NEW YORK – Nordstrom joined Macy's Tuesday in cutting its annual outlook for profit and sales despite second-quarter results that topped Wall Street forecasts.
Both retailers are suffering from an affliction plaguing most of their competitors: A glut of unsold inventory that they're resorting to pricing at deep discounts to move.
They are also cutting back on merchandise orders to match shopper demand. Almost every major retailer has said in recent weeks that shoppers are making fewer trips to the store and when they do, they're looking for deals. Some are trading down to cheaper alternatives.
Kohl’s last week slashed its sales and profit expectations for the year, a result of its stepped-up price cutting to shed unwanted merchandise. Both Target and Walmart also said last week that shoppers are cutting back and sticking to essentials.
Soaring prices have forced families to become more cautious. They are doing without new clothing, electronics, furniture and almost everything else that is not absolutely necessary. And spending habits have shifted faster this year than anyone expected. After being cooped up at home during the pandemic, Americans seemed to shift almost overnight to spending on dinners out, movies or concerts, and travel.
“The consumer's got some pretty sour news out there," Macy's CEO Jeff Gennette told The Associated Press Tuesday. “Inflation is tough."
In a statement, Nordstrom CEO Erik Nordstrom noted that, while the Seattle-based company's results were consistent with its previous outlook, customer traffic and demand weakened in late June, predominantly at Nordstrom Rack.
The shift in spending habits has left retailers with elevated inventories of products that have become difficult to move.
New York-based Macy’s has cut orders where it can to better sync with customer demand, but Gennette said inventory in some categories remains high. The company is cutting prices on seasonal goods, private label and pandemic-related merchandise like casual wear and home furnishings to clear it, he said.
However, according to Gennette, customers are not trading down, or substituting typical purchases with a cheaper brand. That phenomenon is rampant at retailers like Walmart and Kohl's.
At Macy's, customers at every strata with household income below $250,000 are cutting back proportionately, Gennette said. At its Bloomingdale’s stores, where medium household income is more typically $250,000 and above, spending has continued at a healthy pace.
Macy's earned $275 million, or 99 cents per share, in the three-month period that ended July 30, or $1 if one-time charges are removed. That easily topped the per-share earnings of 86 cents that industry analysts had expected, according to a survey by FactSet.
Sales slipped roughly 1% to $5.6 billion, but that was also stronger than anticipated.
Yet compared with the same period last year, sales and profit have cooled.
Sales at stores opened at least a year fell 1.5%, or 1.6% including licensed businesses like cosmetics. In contrast, its upscale Bloomingdale's stores enjoyed an 8.8% increase in same-store sales, or 5.8% gain including licensed businesses. Online sales fell 5% during the second quarter, compared to the year-ago period, but was up 37% compared with the same period in 2019.
In one more pandemic-related shift, Gennette said that store locations in downtown areas are bouncing back as more people return to the office. Those sales have yet to return to levels more common before COVID-19, however.
Uncertainly about what Americans will buy and what they want has made it difficult for retailers to figure out what is coming as the holiday season approaches.
The company said its outlook for the rest of the year is based on the “continued deterioration of consumer discretionary spending” and high levels of inventory, both at Macy’s and at other stores. Macy’s anticipates more price cuts and the need to “liquidate aged inventory” as the holiday season approaches.
Inventory levels increased 7% in the three-month reporting period compared with last year, but it's down 8% compared with 2019.
Macy's now expects sales to be in the range of $24.34 billion to $24.58 billion this year, down from its May guidance of between $24.46 billion and $24.7 billion. Macy's expects per-share earnings of $4 to $4.20, down from earlier guidance of between $4.53 and $4.95 per share.
Meanwhile, Nordstrom reported that net income was $126 million, or 77 cents per share, in the three-month period ended July 30. That compares with $80 million, or 49 cents per share, in the year-ago period. Adjusted earnings was 81 cents per share. Total sales rose to $4.1 billion from $3.65 billion in the year-ago period.
Analysts were expecting 80 cents per share on revenue of $3.96 billion, according to FactSet.
Nordstrom now expects revenue to be up 5% to 7% for the year, down from 6% to 8%. It expects adjusted earnings per share to be $2.30 to $2.6O per share, down from $3.20 to $3.50 per share.
Macy’s shares rose nearly 4% or 70 cents per share, to close at $19.31 in regular trading. But Nordstrom's shares fell more than 13%, or $3.14 to $20.06 in after-hours trading after it reported its results.
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