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Shares of Macy’s Inc. fell about 13% Wednesday after the department store chain scaled back its annual sales guidance as second-quarter sales missed estimates amid a worsening pullback in discretionary spending.
“We entered the second quarter with an expectation that discretionary spend would remain stable, reflecting a resilient but choiceful consumer,” said Tony Spring, Macy’s chairman and CEO, on an analyst call. “As the quarter progressed, our customer became more discriminating, which we attribute to ongoing macroeconomic uncertainty and an increasingly complex news cycle.”
The Macy’s flagship chain was most impacted by the shift in consumer behavior.
Under its updated guidance, Macy’s companywide comps, including the 150 Macy locations set to close by 2026 and digital, are now projected to be down 2% to down 0.5% this year, versus previous guidance calling for a decline of 1% to an increase of 1.5%. Meanwhile, Macy's nameplate stores that will remain open and its digital operations are expected to be down 1.5% to flat, while its luxury nameplates are projected to see an increase of 0.5% to 2%.
Macy’s EPS guidance was maintained as gross margins and SG&A expenses both came in better than expected in the second quarter.
Adrian Mitchell, CFO and COO, said the updated guidance reflects “a more discriminating consumer and heightened promotional environment” relative to prior expectations.
Updated guidance still assumes an improving top-line performance in the second half compared to the 2.3% decline in the go-forward business in the first half, including a 3.8% drop in the second quarter.
In reaction to the softness at the Macy’s banner, Spring said assortments have been realigned, “pulling back where business has been soft while protecting areas where we have momentum.” Men's apparel, handbags, and home were the worst performers in the second quarter.
Macy’s also increased promotions to clear inventories in the latest quarter and is better calling out Macy’s “value” within in-store signage.
Mitchell told analysts, “We've been very clear on value in our promotional calendar and our communicated messages, but we also recognize that there are other dimensions when the customer shows up on our website or in our stores that matter around value as well. And that's having colleagues available, having a good experience within our stores, making sure that we have strong visual presentation, that we're amplifying the value that's available to the customer when they visit us.”
Macy’s also expects to benefit in the second half from “more newness” and improved in-stock levels versus the prior year, as well as enhanced targeted messages and faster online deliveries.
Spring further said that all three of the company’s banners — also including Bloomingdale's and Bluemercury — “provide a form of escapism and entertainment” in a period when the presidential election may be adding to consumers’ concerns. Spring said, “Our job is to make sure that we're capitalizing on opportunity to have a larger share of wallet in the fourth quarter because of the range of prices and brands and categories that we sell.”
Macy’s underperformance stood in contrast to second-quarter results that also arrived Wednesday from Target and TJX that topped targets, with both raising their profit outlooks. Several reports concluded that both chains were better at reaching bargain hunters. Comps were up 2% at Target and 4% at TJX.