Macy’s, the iconic department store chain, reported better-than-expected earnings for the second quarter of 2023, despite a decline in sales and rising inflation pressures. The company reaffirmed its annual guidance and said it was confident in its growth strategies.
Sales drop 8% as consumers shift spending
Macy’s net sales for the second quarter of 2023 were $5 billion, down 8% from the same period a year ago. The company attributed the decline to a shift in consumer spending from apparel and accessories to other categories, such as travel, dining and entertainment, as well as increased competition from online retailers and off-price channels.
Macy’s comparable sales, which include online sales and sales at stores open for at least a year, were down 8.2% on an owned basis and down 7.3% on an owned-plus-licensed basis. The company said its brick-and-mortar sales decreased 8%, while its digital sales decreased 10%, reflecting a slowdown in online demand compared to the pandemic-driven surge in 2022.
The company said it saw strength in beauty, especially fragrances and prestige cosmetics, women’s career sportswear, men’s tailored and off-price with Backstage, while active, casual and sleepwear remained challenged.
Earnings beat estimates as margins improve
Macy’s reported a net loss of $22 million, or 8 cents per share, for the second quarter of 2023, compared to a net income of $275 million, or 99 cents per share, a year earlier. The loss included a non-cash settlement charge related to the transfer of pension obligations for certain retirees and beneficiaries under the company’s pension plan.
Excluding this charge and other items, Macy’s adjusted earnings per share were 26 cents, beating analysts’ expectations of 13 cents. The company said its gross margin improved by 40 basis points to 38.6%, as it reduced inventory levels by 10% year-over-year and cleared seasonal merchandise with targeted promotions. Its selling, general and administrative expenses decreased by 4% to $1.8 billion, as it continued to control costs and optimize its store fleet.
Guidance reaffirmed amid uncertainty
Macy’s reaffirmed its annual guidance for 2023, which it had lowered in June due to uncertainty in the macroeconomic environment and higher promotional activity. The company expects its comparable owned-plus-licensed sales to fall 6% to 7.5% compared to the prior year. It anticipates its adjusted earnings per share to range from $2.70 to $3.20, and its sales to be between $22.8 billion and $23.2 billion for the fiscal year.
The company said it was confident in its ability to navigate the challenges posed by inflation, supply chain disruptions and labor shortages, as well as the potential impact of the Delta variant of Covid-19 on consumer behavior. It said it was investing in its five growth vectors: digital commerce, off-price with Backstage, international expansion with Bloomingdale’s Dubai, vendor direct fulfillment and loyalty programs.
“We believe these advancements, enabled by our strong talent, will drive our relevancy and long-term success as a modern department store,” said Jeff Gennette, chairman and chief executive officer of Macy’s.