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Macy’s (M) reports fiscal Q2 2022 earnings

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Macy’s on Tuesday cut its full-year forecast, saying it anticipates deteriorating consumer spending on discretionary items like apparel that may force the department store chain to make use of heavy markdowns to maneuver items off shelves.

The warning comes at the same time as the retailer reported a fiscal second-quarter profit and revenue that topped analysts’ expectations. Macy’s also teased that its digital marketplace, which was announced last 12 months, is launching in the approaching weeks.

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Macy’s now sees fiscal 2022 revenue in a variety of $24.34 billion to $24.58 billion, down from prior estimates of $24.46 billion to $24.7 billion. It puts its annual adjusted earnings per share in a variety of $4 to $4.20, down from prior guidance of $4.53 to $4.95. Wall Street analysts had been on the lookout for full-year guidance of $24.36 billion and $4.51 per share, in line with Refinitiv consensus estimates.

The revised forecast from Macy’s follows big-box giants Walmart and Goal last week each reiterating their annual forecasts at the same time as their profits are pressured. Kohl’s, nevertheless, cut its guidance again saying that its middle-income customers are being hurt by inflation.

Firms that depend on sales of discretionary items like apparel and footwear are at greater risk of underperforming in an environment where shoppers are increasingly fascinated by pulling back spending. Over summer specifically, many Americans opted to splurge on vacations and dining out quite than physical goods.

“The buyer is just not as healthy as they were in prior quarters,” Chief Financial Officer Adrian Mitchell told analysts on a conference call. “We have now seen declining retail traffic in areas of weakening apparel sales over the quarter as the buyer faces higher costs on essential goods, particularly grocery.”

Macy’s noted each its Bloomingdale’s and Bluemercury banners captured demand in the newest quarter from higher-income customers spending on luxury items. Each businesses outperformed, it said.

The department store chain also said that while lower-income consumers slowed their spending throughout the quarter, they didn’t necessarily trade right down to less expensive brands. As a substitute, they’re just being more selective, in line with Gennette.

Here’s how Macy’s performed in its fiscal second quarter compared with what analysts were anticipating, based on Refinitiv estimates:

  • Earnings per share: $1 adjusted vs. 85 cents expected
  • Revenue: $5.6 billion vs. $5.49 billion expected

Net income within the three-month period ended July 30 fell to $275 million, or 99 cents per share, from $345 million, or $1.08 a share, a 12 months earlier.

Net sales fell barely to $5.6 billion from $5.65 billion a 12 months earlier.

Macy’s comparable sales on an owned plus licensed basis dropped 1.6% from the prior 12 months. Analysts had been on the lookout for a 2% decrease, in line with Refinitiv.

Digital sales fell 5% from the prior 12 months but were still up 37% compared with pre-pandemic levels, Macy’s said. E-commerce revenue accounted for 30% of total sales, down barely from the prior 12 months, as people returned to stores to buy.

CEO Jeff Gennette said that Macy’s so-called Polaris turnaround plans, which have entailed store closures and investments in its digital operations, have made the corporate faster and more agile. This has been “essential to navigate rapidly changing consumer trends and macro conditions,” he said in a press release.

As Macy’s scales back its exposure to traditional shopping malls, the corporate is opening smaller-format stores in off-mall locations. It is also testing other ways to lure shoppers into its stores, including a partnership with the owner of Toys R Us to bring an assortment of toys and games to a whole bunch of Macy’s locations ahead of the vacations.

Gennette said he anticipates shoppers will begin buying gifts, decorations and other holiday merchandise as soon as October, as was the case during 2020 and 2021.

Still, Macy’s cannot escape changing consumer behavior amid decades-high inflation.

Spending trends fell as June progressed, Gennette said on a conference call. After Father’s Day and into July, Macy’s year-over-year sales trended about five percentage points lower than that they had been within the preceding weeks, he said.

Macy’s reported inventory levels within the second quarter up 7% from prior-year levels. The department store chain said it’s targeting “appropriate” inventory levels by the tip of the 12 months.

It said it’s using markdowns to clear aged inventory in seasonal goods, private-brand merchandise and pandemic-related categories like energetic wear, sleepwear and residential goods.

At the identical time, Macy’s said it can spend money on bringing in fresh inventory of categories that its customers are on the lookout for over the vacation season.

During its second quarter, Macy’s reported strength in dresses and work wear for girls, tailored sports clothing for men, fragrances and luggage.

“The past couple of years have been good ones for Macy’s and the corporate is now in a greater state than it was pre-pandemic,” said Neil Saunders, managing director of GlobalData Retail. “Nonetheless, unless the business capitalizes on this fortune to make major changes, it can proceed to lag the general market.”

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