Macy’s slashed its outlook for the entire year as sales weakened in the first quarter during an increasingly challenging economic environment, including stubbornly high inflation.
Sales began to flag in March, forcing the New York department store to cut prices on clothes and other discretionary items.
Macy’s results wrap up the retail industry’s fiscal first-quarter earnings season that showed how still high inflation, particularly in food, is forcing shoppers to further cut back on discretionary items like clothing to afford their larger grocery bills. Dollar General, which caters to low income shoppers, also cut its annual sales and profit outlook on Thursday as consumers turn more cautious.
Dollar General said it saw sales growth in groceries and other necessities, but that was offset by declines in seasonal items, home, and apparel.
The economic challenges are starting to affect the wealthy, too.
Nordstrom on Wednesday reported a surprise profit in the first quarter despite an 11% sales decline, and said that its wealthy shoppers are becoming more restrained. That’s forced the Seattle-based company to take a conservative approach to inventory.
“They’re pretty resilient, but they’re also cautious,” Nordstrom CEO Erik Nordstrom told analysts during its earnings call.
Last week, Costco Wholesale Corp.’s Chief Financial Officer Richard Galanti noted that customers are trading down from beef to poultry and pork in recent months. The chain, which caters to high-income shoppers, noted that they are even switching to some canned food, like chicken and tuna.
Walmart, the nation’s largest retailer, reported surging sales earlier last month, and noted that it’s seeing an influx of wealthier shoppers trade down to the discount chain in search of low prices in the grocery aisle.
Vivek Astvansh, an Indiana University marketing professor, noted the cumulative effect of high inflation and interest rates, which makes borrowing more expensive, is taking a toll on shoppers.
“There’s this overall sense of hopeless, less confidence about the future,” Astvansh said.
Macy’s CEO Jeff Gennette told analysts on Thursday that sales started to weaken in late March and then worsen in April. Gennette cited cooler-than-normal temperatures that made spring clothing less appealing. He noted headlines surrounding the banking crisis starting in mid-March also worried shoppers and said the compounding effect of inflation has made shoppers divert more of their money to food, essentials and services.
The decline was most pronounced at its Macy’s stores, which has the largest exposure to the lower to middle income shopper with roughly 50% of its customers with average household income of $75,000 or under, Gennette said.
“Our customer became increasingly more deliberate in how they are allocating discretionary spend and buying closer to need,” Gennette told analysts.
On the flip side, less-discretionary and less weather-dependent areas like fragrances, women’s career sportswear and men’s tailored items did well. He also noted a comeback in pandemic-related areas including housewares, which he believes is encouraging.
The company’s luxury nameplates Bloomingdale’s and beauty chain Bluemercury were also affected by the increasingly difficult economic environment but not to the same intensity as Macy’s, Gennette noted.
Business improved slightly in May at Macy’s stores, but sales enjoyed a more dramatic rebound at Bloomingdales, Gennette said. He noted during a phone interview with The Associated Press he wasn’t sure the difference reflected a split of the higher income consumer versus the lower income shopper or different offerings in fashion.
“We haven’t heard the answer to that yet, and we need more time on that,” he said.
Macy’s Inc. reported net income of $155 million, or 56 cents per share, above the 45 cents Wall Street was looking for, but a significant decline from the $286 million earned during the same period last year.
Sales fell to $5.17 billion from $5.56 billion in the first quarter last year, missing analyst projections.
Comparable sales — sales coming from digital channels and stores opened at least a year — fell 7.2% across all categories including licensed businesses like cosmetics.
“We have moved quickly to take the appropriate actions to meet current consumer demand and manage our expenses,” Gennette said in a written statement.
The revised guidance reflected clearance markdowns on spring seasonal merchandise in the second quarter and cuts in inventory to adjust to the consumer slowdown, Gennette said.
The company now expects earnings in the range of $2.70 to $3.20 per share for the year, down from previous guidance of between $3.67 and $4.11 per share. The company anticipates sales to be in the range of $22.8 billion to $23.2 billion this year, down from the previous range of $23.7 billion to $24.2 billion.
Analysts were expecting earnings of $3.69 per share on revenue of $23.73 billion.
Shares tumbled during premarket trading but recovered in the afternoon, gaining more than 2% to $13.90.