Shares for Macy’s Inc. were up 6.5% on Tuesday morning after the department store beat expectations in the second quarter.
Net sales in the second quarter fell slightly to $5.6 billion from $5.65 billion a year earlier. This was still above market expectations with estimates for the quarter at $5.49 billion.
On the company’s second quarter earnings call on Tuesday, CEO Jeff Gennette noted that Macy’s continued to see strength in occasion-based categories, which include career and tailored sportswear, fragrances, shoes, dresses and luggage. Sales for these categories were up 8% to second quarter of 2021 and up 21% to second quarter of 2019, he said.
Like last quarter, pandemic-related categories, which include active, casual, sportswear, sleepwear and soft home continued to decelerate during the quarter, with sales down 18% compared to the second quarter of 2021 and down 12% compared to the second quarter of 2019, Gennette noted.
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At Bloomingdale’s, comparable sales in the quarter increased 5.8% on an owned and licensed basis, driven by strength across women’s and men’s and kids contemporary, dressy apparel and luggage.
Digital sales fell 5% from the prior year but were still up 37% compared with pre-pandemic levels, Macy’s said. E-commerce revenue accounted for 30% of total sales, down slightly from the prior year, as people returned to stores to shop.
Gennette added that Macy’s Polaris turnaround strategy, which included store closures and investments in its digital operations, have made the company faster and more agile. “Over the past 2 years, as consumer demand rapidly switched between categories and channels and macroeconomic pressures intensified, our teams have taken disciplined actions and made tough decisions in order to ensure stability and health of our enterprise,” he said.
But despite the solid Q2 performance, Macy’s still cut its full-year guidance as more consumers pull back spending due to inflationary pressures. Macy’s now sees fiscal 2022 revenue in a range of $24.34 billion to $24.58 billion, down from prior estimates of $24.46 billion to $24.7 billion.
“Our revised outlook for the year reflects a careful view of the impacts and pressures faced by the consumer and those places on our business given the weakening macroeconomic environment,” Macy’s CFO Adrian Mitchell said on Tuesday’s call. “The consumer is not as healthy as they were in prior quarters.”
Mitchell added that the retailer has seen declining retail traffic in areas of weakening apparel sales over the quarter as the consumer faces higher costs on essential goods, particularly grocery.
“Our earnings outlook for the remainder of the year incorporates the risks we see in some of our discretionary categories as well as risks associated with a more pronounced macroeconomic downturn,” Mitchell continued. “The actions we are taking are intended to drive sell-throughs and have the available product freshness customers are looking for. Additional markdowns will be taken in order to end the year with inventory at the appropriate levels.”
Spending trends fell as June progressed, Gennette said on Tuesday’s call. After Father’s Day and into July, Macy’s year-over-year sales trended about five percentage points lower than they had been in the preceding weeks, he said.
Macy’s reported inventory levels in the second quarter up 7% from prior-year levels. The department store chain said it is targeting “appropriate” inventory levels by the end of the year by using markdowns to clear aged stock.
At the same time, Gennette said Macy’s will invest in bringing in fresh inventory of categories that its customers are looking for over the holiday season. “More than 55% of our offerings during holiday 2022 will be new, an increase of over 30 percentage points from holiday 2019,” the CEO said. “And we believe this will position us well to meet customer expectations.”
