Macy’s, Nordstrom Cut Profit Along With Inventories

NEW YORK — Nordstrom joined Macy’s Tuesday in lowering its annual earnings and revenue forecast despite its second-quarter results beating Wall Street’s forecasts.

Both retailers suffer from a condition that plagues most of their competitors: an overabundance of unsold inventory that they resort to discounted prices to move.

They also cut back on the orders of goods to meet customer demand. Nearly every major retailer has said in recent weeks that shoppers visit the store less often, and when they do, they look for deals. Some trade for cheaper alternatives.

Kohl’s cut its sales and earnings forecasts for the year last week, amid ramped up price cuts to divest unwanted merchandise. Both Target and Walmart also said last week that shoppers are cutting back and sticking to essentials.

Rising prices have forced families to become more cautious. They do without new clothes, electronics, furniture, and almost anything else that isn’t absolutely necessary. And spending habits have changed faster than anyone expected this year. After being locked up at home during the pandemic, Americans seemed to switch almost overnight to spending on dinners, movies or concerts and travel.

“Consumers have some pretty sour news,” Macy’s CEO Jeff Gennette told The Associated Press on Tuesday. “Inflation is heavy.”

In a statement, Nordstrom CEO Erik Nordstrom noted that while the Seattle-based company’s results were in line with its earlier outlook, customer traffic and demand weakened in late June, primarily at Nordstrom Rack.

The shift in spending patterns has resulted in retailers having large inventories of products that are difficult to move.

New York-based Macy’s has reduced orders as much as possible to better meet customer demand, but Gennette said inventory remains high in some categories. The company is slashing prices on seasonal, private label and pandemic merchandise such as casual wear and home furnishings to clear it up, he said.

However, according to Gennette, customers don’t transact or replace typical purchases with a cheaper brand. That phenomenon is rampant at retailers such as Walmart and Kohl’s.

At Macy’s, customers in all walks of life with household incomes less than $250,000 are cutting back proportionally, Gennette said. In Bloomingdale’s stores, where median household incomes are typically $250,000 and above, spending has continued at a healthy pace.

Macy’s made $275 million, or 99 cents a share, in the three-month period ended July 30, or $1 if one-time costs are removed. That easily surpassed the 86-cent earnings per share that industry analysts had expected, according to a FactSet study.

Sales were down about 1% to $5.6 billion, but that was also stronger than expected.

But compared to the same period last year, sales and profits have cooled down.

Sales at stores that have been open for at least a year fell by 1.5%, or 1.6% including licensed companies such as cosmetics. By contrast, Bloomingdale’s luxury stores enjoyed an 8.8% increase in same-store sales, or 5.8% profit including licensed businesses. Online sales fell 5% in the second quarter compared to the same period a year ago, but increased by 37% compared to the same period in 2019.

In another pandemic-related shift, Gennette said downtown retail locations are rebounding as more people return to the office. However, those sales have yet to return to levels that were more common before COVID-19.

Our uncertainty about what Americans will buy and what they want has made it difficult for retailers to figure out what will happen as the holiday season approaches.

The company said its outlook for the remainder of the year is based on the “ongoing deterioration in consumer spending” and high inventory levels at both Macy’s and other stores. Macy’s expects more price cuts and the need to “liquidate obsolete stocks” as the holiday season approaches.

Inventory levels are up 7% over the three-month reporting period compared to last year, but are down 8% compared to 2019.

Macy’s now expects revenue this year to be between $24.34 billion and $24.58 billion, down from May’s forecast of between $24.46 billion and $24.7 billion. Macy’s expects earnings per share of $4 to $4.20, down from previous expectations of between $4.53 and $4.95 per share.

Meanwhile, Nordstrom reported net income was $126 million or 77 cents per share for the three-month period ended July 30. That compares to $80 million or 49 cents a share in the same period a year ago. Adjusted earnings were 81 cents per share. Total revenue rose to $4.1 billion, from $3.65 billion in the same period a year ago.

Analysts expected 80 cents a share on revenue of $3.96 billion, according to FactSet.

Nordstrom now expects sales to rise 5% to 7% this year, from 6% to 8%. It expects adjusted earnings per share of $2.30 to $2.6O per share, down from $3.20 to $3.50 per share.

Shares of Macy’s rose nearly 4% or 70 cents a share and closed in regular trading at $19.31. But Nordstrom’s shares fell more than 13%, or $3.14 to $20.06 in after-hours trading after it announced its results.

——————

Follow Anne D’Innocenzio: