Macy’s warning of weak second-half demand hits retail sector shares

By Savyata Mishra

(Reuters) -Macy’s on Tuesday warned of weak consumer spending through the crucial holiday shopping season and signaled a faster-than-expected rise in credit card payment delays, sending the shares of the department store chain down as much as 11%.

The company kept its forecast unchanged despite beating Wall Street expectations for the second quarter. Its cautious view also weighed on the retail sector shares, including peers Kohl’s and Nordstrom.

“The macro environment is having the lion’s share of the impact on credit and is a real indicator of where we think the health of the consumer is … supporting our cautious approach,” Macy’s CFO Adrian Mitchell said on a post-earnings call.

In a clear sign that higher borrowing costs were straining customers, Macy’s credit card revenue, which accounted for about 2% of the total revenue in the second quarter, slumped 41%.

“The biggest negative surprise was the sharp fall-off in credit income,” Citi analyst Paul Lejuez said.

The retailer, like Target and Coach parent Tapestry, has seen a drop in demand from middle-income customers as they cut back spending on apparel and handbags amid elevated inflation.

This has led to bloated inventories for U.S. retailers. Throughout the quarter, Macy’s cleared excess stock after a move to convert its merchandise for the spring and early summer hurt demand, leading to a slip in gross margin.

Quarterly comparable sales for its high-end beauty brand Bluemercury rose 5.8%, but its namesake brand that has more exposure to middle-income consumers saw a 9.2% drop on an owned basis.

“It is prudent to maintain our cautious view on the consumer and their capacity to spend on the discretionary categories we sell,” Mitchell said.

Macy’s reaffirmed its 2023 sales expectations of $22.8 billion to $23.2 billion and adjusted full-year profit per share between $2.70 and $3.20.

It posted adjusted earnings per share of 26 cents in the quarter ended July 29, beating expectations of 13 cents.

Comparable sales for Macy’s-owned and licensed stores fell 7.3%, compared with expectations of a 6.48% drop.

(Reporting by Savyata Mishra in Bengaluru; Editing by Arun Koyyur)