Macy’s cuts forecast on inventory glut, inflation pressures

Macy’s Inc. cut its full-year forecast for profit and revenue, citing tighter consumer budgets and an industrywide inventory glut that is leading to steeper markdowns.

Earnings per share, excluding some items, are now expected to be at least $4 for the fiscal year, compared with a prior outlook of at least $4.53, Macy’s said in a statement Tuesday.

The department-store chain also trimmed its forecast for annual sales.

Like retail peers, Macy’s is contending with shifting consumer preferences since the early days of the pandemic amid persistent inflation.

That comes on top of its market-share losses over the last decade.

The chain says it will have to carry out more promotions to meet its goal of reducing excess inventory by year end.

Macy’s said its revised outlook “incorporates the risk it sees in the continued deterioration of consumer discretionary spending in some of its categories and the level of inventory within the industry, as well as risks associated with a more pronounced macro downturn.”

“Given the current environment, the reduction seems prudent,” Citigroup analyst Paul Lejuez said in a note to clients, noting that investors have “generally been rewarding those that lower the bar” for the second half of the year.

Macy’s shares rose 3% at 9:41 a.m. New York time. The stock had declined 29% this year through Monday.

Wall Street was prepared for a tough report and took solace in better-than-expected sales and earnings in the second quarter ended July 30.

Adjusted earnings per share came in at $1 for the quarter, surpassing the 85-cent average estimate of analysts. Same-store sales dropped 1.6%, better than the 2.05% decline estimated by four analysts polled by Bloomberg.

Jay Sole, an analyst at UBS, had said ahead of the results that investor sentiment on Macy’s was already “very weak” and any “bad news could be fully priced in” for the stock already.

Inventory levels are up 7% from a year ago. The company is cutting prices to reduce the glut in seasonal goods, private-brand merchandise and pandemic-related categories such as active, casual sportswear, sleepwear and soft home.

“While we are committed to taking the necessary markdowns, the year-over-year growth rate in inventory at the end of the third quarter is expected to be similar to the second quarter, to ensure the appropriate freshness and inventory levels for the holiday season,” the company said.