Macy’s heads into holidays strongly, boosts 2022 guidance

Macy's heads into holidays strongly, boosts 2022 guidance thumbnail

NEW York — Thursday’s results from Macy’s (Koh’s) and Gap further highlighted the grim picture for U.S. retailers as they prepare for the holiday season.

A day following Target’s sharp drop in quarterly profits, it is clear that inflation-hit shoppers over the last few weeks waited for deals and were unwilling to pay full price for purchases that they could delay. The big question is whether Americans will spend more freely in coming weeks.

“I think everybody believes that Christmas will come, but I don’t think anybody out there knows for sure exactly what’s going to happen,” Kohl’s chairman Peter Boneparth said.

Macy’s reported Thursday that its third quarter profit and sales fell. The New York company beat Wall Street expectations and raised their earnings outlook due to its credit card revenue. Its stock rose more than 15% Thursday.

Shares of rival Kohl’s rose 5% even after it withdrew its annual earnings outlook amid volatile spending, an uncertain economic environment and a CEO transition. It reported a decline in sales and profit, which was similar to Macy’s but better than Wall Street expectations.

Shares of struggling Gap Inc. rose 14% in extended trading Thursday after it reported better-than-expected sales results. The chain, which is based in San Francisco, operates stores under its name, Banana Republic and Old Navy. Sales rose 2% and the company made a profit after a loss last year.

But it also offered a temperate holiday outlook.

Target and Macy’s both noted a slowdown of spending over the last few weeks as the holiday shopping season kicks off. This could lead to retailers having to reduce prices even more.

Walmart, the nation’s largest retailer and with a stronger grocery aisle, reported better-than expected earnings and raised its earnings outlook.

“Visibility for the fourth quarter has been as difficult as any period I can remember,” Boneparth told analysts on a call Thursday. He recalled the situation one year ago when retailers had to deal with supply-chain snarls.

” Last year, there was no inventory.” he stated. “All customers were inclined buy early. Now, we flip over, everybody has a lot of inventory.”

Macy’s posted net income of $108 million, or 39 cents per share for the three-month period ended Oct. 29. That compares with $239 million, or 76 cents per share for the year-ago period. Adjusted results were 52 cents per share, far exceeding the per-share earnings of 18 cents that Wall Street had expected, according to a survey by FactSet.

Sales fell 3.9% to $5. 23 billion from $5. 44 billion in the year-ago period, but that also beat expectations.

Comparable sales — those from established stores and from online — slipped 2.7% including licensed businesses compared with the year ago quarter, but it was up 6% compared with the third quarter of 2019, before the pandemic.

Online sales fell 9% compared with the third quarter of 2021, but they were up 35% compared with the third quarter of 2019. We know that the consumer is under increasing pressure, and has options on where to spend our money,” stated Jeff Gennette, Macy’s CEO. Gennette stated that the company’s Bloomingdale’s store is also doing well, as wealthy shoppers continue spending.

Gennette said Thursday that the holiday period between Thanksgiving Day and Christmas will be “more intense” because shoppers’ attention is on sales merchandise. He also stated that Macy’s is prepared to offer discounts when necessary.

Kohl’s and Macy’s suffered a setback at the start of the pandemic. They were forced to close their stores for a few weeks, but sales rebounded in 2021 as Americans started to remodel their homes and buy casual clothes. The government also provided stimulus money to help shoppers.

But Americans shifted away from spending on pandemic-fuelled spending as the virus subsided, leaving many retailers with excess inventory that is being sold at a discount. The increased costs of food, rent, gasoline, and almost everything else have shifted spending away from necessities, which has hurt clothing stores.

Kohl’s caters to middle-income shoppers more than Macy’s which caters for a wide range of income groups.

In August Macy’s stated that it reduced orders where it could better match customer demand. It has also reduced prices to clear inventory. It said that it had made progress in clearing some of the merchandise on Thursday.

Kohl’s posted net income of $97 million, or 82 cents per share, for the three-month period ended Oct. 29. This compares to $243 million or $1. 65 per share in the year-ago period. Analysts were expecting 77 cents on $4. 07 billion, according to FactSet.

Sales dropped 7% to $4. 27 billion. Third-quarter comparable sales decrease 6.9%.

There are many things going on at Kohl’s beyond sales. Michelle Gass, CEO of Kohl’s, announced this month that she will be leaving to take the top job at Levi Strauss. The company has been under heavy pressure to make changes in its leadership.

Kohl has established a search committee to find a replacement CEO. Director Tom Kingsbury serves as interim CEO.

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Follow Anne D’Innocenzio: http://twitter.com/ADInnocenzio

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