Macy's Inc. (M) continues to grapple with declining sales as it faces an increasingly cautious consumer base, prompting the department store giant to lower its full-year sales forecast. The company reported mixed results for its fiscal second quarter, surpassing Wall Street's earnings expectations but falling short on revenue, a sign of the ongoing challenges in the retail sector. Macy's now anticipates net sales for the year between $22.1 billion and $22.4 billion, down from the previously expected range of $22.3 billion to $22.9 billion, marking a potential year-over-year decline from the $23.09 billion reported for fiscal 2023.
The latest figures reflect the difficulties Macy's faces in attracting shoppers amid a challenging economic environment. Net sales for the quarter fell to $4.94 billion, a 3.8% decline from the same period last year and below analysts' expectations of $5.06 billion. Same-store sales, a key metric in retail, also dropped 4%, significantly worse than the anticipated 0.27% decline. Despite these setbacks, Macy's managed to post adjusted earnings of 53 cents per share, beating the consensus estimate of 30 cents.
Macy's CEO Tony Spring acknowledged the cautious spending behavior among consumers, noting that even traditionally resilient segments like the affluent shoppers at Bloomingdale's have become more selective. "We see that there is definitely a softness, a carefulness, a delay in the conversion of purchasing," Spring said in an interview with CNBC. He attributed the downturn to a variety of factors, including higher interest rates, inconsistent weather patterns, and a busy news cycle that has distracted consumers from making discretionary purchases.
The company's recent performance underscores the ongoing challenges in the retail industry, particularly for department stores like Macy's that rely heavily on discretionary spending. While Macy's has been attempting to navigate these headwinds by implementing a turnaround strategy, dubbed "A Bold New Chapter," the results have been mixed. This strategy includes closing underperforming stores, investing in higher-performing locations, and expanding digital sales. However, the effectiveness of these initiatives remains to be seen as the company continues to report declining sales.
One bright spot in Macy's portfolio has been its Bluemercury brand, which reported a 2% increase in same-store sales, marking the 14th consecutive quarter of growth for the beauty chain. In contrast, Bloomingdale's saw a 1.4% decline in comparable sales, and the namesake Macy's brand experienced a 3.6% drop. The disparity in performance across its brands highlights the uneven recovery in consumer spending, with luxury and non-essential categories being hit the hardest.
Macy's is also dealing with the fallout from a recently rejected $6.9 billion buyout offer from Arkhouse Management and Brigade Capital Management. The company decided to end negotiations in mid-July, with CFO and COO Adrian Mitchell stating that the offer was "not compelling" given Macy's potential. Instead, the company remains focused on its real estate monetization efforts and the ongoing execution of its turnaround strategy. Mitchell expressed confidence that these initiatives would enhance Macy's value over time, despite the current challenges.
As part of its turnaround plan, Macy's is set to close about 150 of its namesake stores by early 2027, while simultaneously investing in the remaining 350 locations. The company is also opening new, smaller stores in suburban strip malls and expanding its better-performing brands like Bloomingdale's and Bluemercury. Despite these efforts, sales at Macy's "go-forward" locations, which include stores that will remain open and online sales, still declined by 3.3% on an owned-plus-licensed basis in the second quarter.
Looking ahead, Macy's has lowered its outlook for the remainder of the year, projecting same-store sales to decline by 2% to 5% year over year, compared to the previous expectation of a 1% gain to a 1.5% decline. The company cited ongoing pressure from the broader economic environment and the need to navigate uncertainties in discretionary spending as key reasons for the revised forecast.
