Macy’s reported better-than-expected quarterly earnings but same-store sales declined for the first time in two years, reflecting weak traffic at some shopping malls.

For the third quarter, the retailer’s net income fell to $2 million, or a penny a share, from $62 million, or 20 cents, a year earlier. Excluding one-time items, Macy’s earned 7 cents a share, better than analysts’ breakeven forecasts.

But revenue fell 4.3% to $5.17 billion, versus estimates of $5.32 billion, and same-store sales, a key retail metric, were down 3.5%. Analysts had expected a comp sales decline of only 1%.

“While we anticipated a negative comp as we were lapping a very strong third quarter last year, the sales deceleration was steeper than we expected,” Macy’s CEO Jeff Gennette said in a news release, citing cold weather, continued soft international tourismm and “weaker than anticipated performance in lower tier malls.”

Most of Macy’s stores are located in so-called “A” malls, which have seen more enhancements and have strong tenant rosters. According to CNBC, Macy’s third-quarter weakness was at “C-” and “D-rated” shopping malls that haven’t been able to invest so much in upgrades.

“The mall is getting more toxic,” Jefferies analyst Randy Konik warned. “We have noticed the trend remains the same … Value-oriented and off-mall retailers continue to outpace industry trends and take share while on-mall and less value-oriented retailers like Macy’s are losing share. Mall traffic will likely continue to wane over the years ahead.”

Macy’s had put together seven consecutive quarters of same-store sales gains. But as CNBC reports, department store chains are facing “increased pressure, as more brands are moving away from wholesale channels, and shopping malls, and trying to sell their merchandise directly to customers.”

To boost sales, Macy’s has upgraded its mobile app and tiered loyalty program and added stop-in shops to some locations for popular brands. But in the last quarter, “heavy markdowns used by Macy’s during the spring season to clear unsold merchandise weighed terribly on profits,” CNBC said.

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One response to “Macy’s Posts First Comp Sales Drop in 2 Years”

  1. Not surprising Macy’s loosing its retail traffic. Have you recently looked at what is their inventory that makes them dropping revenues? Macy’s you have to decide who is your customer. You are eaitger high-end or… Marshalls.

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