What to look for when Macy’s (M) reports Q1 2023 earnings tomorrow

Shares of Macy’s, Inc. (NYSE: M) were down 3% on Wednesday. The stock has dropped 34% year-to-date and 41% over the past 12 months. The retailer is set to report its first quarter 2023 earnings results tomorrow before market open. Here’s a look at what to expect from the earnings report:

Revenue

Macy’s has guided for revenue of $5.0-5.1 billion for the first quarter of 2023. Analysts are projecting revenue of $5.04 billion which would reflect a decline of over 5% from the first quarter of 2022. In the fourth quarter of 2022, net sales dropped nearly 5% year-over-year to $8.3 billion.

Earnings

Macy’s has guided for adjusted EPS of $0.42-0.48 in Q1 2023. Analysts are predicting EPS of $0.45, which is down from the adjusted EPS of $1.08 reported in Q1 2022. In Q4 2022, adjusted EPS was $1.88, which was down 23% YoY.

Points to note

Macy’s anticipates challenges in 2023 as consumer spending shifts more towards essentials and away from discretionary categories due to inflation. The company expects year-over-year sales performance to be softer in the first half of 2023 versus the second half.

Macy’s does not expect the momentum it saw in sales during the peak holiday season and into January to continue through Q1 as consumers become more selective in their spending and conscious of their savings. In Q4, which was the holiday quarter, the company saw declines in sales and comps.

Macy’s gross margins came under pressure in Q4 due to higher discounts and promotions as the company worked to bring its inventory down to the right level. Its inventory management initiatives are expected to lead to lower markdowns and promotions in 2023.

The company’s growth initiatives are another area to watch. These include its private brands, off-mall stores, Marketplace, luxury, and personalized offers and communication. The retailer has 24 private label brands in its portfolio and it is working on revamping them over the next three years.

Macy’s off-mall smaller-format stores play an important role in supporting its omnichannel capabilities. In 2023, the company plans on opening four Market by Macy’s stores and one Bloomies store. Thirdly, it plans to add 2,000 brands on Macy’s Marketplace this year and launch a Bloomingdale’s Marketplace in the latter half of the year.