America’s malls are preparing for another Black Friday — but it’s not the 2000s anymore with lines snaked around store entrances, and that has cast dark clouds over the sector’s future.
“The whole Christmas shopping experience is totally different now,” says Morningstar analyst David Swartz, due to the likes of retail behemoths Amazon (AMZN), Walmart (WMT), and Target (TGT).
Plus, off-price retailers such as Ross Stores (ROST) and TJX Companies (TJX) owned TJ Maxx and Marshall’s, “are taking sales away from department stores constantly,” Swartz added.
Macy’s (M), Kohl’s (KSS), and Nordstrom (JWN) are fighting to stay in the game by closing lagging stores and pouring money into online operation.
But, the legacy department stores have still fallen behind digitally and questions surround whether they’ll remain public companies in the future amid evolving shopper patterns and high operating costs.
The struggles are in the pudding, so to speak.
Same-store sales dropped 1.3% in Macy’s preliminary third quarter results. Net sales fell 2.4% to $4.74 billion. Yahoo Finance data shows analysts expect Macy’s will report $22.1 billion in sales for 2024 — if hit, that would be about $3 billion less than calendar year 2021.
Kohl’s third quarter net sales fell 8.8% to $3.5 billion. Same-store sales declined 9.3%, dragged down by softness in apparel and footwear. The company booted its CEO Thomas Kingsbury.
Nordstrom’s third quarter results saw same-store sales grow 4% for the namesake brand. Off-price business Nordstrom Rack’s sales grew 3.9%.
Shares of all three retailers trade on a paltry average forward price-to-earnings multiple of 8 times according to Yahoo Finance analysis, a sizable discount to the 22.5 times afforded to the S&P 500.
Analysts estimate Nordstrom’s full year sales at $14.8 billion, about on par with calendar year 2021.
Investors in all three chains should expect flat to a low single digit sales decline for the holiday season, CFRA analyst Zach Warring told Yahoo Finance.
By comparison, the National Retail Federation (NRF) projects consumers to spend between 2.5% and 3.5% more than last year during the holidays.
“Consumers are looking for value more than ever,” JC Penney CEO Marc Rosen said on a phone call with Yahoo Finance. “What’s evolved…is how consumers view value.”
Shares of Macy’s have dropped 19% this year to around $16 per share, compared to a $24.80 per share buyout offer it rejected in July.
The S&P 500 is up 27% on the year.
Macy’s CEO Tony Spring is trying to turn around the business with a plan it unveiled in February dubbed “Bold New Chapter.” The playbook includes investments in online and the company’s top-performing stores. It also involves shuttering 150 under-performing stores by 2026 and more layoffs.
“If I told everyone that I had a business, that we could be in the cosmetics business, we could be in the women’s apparel business, we could be in the men’s business, we could be in the home business, we could be in the electronics business, you might call that a marketplace and a marketplace is very attractive to people,” Spring explained at Yahoo Finance’s Invest conference earlier this month.
The results have been mixed, at best.
In 50 stores where Macy’s has invested in better staffing, product assortment, and visual displays, the company said in its preliminary release this week that third quarter same-store sales grew for the third straight quarter, up 1.9% year-over-year.
The company didn’t disclose third quarter online sales.
Online sales for the second quarter fell 7% from the prior year to $1.43 billion.
As for Kohl’s, its stock has crashed 46% this year.
A drop in foot traffic, a pullback in investing in private apparel brands, and taking out fine jewelry to make room for in-store Sephora cosmetics shops have been detrimental to sales growth, Dana Telsey of Telsey Advisory Group wrote in a note to clients.
It plans to reintroduce fine jewelry to 200 stores this holiday season.
Kohl’s also needs a more structured online business that was once “way too promotional,” said Morningstar’s Swartz.
The retailer said this month that Ashley Buchanan will be its next CEO, its third since 2018. He’ll take the helm in January.
Nordstrom has been performing better compared to its department store peers as it leans into e-commerce.
Jefferies analyst Ashley Helgans says that Nordstrom has benefitted from “leading with brands first and price second.” The company has also focused on “improving selection and depth of customers’ favorite brands” from Decker’s Outdoor (DECK) running sneaker Hoka and performance shoes from On Holding (ONON), as well as dressy and contemporary men’s apparel.
But it’s still staying cautious this holiday season.
The company noted an “uncertain” external environment when it reported earnings earlier this month, and opted to only reaffirm its full year profit guidance.
“Across all of our businesses…we saw a slowing in the trends” starting the last week of October, CEO Erik Nordstrom said on the earnings call.
Nordstrom shares have jumped 22% to $22.62 amid a buyout proposal.
All three of the companies are likely to end up going private to stay out of the penalizing gaze of Wall Street, per Swartz.
In September, Nordstrom’s founding family teamed up with retail investor El Puerto de Liverpool to take the company private. The two parties own 33% and 10% of the company, respectively, and is offering $23 per share or $3.8 billion for the rest. Nordstrom’s board has acknowledged the offer, but has not yet announced a decision.
“Given the way that the deal is structured…there’s a very good chance that it does get completed,” Swartz said.
Both Macy’s and Kohl’s have rebuffed buyout offers within the past two years, reasoning more value could be achieved by executing on turnarounds.
But time is ticking, and industry dynamics are only intensifying. It’s plausible Macy’s and Kohl’s entertain offers in the future to get certainty for shareholders.
“Another hedge fund or private equity…is going to say…’Wow, this is dirt cheap.’ I can buy this company and extract all kinds of value from it,” Swartz said of the others.
“That’s still the case for both Kohl’s and Macy’s. They still have real estate. They still generate cash flow, their valuations are still extremely depressed, so they’re still attractive,” he said.
How the holiday season shakes out may force their hands.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
