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Macy’s and Nordstrom cut earnings and stock views


NEW YORK — Nordstrom joined Macy’s on Tuesday in cutting its full-year earnings and sales outlook despite second-quarter results that beat Wall Street forecasts.

Both retailers suffer from an affliction that plagues most of their competitors: a glut of unsold inventory that they resort to pricing at deep discounts to move.

They are also reducing merchandise orders to meet customer demand. Almost all major retailers have said in recent weeks that shoppers are heading to the store less, and when they do, they are looking for deals. Some are turning to cheaper alternatives.

Kohls last week cut sales and earnings expectations for the year, due to its increased price reduction to get rid of unwanted goods. Both Target and walmart also said last week that buyers were cutting back and sticking to the basics.

Soaring prices have forced families to become more cautious. They do without new clothes, electronics, furniture, and almost anything not absolutely necessary. And spending habits have changed faster this year than 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 has some pretty bitter news,” Macy’s CEO Jeff Gennette told The Associated Press on Tuesday. “Inflation is tough.”

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

The change in consumer habits has left retailers with high inventories of products that have become difficult to move.

New York-based Macy’s reduced orders where it could to better synchronize with customer demand, but Gennette said inventory in some categories remained high. The company is cutting prices on seasonal products, private labels and pandemic-related merchandise like casual clothing and home furnishings to clear it, he said.

However, according to Gennette, customers aren’t compromising or replacing their typical purchases with a cheaper brand. This phenomenon is endemic to retailers like Walmart and Kohl’s.

At Macy’s, customers in all strata with household incomes below $250,000 scale back, Gennette said. At its Bloomingdale’s stores, where the average household income is typically $250,000 and above, spending has continued apace.

Macy’s earned $275 million, or 99 cents per share, in the three months that ended July 30, or $1 if the one-time fee is removed. That easily topped the 86 cents per share earnings that industry analysts had expected, according to a FactSet survey.

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

Yet, compared to the same period last year, sales and profits have declined.

Sales at stores open for at least a year fell 1.5%, or 1.6% including licensed businesses like cosmetics. In contrast, its upscale Bloomingdale’s stores reported an 8.8% increase in same-store sales, or a 5.8% gain including licensed businesses. Online sales fell 5% in the second quarter compared to the same period a year earlier, but increased 37% compared to the same period in 2019.

In another pandemic-related shift, Gennette said downtown store locations are bouncing back as more people return to the office. However, those sales have yet to return to more common pre-COVID-19 levels.

Uncertainty about what Americans will buy and what they want has made it difficult for retailers to figure out what’s coming as the holiday season approaches.

The company said its outlook for the rest of the year was based on “continued deterioration in consumer discretionary spending” and high inventory levels at both Macy’s and other stores. Macy’s anticipates further price cuts and the need to “liquidate aging inventory” as the holiday season approaches.

Inventory levels were up 7% in the three-month benchmark period from a year ago, but down 8% from 2019.

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

Meanwhile, Nordstrom said net income was $126 million, or 77 cents per share, in the three months ended July 30. That compares to $80 million, or 49 cents per share, a year ago. Adjusted earnings were 81 cents per share. Total sales reached $4.1 billion, up from $3.65 billion a year ago.

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

Nordstrom now expects revenue to grow 5% to 7% for the year, down 6% to 8%. He expects adjusted earnings per share to be $2.30 to $2.60 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 shares of Nordstrom fell more than 13% from $3.14 to $20.06 in after-hours trading following its earnings release.

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