- Sales and earnings top expectations
- Cautious outlook as consumers struggle
- Full year guidance reiterated
Bloomingdales owner Macy’s (M:NYSE) saw its shares drop 14% on Tuesday 22 August, despite second quarter earnings beating estimates, as the department store operator gave a cautious outlook amid increasing signs of falling consumer demand.
The shares closed at $12.66, taking 2023 losses to 37% and widening the gap with the S&P 500 which has gained 15% this year.
The downbeat news weighed on the broader retail sector leading to falls in the shares of Nordstrom (JWN:NYSE), which fell 10%, Abercrombie and Fitch (ANR:NYSE), down 2%, and Gap (GPS:NYSE), which dropped 7%.
HIGHER BORROWING COSTS START TO BITE
Higher borrowing costs following the Federal Reserve’s five percentage point increase in interest rates over the last 18 months appears to be impacting consumer spending.
Credit card debt across the US economy topped $1 trillion for the first time in the second quarter of 2023 according to data from the New York fed.
Macy’s said credit card revenue (around 2% of sales) sank 41% in the second quarter.
‘The speed at which the delinquency rate occurred was faster than planned, negatively impacting second-quarter results’, explained chief financial officer Adrian Mitchell.
Macy's chief executive Jeff Gennette told CNBC: ‘the consumer continues to be under pressure. The company has seen rising credit card balances in its own card data. Plus, people are spending on experiences and preparing for the return of student loan payments this fall.’
SECOND QUARTER BEAT
Net sales for the three months to 29 July fell 8% compared with the same period in 2022 to $5.13 billion, slightly beating expectations while adjusted EPS (earnings per share) fell to $0.26 from $0.99 a year earlier, above Wall Street expectations of $0.13 according to Refinitiv data.
Looking ahead, the company reiterated its full-year guidance which calls for comparable-owned plus license sales to fall between 6% and 7.5% and adjusted EPS in the range of $2.70 to $3.20.
Macy’s lowered full-year expectations earlier this summer after seeing sales weaken in the spring even at higher-end chains Bloomingdales and beauty chain Bluemercury.
Neil Saunders, managing director at GlobalData Retail said: ‘In our view, Macy's will exit this period of economic difficulty as a smaller, weaker and more challenged business,’
