Macy’s (M) latest earnings report just added to the growing holiday shopping jitters on Wall Street.
The department-store chain posted its first same-store sales decline in two years as quarterly earnings missed analysts’ estimates, and the company slashed its full-year outlook.
Macy’s blames warmer weather and weak traffic at shopping malls for the poor sales, but analysts say the issues at the one-time retail mecca run deeper.
For years, Macy’s has been bogged down by heavy discounting and a glut of unsold inventory as it struggles to stay relevant.
“One of the things we’re seeing among the Walmarts and the Targets is the move into private label product,” Chris Versace, chief investment officer at Tematica Research, tells Yahoo Finance’s “The First Trade.” “I think that’s really taking a bite out of a company like Macy’s.”
Target continues to successfully steal market share from department stores in the clothing aisles.
Shares of Target (TGT) rallied to a record high Wednesday after crushing earnings and raising its forecast. The results were boosted by apparel sales which skyrocketed 10% in the third quarter and now represents more than 20% of the big-box retailer’s annual sales.
Versace says the “sleeper” category giving Macy’s competitors an edge is food.
Walmart (WMT) is proving to be a grocery powerhouse. Its food business currently accounts for 56% of Walmart’s total U.S. revenue, and food fueled Walmart’s 41% rise in online sales last quarter.
“People have to come back for consumables, and I think that is going to turn out to be the secret sauce to success this holiday season,” says Versace.
Versace says the winners this holiday season will be those companies that have invested against Amazon (AMZN) and that help people stretch their dollars. He believes Walmart, Target, Ross Stores (ROST), Costco (COST) and TJX Cos. (TJX), the owner of TJ Maxx and Home Goods, will all have a happy holiday season.
Things don’t look so cheery for Macy’s. The stock is down more than 50% year-to-date, making it the worst performer in the S&P 500 index.
“I think Macy’s is a troubled company,” says Versace. He expects more store closures and more “pain” for shareholders in the new year.
Alexis Christoforous is co-anchor of “The First Trade.” Follow her on Twitter @AlexisTVNews.