macy’s on Tuesday it cut its full-year forecast, saying it anticipates a deterioration in consumer spending on discretionary items like clothing that will force the department store chain to use deep markdowns to pull items off shelves.
The warning comes even when the retailer reported fiscal second quarter earnings and revenue which exceeded analysts’ expectations.
Macy’s now sees fiscal 2022 revenue in a range of $24.34 billion to $24.58 billion, down from previous estimates of $24.46 billion to $24.7 billion. It puts its adjusted annual earnings per share in a range of $4 to $4.20, down from previous guidance of $4.53 to $4.95. Wall Street analysts had been looking for a full-year guidance of $24.36 billion and $4.51 per share, according to Refinitiv consensus estimates.
Macy’s revised forecast follows the big giants walmart Y Goal last week both reiterated their annual forecasts even as their earnings come under pressure. Kohl’showever, it cut its guidance again saying its middle-income clients are being hurt by inflation.
Companies that rely on sales of discretionary items such as clothing and footwear are at greater risk of underperforming in an environment where shoppers are increasingly thinking about cutting spending. During the summer in particular, many Americans chose to splurge on vacations and dining out over physical goods.
“The consumer is not as healthy as in previous quarters,” Chief Financial Officer Adrian Mitchell told analysts on a conference call. “We have seen a decline in retail traffic in areas of weakening apparel sales during the quarter as the consumer faces higher costs on essential products, particularly groceries.”
Macy’s noted that both its Bloomingdale’s and Bluemercury signs captured demand last quarter from higher-income customers who spend on luxury items. Both businesses fared better, he said.
Here’s how Macy’s performed in its fiscal second quarter compared to what analysts anticipated, according to Refinitiv estimates:
- Earnings per share: $1 adjusted vs. 85 cents expected
- Income: $5.6 billion vs. $5.49 billion expected
Net income in the three-month period ended July 30 fell to $275 million, or 99 cents a share, from $345 million, or $1.08 a share, a year earlier.
Net sales fell slightly to $5.6 billion from $5.65 billion a year earlier.
Macy’s owned and licensed comparable sales fell 1.6% from a year earlier. Analysts had expected a 2% decline, according to Refinitiv.
Digital sales fell 5% from a year earlier but were still up 37% compared to pre-pandemic levels, Macy’s said. E-commerce revenue accounted for 30% of total sales, down slightly from the previous year as people returned to stores to shop.
CEO Jeff Gennette said Macy’s so-called Polaris turnaround plans, which have involved store closures and investments in its digital operations, have made the company faster and more agile. This has been “essential to quickly navigate changing consumer trends and macro conditions,” he said in a press release.
As Macy’s reduces its exposure to traditional malls, the company open smaller stores in places outside the mall. It is also testing other ways to attract shoppers to its stores, including a association with the owner of Toys R Us to bring a variety of toys and games to hundreds of Macy’s locations before the holidays.
Gennette said he anticipates shoppers will begin shopping for gifts, decorations and other holiday products beginning in October, as was the case throughout 2020 and 2021.
Still, Macy’s can’t help but change consumer behavior amid decades of high inflation.
Spending trends fell as June progressed, Gennette said in a conference call. After Father’s Day and through July, Macy’s year-over-year sales trended five percentage points lower than in previous weeks, she said.
Macy’s reported second quarter inventory levels 7% higher than prior year levels. The department store chain said it is targeting “appropriate” inventory levels by the end of the year.
It said it is using markdowns to clear old inventory in seasonal products, private-label products and pandemic-related categories such as sportswear, sleepwear and home goods.
At the same time, Macy’s said it will invest in adding new inventory in the categories customers are looking for during the holiday season.
During its second quarter, Macy’s reported strength in women’s dresses and workwear, men’s tailored sportswear, fragrances and luggage.
“The last two years have been good for Macy’s and the company is now in better shape than it was before the pandemic,” said Neil Saunders, managing director of GlobalData Retail. “However, unless the company takes advantage of this fortune to make major changes, it will continue to lag behind the overall market.”