Macy’s cut its full-year forecast on Tuesday, saying it expects a deterioration in consumer spending on discretionary items such as clothing that will force the department store chain to use deep markdowns to get items off shelves.
The warning comes even as the retailer reported fiscal second-quarter profit and revenue that beat 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 annual adjusted earnings per share in a range of $4.00 to $4.20, below previous guidance of $4.53 to $4.95. Wall Street analysts had been looking for full-year guidance of $24.36 billion and $4.51 per share, according to Refinitiv consensus estimates.
Macy’s revised forecast follows big-box giants Walmart and Target last week reiterating their full-year forecasts, even as their profits are under pressure. Kohl’s, however, cut its guidance again, saying its middle-income customers are being hurt by rising inflation.
Businesses that rely on the sale of discretionary items such as clothing and footwear are at greater risk of underperforming in an environment where shoppers are increasingly thinking about cutting back on spending. During the summer months, in particular, many Americans have chosen to spend on vacations and dining out instead of physical goods.
“We expect to emerge from this uncertain period in a strong position with a healthy balance sheet,” CEO Jeff Gennette said in a statement.
Macy’s noted that both its Bloomingdale’s and Bluemercury banners captured demand in the last quarter from higher-income earners looking for luxury items. Both companies outperformed, he said.
Here’s how Macy’s performed in its fiscal second quarter compared to what analysts expected, according to Refinitiv estimates:
- Earnings per share: $1 adjusted vs. 85 cents forecast
- Revenue: $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.
Comparable Macy’s owned and licensed sales fell 1.6% from a year earlier. Analysts had been looking for a 2% decline, according to Refinitiv.
Digital sales fell 5 percent from a year earlier, but were still up 37 percent from pre-pandemic levels, Macy’s said. E-commerce revenue accounted for 30% of total sales, down slightly from a year earlier, as people returned to stores to shop.
Gennette said Macy’s so-called Polaris turnaround plans, which have involved store closings and investments in its digital operations, have made the company faster and more nimble. This has been “essential to navigating rapidly changing consumer trends and macro conditions,” he said.
As Macy’s reduces its exposure to brick-and-mortar malls, the company is opening smaller-format stores in off-mall locations. It’s also trying other ways to attract shoppers to its stores, including a partnership with the owner of Toys R Us to bring an assortment of toys and games to hundreds of Macy’s locations before the holidays.
Still, Macy’s can’t avoid changing consumer behavior amid decades of high inflation.
Macy’s reported that second-quarter inventory levels were up 7% from year-ago levels. The department store chain said it is targeting “adequate” inventory levels by the end of the year.
It said it is using markdowns to clear out aging inventory in seasonal products, private label merchandise and pandemic-related categories such as activewear, sleepwear and home goods.
At the same time, Macy’s said it will invest to bring new inventory in the categories its customers are looking for during the holiday season.
In its second quarter, Macy’s reported strength in women’s dress and workwear, men’s tailored sportswear, fragrances and luggage.
“The past 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, CEO of GlobalData Retail. “However, unless the company uses this fortune to make major changes, it will continue to lag behind the overall market.”