Macy's Struggles: Sales Forecast Cut Amid Shopper Challenges
Macy’s, a well-known department store operator, has faced significant hurdles as it tries to navigate the current retail landscape. On Wednesday, the company slashed its full-year sales forecast, citing difficulties in attracting shoppers who have become more selective and the need for increased promotions.
Adjusted Forecast and Expectations The retailer’s updated full-year net sales forecast now ranges between $22.1 billion and $22.4 billion. This is lower than the previous anticipated range of $22.3 billion to $22.9 billion and would also represent a year-over-year decline from the $23.09 billion it reported for fiscal 2023.
When it comes to comparable sales, which exclude the impact of store openings and closures, Macy’s now expects them to range from a decrease of about 2% to a decline of about 0.5%. Previously, the company had expected this metric to be in the range from a decline of about 1% to a gain of 1.5%. The comparable sales figure encompasses owned and licensed sales (covering both merchandise Macy’s owns and items from brands that lease space in its stores) as well as sales from its third-party online marketplace.
The company stated in a news release that the new outlook range provides the flexibility needed to deal with the ongoing uncertainty in the discretionary consumer market.
CEO’s Perspective on Consumer Behavior In an interview with CNBC, CEO Tony Spring noted that customers aren’t spending as freely across all of Macy’s brands, including the higher-end Bloomingdale’s. He described a sense of “softness, a carefulness, a delay in the conversion of purchasing.” While consumers do respond to items that are attractively priced and new, even affluent customers aren’t spending at the levels they did a year ago. Spring attributed this to various external factors, such as higher interest rates, inconsistent weather patterns, and a busy news cycle that he said are causing distractions and making shoppers hold off on spending.
Quarterly Results and Performance The fiscal second quarter results compared to Wall Street’s expectations (based on a survey by LSEG) painted a mixed picture. Shares of the company closed nearly 13% lower on Wednesday.
The retailer is striving to regain its footing and achieve sustained growth. In February, Spring announced plans to close about 150, or nearly a third, of its namesake stores by early 2027 and instead invest in the remaining roughly 350 locations. Additionally, Macy’s is opening new, smaller stores in suburban strip malls and adding locations of its better-performing brands, Bloomingdale’s and Bluemercury.
However, the recent quarter’s results highlighted the challenges in making this comeback, especially given consumers’ pickier purchasing habits, particularly when it comes to discretionary items. Net sales dropped from $5.13 billion in the year-ago period. The Macy’s brand itself continued to be the weakest performer. Comparable sales on an owned-plus-licensed basis, including the third-party marketplace, fell 3.6%. At Bloomingdale’s, comparable sales declined 1.4% on the same basis. In contrast, Bluemercury had a positive showing with comparable sales rising 2%, marking its 14th consecutive quarter of growth in this regard.
In the three-month period that ended Aug. 3, Macy’s net income was $150 million, or 53 cents per share, compared to a loss of $22 million, or 8 cents per share, in the year-ago period. Even when excluding the stores slated for closure, sales were lackluster. Comparable sales for the remaining Macy’s brand locations (including online sales) declined 3.3% on an owned-plus-licensed basis.
Turnaround Efforts and Progress Macy’s emphasized that it has made progress in its turnaround plan, which was unveiled in February shortly after Spring took on the top role. At the first 50 stores that received additional investment, comparable sales were up 1% on an owned-plus-licensed basis. This marked the second consecutive quarter of positive comparable sales at these locations since the plan began. Spring said these 50 stores have outperformed the others, even in tough categories like handbags. He also mentioned that the company will share its plans for expanding this strategy beyond those initial stores in the fourth quarter and has already decided to increase staffing in the women’s shoes and handbags departments at more locations due to positive customer response.
Activist Group Bid and Stock Performance Along with the challenging sales environment, Macy’s leaders also had to deal with a bid by an activist group to take the company private. Last month, the company announced that its board had unanimously decided to end negotiations with Arkhouse Management and Brigade Capital.
As of Wednesday’s close, Macy’s shares were at $15.45, giving the company a market cap of $4.3 billion. The company’s stock is down about 23% so far this year, lagging behind the greater than 17% gains of the S&P 500 during the same period. In conclusion, Macy’s is grappling with multiple challenges, from changing consumer behavior to activist pressure, as it attempts to turn around its business and return to a path of growth. The company’s efforts to restructure and improve its performance will be closely watched in the coming months and years as it tries to adapt to the evolving retail landscape.