Mood Darkens at Macy’s as Retail Spending Slows

Date: Friday, June 2, 2023
Source: Wall Street Journal

Retailers have finally worked through the piles of excess inventory that tripped them up a year ago. Now, they are facing another problem: slowing demand for apparel and accessories.

Macy’s on Thursday cut its full-year outlook on sales and profits, citing challenges in the economic health of consumers. Chief Executive Jeff Gennette said sales trends began to weaken in late March. As a result, he said the department-store chain is stepping up promotions to clear out spring seasonal merchandise and adjusting its inventory plans later this year.

Gennette said demand has picked up as temperatures have turned warmer. He said he didn’t have clarity whether the upturn reflected healthier consumers or pent-up demand for spring merchandise.

The improvement was most pronounced at the company’s Bloomingdale’s and Bluemercury chains, which typically cater to higher-income customers than Macy’s. More than half of Macy’s shoppers have household incomes of $75,000 or less and they continue to feel pressured, Gennette said, which is reflective of what he called a bifurcated consumer.

Net sales totaled nearly $5 billion in the quarter ended April 29, down 7% from a year earlier. Net income fell 46% to $155 million, or 56 cents a share.

Macy’s shares opened the trading day lower but rallied and closed up more than 1% to $13.75. The stock is down 41% over the last year, compared with a 3% gain in the S&P 500 index.

Macy’s capped an earnings season that underscored how inflation is continuing to take a bite out of consumer spending.

Some retailers including Walmart and BJ’s Wholesale Club that sell necessities such as food and other consumables posted strong gains from a year ago, while those selling discretionary items such as sweaters and shoes reported slower growth or declining revenue. Shoppers continued to look for bargains with even some wealthier consumers trading down. Discount retailer Dollar General, which also on Thursday lowered its financial targets for the year, said the economic environment is affecting customer spending levels. Shares in Dollar General fell 20% in Thursday trading.

“We expect elevated inflation and interest rates will continue to pressure consumer spending throughout the year,” Michael Maher, Nordstrom’s finance chief, told investors on Wednesday.

Retailers have largely worked through the inventory glut of last year that resulted from a loosening of pandemic-induced supply-chain bottlenecks at the same time that consumers started to tap the breaks on spending.

But in many cases, sales declined even more than inventory. Nordstrom finished the quarter with inventory down 8% compared with a year ago. But its sales fell 11.6%. At Michael Kors parent Capri Holdings, inventory fell 3.6% from a year earlier, but sales declined 10.5%.

Macy’s inventory was down 7% from the prior year, in line with its sales decline.

There are pockets of strength in retailing. Mall and shopping-center operators say that leasing activity is robust and rents are still growing, illustrating that there continues to be demand from retailers to sign deals for space in prime locations.

“Tenant demand is excellent and brick-and-mortar stores are where shoppers want to be,” David Simon, CEO of mall owner Simon Property Group, told analysts last month.

Companies selling pricey handbags and jewelry are continuing to benefit from shoppers in North America and elsewhere paying up for items.

Sales of items associated with going out or spending time away from the home are performing well, too. Urban Outfitters executives said that sales at the company’s Anthropologie brand were strong in the most recent quarter across more dressed-up categories, such as pants, dresses and heels. Macy’s said among the best-performers in its stores were fragrances, men’s tailored wear, women’s career sportswear and discounted items through its Backstage banner.

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