basis behind the 19.7% plunge at gas stations, due primarily to the decline in gas prices. In July, sales at department stores fell 0.7%, following a 0.3% drop in June.

The sales decline at department stores in July stood in stark contrast to the overall tone of the most recent snapshot into U.S. consumer spending. July retail sales rose 0.6%, in line with economists' forecasts. Excluding sales of autos, July retail sales rose 0.4%, consistent with 0.4% growth seen in June that was originally reported by the Census Bureau as a 0.1% decline.

Dreary sales data from the government on department stores confirms dreadful second-quarter earnings from the major players in the sector. On Wednesday, Macy's shares fell about 4% on lackluster second-quarter earnings and guidance. Macy's reported earnings per share of 64 cents, falling well short of forecasts for 75 cents.

Macy's chairman and CEO Terry Lundgren, who is normally steadfast in his optimism, pointed to weak sales at tourist locations such as New York City's Herald Square, due to the strengthening of the U.S. dollar. On a call with analysts, Macy's CFO Karen Hoguet noted sales of fashion jewelry, watches and housewares were particularly weak. 

For Macy's, it marked the second-straight underwhelming quarter, and comes despite significant investments it has made to improve assortments in the store and enhance the shopping environment.

But Macy's is far from alone.

On Thursday, mid-tier department store Kohl's (KSS) - Get Report reported sales of $4.27 billion, missing forecasts for $4.31 billion. Same-store sales rose a meager 0.1%, lagging estimates for a 1.3% increase. Earnings per share of $1.07 fell short of the $1.16 estimate held by analysts, and shares plunged 5.8% in early trading on Thursday. The company blamed the poor results on a shift in tax-free sales in some states that pushed some sales from July to August.  

"Kohl's has become a serial disappointer," said TheStreet'sJim Cramer, portfolio manager of the Action Alerts PLUS Charitable Trust Portfolio. "I can't figure out whether they are losing customers to Amazon (AMZN) - Get Report or a newly refreshed Target (TGT) - Get Report. But their reasoning about some sort of tax shift seems a little hollow to me."

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The second quarter was even less kind to beleaguered Sears Holding Corporation (SHLD) . Same-store sales at Sears' domestic stores plummeted 13.9% as of July 25, said the company on an August 3 preannouncement call. Sears continues to struggle in just about every single category it offers to consumers, amid years of underinvestment in its business and reduced inventory levels.

Investors have started to wake up to the reality that department stores could be in big trouble, due to changing consumer shopping habits. Shares of Sears have declined 29% in the past six months, while Kohl's has shed about 9.8%. Macy's stock is essentially unchanged over the same time period.

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