Macy’s
delivered better-than-expected second-quarter earnings but said it was taking a cautious approach to financial forecasts given the continuing economic pressure on consumers.
Macy’s (ticker: M) posted adjusted earnings of 26 cents a share, down from the year-ago quarter but beating Wall Street’s call for 14 cents a share. Sales were $5.13 billion, sliding by 8% from the prior year but higher than the $5.07 billion analysts were expecting.
Macy’s stock was down 10% to $13.27 in morning trading Tuesday.
Comparable-store sales declined across both the Macy’s and Bloomingdale’s chains, falling 9.2% and 2.7%, respectively. Bluemercury same-store sales rose by 5.8%.
Lower credit-card revenue also weighed on the results. The company’s “other revenue” category fell by $84 million as credit-card delinquencies increased.
“While we had expected delinquencies to rise as part of our normalizing credit environment, the speed at which the increase occurred for us and the broader credit industry since our first quarter earnings call was faster than planned,” said Adrian Mitchell, chief financial officer and chief operating officer, in a call with investors.
The company said it is continuing to take a “cautious approach on the consumer,” citing continuing economic pressure. But it reaffirmed its forecasts for annual sales and earnings, saying it expects net sales of $22.8 billion to $23.2 billion and adjusted earnings per share between $2.70 and $3.20.
“Over the last several quarters we have seen the Macy’s customer are aggressively pulled back on spend in our discretionary categories,” said CEO Jeff Gennette during the call. “They are not converting as easily and becoming more intentional on the allocation of their disposable income with an ongoing shift to services and experiences.”
The company sees several challenges for consumers ahead, including the resumption of student-loan payments, higher interest rates, and fewer jobs being created.
Gross margins were another negative factor, declining to 38.1%, from 38.9% in the year-ago quarter. Although inventories of merchandise were 10% lower than in the year-earlier quarter, promotions were still above last year’s levels, dashing hopes that the discounting that has weighed on margins in the past year was ending.
“Macy’s continues to battle long-term headwinds, and even with its low valuation, we see better options in retail with strong top- and bottom-line growth,” wrote CFRA analyst Zachary Warring. He reiterated a Hold rating and $19 price target on Macy’s following the report.
Not every analyst is as pessimistic, however.
“While sales and margins are under pressure in the short term due to cautious consumer spending and heavy promotional activity, Macy’s long-term prospects are rosier,” said Rachel Wolff, an analyst at Insider Intelligence.
Wolff said that Macy’s strategy for overhauling its stores, which includes increasing the company’s off-mall presence by opening small-format outlets, is helping to increase visits by customers. Macy’s has opened nine small-format stores so far, and on Tuesday said it planned to open four additional stores this fall.
Write to Emily Dattilo at [email protected]
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