Categories Analysis, Retail

Macy’s (M): A few points to consider if you have an eye on this retailer

For the second quarter of 2023, the company expects net sales of $5.0-5.1 billion

Shares of Macy’s, Inc. (NYSE: M) stayed in red on Thursday. The stock has dropped 22% year-to-date and 32% over the past 12 months. The retailer witnessed sales and profit declines in the first quarter of 2023 as it navigated a challenging economic environment. It does not expect these headwinds to let up anytime soon which has led to a bleakish sentiment around the stock. Here are a few points to consider if you have an eye on this one:

Low demand and a drop in sales and profits

Macy’s had anticipated the macro environment in 2023 to be more challenging than the previous year. In line with that, during Q1, the company witnessed lower demand trends through mid-March and into April as inflation-hit customers shifted their spending to essentials and services. Harsh weather and other economic headwinds also contributed to the decline in demand.

The company also stocked up early with spring and summer fashion assortments but did not back it up with winter and seasonless product and therefore faced a shortage as many regions continued to experience cold weather. This led to lower conversion despite healthy store traffic.

These factors led to a 7% year-over-year decline in net sales to $5 billion in Q1 2023. Comparable sales were down 7.9% on an owned basis and down 7.2% on an owned-plus-licensed basis. The retailer also faced pressures across its nameplates, with the Macy’s brand taking the biggest hit as most of its customers are in the lower and middle income categories.

Net sales for the Macy’s nameplate were down 7.7% while comparable sales on an owned-plus-licensed basis were down 7.9%. Bloomingdale’s saw a 2.3% drop in net sales and a 4.3% decrease in comparable sales on an owned-plus-licensed basis. The Bluemercury nameplate, on the other hand, witnessed net sales growth of 4.4% with comps growth of 4.3%.

Macy’s also saw its profits decline during the first quarter. GAAP EPS was down 43% to $0.56 while adjusted EPS fell 48% to $0.56.

Guidance cut

Macy’s anticipates the challenging environment to continue through the remainder of the year and based on this, it has lowered its outlook for FY2023. The company now expects net sales to range between $22.8-23.2 billion versus its prior outlook of $23.7-24.2 billion.

Comparable sales on an owned plus licensed basis is expected to be down 6-7.5% versus the previous range of down 2-4%. Adjusted EPS is now expected to be $2.70-3.20 compared to the earlier range of $3.67-4.11.

For the second quarter of 2023, the company expects net sales of $5.0-5.1 billion and adjusted EPS of $0.10-0.15.

Plans

Macy’s plans to implement higher markdowns to clear out seasonal merchandise during the second quarter so that it can enter the third quarter with a clean inventory position. During the latter two quarters of the year, the company plans to focus on categories that are performing well such as beauty and sportswear. It is also working on offering more seasonless assortments around the year. These actions are expected to help improve its performance in the back half of the year.

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