Macy’s earnings guidance was lowered after the retailer posted a disappointing second quarter, pressured by heavy markdowns on unsold goods and softer demand, the company said today.
The department store cited several headwinds that swelled inventory, including a merchandising miss, slower sell-through of warm weather apparel and a faster decline in international tourist spending. Macy’s also noted that shoppers showed little tolerance for higher prices amid U.S.–China trade tensions.
Macy’s earnings guidance and tariffs
To offset a 25 percent tariff imposed in May on categories like luggage, housewares and furniture, Macy’s raised prices on some items. Retailers are also bracing for a 10 percent tariff that targets toys, clothing and shoes. Some of those items have been delayed until December. Analysts warn that higher prices could become more problematic if the economy slips into recession.
On an earnings call, CEO Jeff Gennette told analysts Macy’s does not plan to raise prices in response to the 10 percent duties. He added the company will work closely with vendors to manage costs if the tariffs are increased to 25 percent.
With Macy’s the first major retailer to report this earnings season, its results rattled the sector. Shares of peers such as Kohl’s, Dillard’s and Nordstrom fell in premarket trading. Walmart and J.C. Penney are slated to report results Thursday, with Nordstrom, Target and Kohl’s following next week.
Reshaping the business to compete
Like other department stores, Macy’s continues to adapt as more shoppers buy online and shift spending toward experiences. Off-price chains remain a strong draw for apparel buyers seeking discounts.
Macy’s is expanding private labels and growing its Backstage off-price format. It has introduced technology that lets customers skip checkout lines. The company is also testing concepts for resale and rental. Macy’s partnered with ThredUp to set up 40 resale shops inside its stores, while sister brand Bloomingdale’s launched a rental service. Macy’s has been closing underperforming locations and trimming management as part of a multiyear restructuring announced in February.
Quarterly results and outlook
For the second quarter, Macy’s reported net income of 86 million dollars, or 28 cents per share, missing Wall Street’s expectation of 45 cents per share, according to Zacks Investment Research. Revenue came in at 5.55 billion dollars, also below forecasts.
Comparable sales, which track performance at stores open at least a year, rose 0.3 percent, matching analysts’ projections. It was the seventh straight quarter of same-store gains, though growth has moderated.
The company now expects full-year earnings of 2.85 to 3.05 dollars per share, reduced from its prior outlook of 3.05 to 3.25 dollars. Analysts had been looking for 3.05 dollars. Macy’s shares fell more than 15 percent, or 2.95 dollars, in midday trading.
For more on how shifting business models are affecting local companies, see our coverage of Honolulu’s Spalding House for $15 million hits the market. Investors and customers can also find additional background on Macy’s by visiting the company’s investor relations site.
