Macy's blames sluggish sales on weak shopping malls

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Macy's said its stores at weaker U.S. shopping malls were hurt by slower foot traffic during the latest quarter, leading to a steeper-than-expected sales decline.

"We've been investing in malls where our developers are investing and ... we feel really good about that initiative and those stores continue to outpace the breadth of our fleet," said Hal Lawton, Macy's president, during a post-earnings conference call.

U.S. mall owners have been struggling to find new ways to lure shoppers, with traffic dipping off as it becomes more convenient to buy things online. The strongest operators, like Simon Property Group, have had more capital to invest in adding experiential tenants like game rooms, better food options, co-working space and even apartments and hotels. But the weaker mall owners, like CBL, have more encumbered balance sheets, and some of their centers are seen as deteriorating.

Most of Macy's stores are located in so-called A malls, like Macerich's Tysons Corner Center in Virgina, which have seen more investment. 

The trouble is at the so-called C- and D-rated shopping malls, which bring in less sales per square foot than an A-rated mall. 

"Where we're investing and our mall developers are investing, we're getting great outcomes," CEO Jeff Gennette said.

Macy's reported its first same-store sales decline in two years on Thursday, a drop of 3.5%. Macy's shares were last down about 3%, having fallen more than 50% since the start of this year.

"The mall is getting more toxic," Jefferies analyst Randy Konik said. "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."

CBL shares are down more than 32% this year. Peer Washington Prime Group has watched its stock fall about 15% year to date. Simon shares have dropped about 12%. Macerich's stock is down nearly 39%. And high-end mall operator Taubman's shares are down 29% in 2019.

Macy's said it will share more details about what it plans to do with some of its stores at under-performing malls at a February analyst meeting. 

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