Shares of department store chains Macy's Inc. and Kohl's Corp. tumbled on Thursday as the companies reported a drop in quarterly same-store sales, stoking concerns that their turnaround may still be a long way off.
While the declines in same-store sales were not as bad as feared, gross margins at both the companies slipped as they continued to rely on discounts and promotions to woo customers back to their stores.
Macy's gross margins fell to 40.3 percent from 40.9 percent a year earlier, while those of Kohl's fell to 39.4 percent from 39.5 percent.
A beat was pretty widely expected, but the longer term concerns of department stores in secular decline remain unresolved, Susquehanna analyst Bill Dreher said.
"Negative comps still reflect market share losses, most likely to off-price retailers TJX Cos. Inc. and Ross Stores," Dreher said.
Sales at stores open more than 12 months fell 2.5 percent at Macy's and 0.4 percent at Kohl's. Analysts polled by research firm Consensus Metrix had estimated a 3 percent drop at Macy's and 1.5 percent at Kohl's.
Department store operators have been struggling with declining mall traffic and tough online competition, especially from Amazon.com Inc, leading to a tenth straight quarter of falling same-store sales at Macy's and sixth-straight quarter at Kohl's.
In response, the department store chains have been cutting costs by shutting stores, selling or leasing real estate and reducing inventory.
Meanwhile, other experts have been warning of the long-term economic threat from a retail "apocalypse" or "armageddon."
To boost traffic, Macy's is revamping its beauty business, investing in Backstage, its off-price discount business, and improving its e-commerce site, while Kohl's has been adding more national brands such as Under Armour Inc to its stores.
Net income attributable to Macy's shareholders rose to $116 million, or 38 cents per share, in the second quarter ended July 29 from $11 million, or 3 cents per share, a year earlier.
The company recorded impairment charges of $249 million in the year-earlier period.
Excluding items, Macy's earned 48 cents per share, beating the average analyst estimate of 46 cents, according to Thomson Reuters I/B/E/S.
Net sales fell 5.4 percent to $5.55 billion, but beat analysts' estimates of $5.52 billion.
Kohl's reported a 1 percent fall in net sales, its sixth straight quarter of decline.
Shares of Macy's were down 6.8 percent at $21.47 on Thursday, while Kohl's stock price fell 8.8 percent to $38.21 in morning trading.
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