By Phil Wahba
November 9, 2017

Macy’s (m) problems are turning out to be harder to fix than it thought.

The largest U.S. department store operator said on Thursday that comparable sales fell 3.6% in the third quarter, their 11th straight decline, and one that was a percentage point worse than what Wall Street analysts were expecting, according to Thomson Reuter IBES. The figure includes sales in spaces licensed to third parties but excludes business at recently opened or closed stores. That shows how much its business even at stronger stores is struggling as the chain heads into the holiday season.

Macy’s has been in the midst of a turnaround effort called “North Star” under its CEO of eight months, Jeff Gennette. The strategy centers on repairing the damage to Macy’s aura as a special place to shop from years of excessive emphasis on discounting and coupons, as well as significant merchandise overlap with rivals. Last month, Macy’s relaunched its loyalty program and is testing new ways of selling major categories like shoes and cosmetics at several dozen stores. But any positive impact from those efforts could take time to materialize.

In the meantime, Macy’s is benefiting from tighter inventory management, which means that merchandise is less likely to end up on a clearance rack and sap profit margins. Indeed, one bright spot in Macy’s report was that despite the sales drop, its profit rate on its merchandise edge up one-tenth of a percentage point to 39.9%. That helped its profit more than double in the quarter ended Oct. 28 to $36 million from $17 million a year earlier. And online sales rose by a double-digit percentage for the 33rd straight quarter, easing the pain of in-store sales declines and store closings.

Shares rose 2% in premarket trading but are roughly down 50% compared to a year ago.

Gennette said in a statement he thought the new loyalty program and another initiatives to highlight special products would lead to improvements in the current quarter, which includes the crucial holiday season for Macy’s and into 2018. “We are bringing our fashion authority to bear on holiday trends and have a strong product assortment,” he said.

So despite the softer third quarter, Macy’s stuck to its full year forecast for comparable sales to fell between 2% to 3%.

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