As consumers continued to rein in their spending ahead of the crucial holiday shopping season, Macy's reported a third quarter loss of $44 million on Wednesday as Best Buy slashed its profit forecast for 2009.
Best Buy's announcement comes just two days after smaller electronics retail rival Circuit City Stores filed for Chapter 11 bankruptcy protection.
"Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen. Best Buy simply can't adjust fast enough to maintain our earnings momentum for this year," Chief Executive Brad Anderson said in a statement.
Macy's, one of America's biggest department stores, also said Wednesday that it slashed its budget for 2009 capital expenditures by almost half as it navigates the deteriorating economy. Still, the Cincinnati-based chain reiterated its profit outlook, adding it would be at the lower end of the range if current sales trends continue.
Terry J. Lundgren, Macy's chairman, president and chief executive, said in a statement that even in what he describes as a "poor economic environment," he's confident in the company's strategies for gaining market share, particularly as its effort to localize stores more is yielding "promising early results." He expects that strategy to have a more profound impact in 2009.
Best Buy, America's biggest electronics chain, said it expects to end the third quarter with higher inventory levels, short-term borrowings and accounts payable than previously projected due to the drop in consumer spending.
"In 42 years of retailing, we've never seen such difficult times for the consumer. People are making dramatic changes in how much they spend, and we're not immune from those forces," said President and Chief Operating Officer Brian Dunn.
The Richfield, Minn.-based company also faces increased competition from Wal-Mart Stores Inc., which has stepped up its advertising on electronics such as flat-panel televisions as a big part of its holiday push that emphasizes low prices.
With the U.S. economy in what many economists say is a recession, most retailers, whether they sell clothes or higher-end electronics, are seeing sales pressured.
"People selling $30 pairs of jeans are struggling so imagine trying to sell a $3,000 television," said Jon Fisher, portfolio manager at Fifth Third Asset Management.
The problem goes back to the deteriorating U.S. job market. If large American companies are cutting spending, and slashing jobs, Americans are going to cut back on their holiday spending. Even if Americans are able to become employed in holiday retail jobs, they are not going to purchase a $3,000 television by selling $30 pairs of jeans. Best Buy reported comparable store sales fell by around 7.6 percent in October, after falling 1.3 percent in October. Comparable store sales in November 2008 through February 2009 could decline by 5-to-15 percent, leading to an annual comparable store sales decline from about 1 percent to 8 percent. Macy's sales are just as bad. Macy's third-quarter sales dropped more than 7 percent, falling to $5.49 billion from $5.9 billion. Macy's lost $44 million in the quarter, or 10 cents per share, after posting a $33 million profit, or 8 cents a share, a year earlier. But Macy's did perform better than their competitors, J.C. Penny, which experienced an 11.8 percent drop in same-store sales, and Dillards, which saw an 8 percent drop in same-store sales.
What is more, you are not going to purchase a $3,000 television, or a $30 pair of jeans, for the holidays if you are struggling to pay the bills, buy groceries, or keep up with the mortgage.
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