NEW YORK (AP) — Macy's trimmed its expectations for the year Tuesday despite topping second quarter expectations as it faces a glut of unsold inventory that has afflicted almost the entire retail sector.
Almost every major retailers has said in recent weeks Shoppers are making fewer trips to the store and when they do, they're looking for deals. Some are trading down to cheaper alternatives.
Kohl’s last week slashed its sales and profit expectations for the year, a result of its stepped up price cutting to shed unwanted merchandise. Both Target and Walmart also said last week that shoppers are cutting back and sticking to essentials.
Soaring prices have forced families to become more cautious, doing without new clothing, electronics, furniture and almost everything else that is not absolutely necessary. And the way they spend shifted faster this year than anyone expected. After being cooped up at home for safety, Americans seemed almost overnight to dinners out, movies or concerts, and travel.
“The consumer's got some pretty sour news out there," CEO Jeff Gennette told The Associated Press during a phone interview Tuesday. “Inflation is tough."
Gennette's observations are in line with what other retailers have reported recently. Americans are spending on work clothes, luggage and cosmetics, he said Tuesday. Casual clothes, furniture, appliances — hot items during the pandemic — are out.
That has left Macy's and others stuck with elevated inventories of products that have become difficult to move.
Macy’s has cut orders where it can to better sync with customer demand, but Gennette said inventory in some categories remains high. The company is cutting prices on seasonal goods, private label and pandemic-related merchandise like casual wear and home furnishings to clear it, he said.
However, according to Gennette, customer are not trading down, or substituting typical purchases with a cheaper brand. That phenomenon is rampant at retailers like Walmart and Kohl's.
When Walmart posted quarterly earnings this month, it said that a vast majority — roughly 75% — of its market share in grocery during the latest quarter was driven by shoppers with $100,000 or more in annual household income. Those shoppers had not been typical in Walmart grocery aisles.
At Macy's, customers at every strata with household income below $250,000 are cutting back proportionately, Gennette said. At its Bloomingdale’s stores where medium household income is more typically $250,000 and above, spending has continued at a healthy pace.
Macy's earned $275 million, or 99 cents per share, in the three-month period that ended July 30, or $1 if one-time charges are removed. That easily topped the per-share earnings of 86 cents that industry analysts had expected, according to a survey by FactSet.
Sales slipped roughly 1% to $5.6 billion, but that was also stronger than anticipated.
Yet compared with the same period last year, sales and profit have cooled.
Sales at stores opened at least a year fell 1.5%, or 1.6% including licensed businesses like cosmetics. In contrast, its upscale Bloomingdale's stores enjoyed an 8.8% increase in same-store sales, or 5.8% gain including licensed businesses. Online sales fell 5% during the second quarter, compared to the year-ago period, but was up 37% compared with the same period in 2019.
In one more pandemic-related shift, Gennette said that store locations in downtown areas are bouncing back as more people return to the office. Those sales have yet to return to levels more common before COVID-19, however.
Uncertainly about what Americans will buy and what they want has made it difficult for retailers to figure out what is coming as the holiday season approaches.
The company said its outlook for the rest of the year is based on the “continued deterioration of consumer discretionary spending” and high levels of inventory, both at Macy’s and at other stores. Macy’s anticipates more price cuts and the need to “liquidate aged inventory” as the holiday season approaches.
Inventory levels increased 7% in the three-month reporting period compared with last year, but it's down 8% compared with 2019.
The company now expects sales to be in the range of $24.34 billion to $24.58 billion this year, down from its May guidance of between $24.46 billion and $24.7 billion. Macy's expects per-share earnings of $4 to $4.20, down from earlier guidance of between $4.53 and $4.95 per share.
Macy's shares rose nearly 7%, or $1.27 per share, to $19.92 Tuesday.
Follow Anne D’Innocenzio: http://twitter.com/ADInnocenzio