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Victoria's Secret, Macy's Will Show How Bad Things Are in Retail

Victoria's Secret, Macy's Will Show How Bad Things Are in Retail
(Photostella/Dreamstime)

Wednesday, 20 May 2020 02:05 PM

The coronavirus pandemic has inflicted widespread pain on the American retail industry. Investors are about to learn just how much.

Several of the biggest names in shopping are set to report quarterly earnings this week, including Victoria’s Secret owner L Brands Inc. and TJX Companies Inc., which owns discount chains T.J. Maxx and Marshalls. Macy’s Inc. will release a portion of its results, after it delayed the full report until July.

The mass store shutdowns that began in March affected all pockets of the industry, from mall stalwarts to strip-center shops to direct-to-consumer brands. The carnage has already felled major retailers, as seen in the recent bankruptcies of J.C. Penney Co., Neiman Marcus Group Inc. and J. Crew Group Inc.

Investors got a peek at the financial impact of the pandemic Tuesday when Kohl’s Corp. reported earnings -- and the results were rough. Net sales fell 43.5%, hundreds of stores remain closed and locations that have reopened are seeing half the productivity they usually would. Most tellingly, Kohl’s declined to report same-store sales, perhaps the most closely watched metric in retail.

Here’s what to watch for during a big day in the retail world:

L Brands

Victoria’s Secret owner L Brands had planned to step out of the public spotlight in 2020. So much for that.

After years of market share losses and controversy, the company reached a deal in February with private equity firm Sycamore Partners to sell a majority stake in the lingerie chain and take it private. The agreement fell apart amid the pandemic, as Sycamore disagreed with the steps L Brands was taking and tried to back out of the deal. A brief legal battle ensued before the sides agreed this month to cancel the deal.

Now, with L Brands set to address investors, there will be keen interest in how it plans to move forward, particularly at a time when the whole industry is struggling. The Columbus, Ohio-based retailer, which also owns the more successful Bath & Body Works brand, reports earnings post-market on Wednesday and will hold a conference call Thursday.

The company has said it will operate Bath & Body Works as a standalone public company and work to turn the lingerie company into a separate entity. Longtime leader Les Wexner stepped down last week as chairman to become chairman emeritus, while Andrew Meslow, who ran Bath & Body Works, took the chief executive officer role.

L Brands, like its retail peers, is also trying to figure out how to successfully reopen its roughly 2,700 stores that were temporarily closed in the U.S. It’s still not clear if customers will feel comfortable going into stores and testing lotion samples or trying on undergarments in this Covid-19 world.

Macy’s

Macy’s won’t report its full results for some time, but what it has to say this week will set the tone for mall-based retailers. The company plans to give a preliminary look at its quarterly numbers Thursday morning, followed by a call with CEO Jeff Gennette and outgoing Chief Financial Officer Paula Price. Its full earnings are delayed until July 1 because of the “significant disruptions” from the pandemic.

The company, which closed its 775 stores in March and furloughed the majority of its 123,000 workers, has started reopening some locations in recent weeks, though its enormous flagship store in Manhattan’s Herald Square still sits dark.

Shoppers may be slow to return. Initially the open locations will bring in less than a fifth of their normal sales volume, Gennette has estimated. There’s also concern about the broader appeal of malls. Macy’s anchors 18% of mall locations, according to Green Street Advisors. The firm estimates that more than half of mall-based department stores could close by 2021.

Investors will also want an update on Macy’s previously announced turnaround plan. Just before the pandemic upended the industry, the company had announced a three-year plan that called for closing a quarter of its stores, consolidating its dual headquarters to New York and cutting 2,000 jobs. Gennette in April said the plan, dubbed its Polaris Strategy, was still on, but it was too early to share specific changes.

TJX Companies

Sales for TJX were likely down sharply last quarter, and at least part of that was by choice. As retailers began closing in March, the owner of T.J. Maxx and Marshalls chose to shutter not only its 3,200 physical locations, but also turned off its online operation.

The discount retailer, which also furloughed the majority of its 286,000 workers, figured its best strategy was to wait it out and try to pick up the pieces after the worst of the outbreak had passed. After all, the chain known for its in-store treasure-hunt experience had been taking market share from department stores and apparel retailers in recent years, and it may be in a position to scoop up cheap unsold goods from struggling stores.

When TJX, which also owns HomeGoods, reports earnings Thursday, investors will get their first chance to see how the strategy is working.

Some of its stores have started to reopen. Analysts have said off-price retailers have a solid chance of reconnecting with shoppers looking for a good deal, particularly as a possible recession looms. What’s not clear is if customers will feel comfortable rummaging through products in the age of social distancing. The stores may have to be reenvisioned.

© Copyright 2020 Bloomberg News. All rights reserved.


   
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The coronavirus pandemic has inflicted widespread pain on the American retail industry. Investors are about to learn just how much.
victorias secret, macys, bad, retail, virus
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2020-05-20
Wednesday, 20 May 2020 02:05 PM
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