Macy’s falls as markdowns to clear inventory cut into sales

Macy’s comparable sales beat analyst expectations, though were down significantly from a year ago, indicating that department store customers are pulling back on purchases after a pandemic shopping boom.

While U.S. shoppers are still spending at stores like Walmart for necessities, as well as on travel and entertainment, outlays on apparel and accessories have fallen from record highs during the pandemic.

Promotions were “surgically implemented” to clear seasonal items, Macy’s Chief Executive Officer Jeff Gennette said in a statement. “We continue to see uncertainty in the macroeconomic environment,” he said.

Same-store sales in the second quarter at the Macy’s namesake brand were down 9.2% on an owned basis, while the higher-end Bloomingdale’s fell 2.7% and Bluemercury rose 5.8%.

Categories including active, casual and sleepwear remained challenged at Macy’s, the company said. Beauty and cosmetics were strong across the three brands.

The shares were down 8% at 9:32 a.m. in New York. The stock has tumbled more than 28% for the year to date as of Monday’s close.

Adjusted earnings per share were 26 cents, compared with the average analyst estimate of 13 cents.

Gross margin of 38.1%, meanwhile, weakened from the prior quarter due to heightened levels of clearance markdowns, the company said.

Credit card delinquencies accelerated in the second quarter, particularly in June and July, which negatively impacted results, Chief Financial Officer Adrian Mitchell said on a call with analysts.

The speed of the increase in bad debt since the first quarter was “faster than planned,” he said.

“A consumer slowdown is in play, with shoppers pulling back on discretionary spending – something that clearly affects Macy’s,” Neil Saunders, managing director at GlobalData wrote in a note.

Macy’s sales decline “is significantly worse than the overall market,” an indication that “the once iconic retailer is firmly on the backfoot.”

Other analysts have a more optimistic outlook. Before the earnings report, analysts at Goldman Sachs added Macy’s to their “conviction list,” a group of companies that the bank expects to outperform.

The Goldman analysts noted that Macy’s strong financial position, launch of private label brands and development of small footprint stores should support long-term performance.

Macy’s said Tuesday that it would add four new small-format stores this fall in the Northeast and Western regions of the U.S.

Results from those initiatives may take time to materialize as Macy’s navigates economic head winds like the end of student loan forbearance and a broader cultural shift away from traditional department store shopping.

Quarterly reports this month from luxury retail companies Tapestry and Capri, which sell designer shoes and bags in department stores, also showed sales declines in the most recent quarter due to softening consumer demand across regions.