Macy's has reached a 'sobering breakpoint' (M)

pulse

May 12, 2017 5:56 PM

Declining mall traffic is hurting the retailer.

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Macy's is feeling the brunt of the retail apocalypse.

Stores are shutting down across the US and firms are witnessing their profits diminish as e-commerce firms such as Amazon continue to win over shoppers.

On Thursday, shares of Macy's plummeted after the firm's disappointing earnings report.

In a note written by a group of equity analysts at UBS led by Michael Binetti, the bank said the retailer was dealing with numerous issues including mall traffic hitting a "sobering breakpoint."

The department store reported that same-store sales missed consensus estimates by more than a full percentage point, contracting by 4.6% in the first quarter on an owned-plus-licensed basis; analyst forecasts anticipated a 3.5% year-over-year decline.

In addition, the cosmetics category, which has been a strong source of sales for Macy's, is struggling.

"The company saw elevated promos in the high margin/high frequency cosmetics category (cosmetics also contributed to the GM miss) — likely reflecting volumes for the category moving off-mall to pure-plays like ULTA or even offprice," the analysts wrote.

The handbag and watches categories at Macy's are also under pressure.

As such, the bank has dropped its price target for the stock to $26 from $34. That's still above the current market price of $23.80 a share.

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