Retailers clearly are facing a tough fourth quarter and holiday season, but it seems they don't expect the pain to end anytime soon. Macy's today said it would be trimming next year's capital expenditures from $1 billion to between $550 million and $600 million, in response to the weak economy. It plans to realize savings by delaying store openings, limiting store remodels, reducing expense budgets and ordering less merchandise.
"While we are hopeful for the fourth quarter, I have to caution, we are less confident about spring 2009," said Karen Hoguet, exec VP-chief financial officer at Macy's, during a call with analysts. "We are increasingly concerned we won't see the improvements that we had anticipated as recently as a month ago. Now, that doesn't mean we are expecting further deterioration, but we may not get as much improvement as we had hoped. ... At this point, we don't see any upside in being optimistic."
Strong cash position
The cutback in expenditures is meant to aid the retailer in further conserving cash during this "challenging and uncertain environment," said Ms. Hoguet. She reiterated the company's solid cash position, noting it is stronger than it was a year ago.
Macy's announced a $44 million loss today in what is certain to be the first of a string of gruesome third-quarter reports for retailers. JCPenney, Kohl's, Nordstrom and Wal-Mart all report third-quarter earnings this week.
Ms. Hoguet said this is the first time she can recall the average price of an item decreasing at the retailer. During the quarter, there was a "resurgence" in moderately priced goods, with private-label brands and value-priced items selling particularly well, she said.
"Another concerning trend in October was the slip in our regular-priced business," Ms. Hoguet added. "Earlier in the year, the weakness in sales was more in our clearance than our regular-priced business. All of these factors point to the fact that consumers are pulling back in reaction to the economic weakness."
Prepared for holidays
The department store said sales slid 7% to $5.5 billion, while sales at stores open at least a year were down 6% for the quarter. Same-store sales for November are expected to be down low double-digits, while the fourth quarter as a whole is expected to be down between 1% and 6%.
Even with much of the news looking dismal, Ms. Hoguet said the company is well-prepared for the holiday season. One factor behind that is the strategic shift of marketing dollars. "Our marketing shift from the third quarter to the fourth quarter, we hope, will drive business incrementally in the fourth quarter," she said.
Still, Ms. Hoguet stopped short of expressing unbridled confidence in Macy's holiday outlook. "Like all holiday seasons that I can remember, it will be a nail biter," she said. "We won't be able to predict the season accurately until we're through it at the end of December."