Department store retailer Macy’s experienced a decline in its shares on Thursday after announcing a reduction in its full-year outlook. The company revealed that its sales had significantly weakened in March and sagged even further in April, leading to a downward revision of its financial expectations.

Despite beating fiscal first-quarter earnings estimates, Macy’s stock dropped nearly 3% during morning trading.

Disappointing figures for the first quarter

For the three months ending on 29 April, Macy’s performance fell short of Wall Street’s expectations, according to a survey conducted by Refinitiv.

The retailer reported adjusted earnings per share of 56 cents, surpassing the anticipated 45 cents. However, revenue came in at $4.98bn, slightly below the expected $5.04bn.

Downgraded sales and earnings projections

Macy’s revised its sales forecast for the year, now expecting a range of $22.8bn to $23.2bn, down from the previous projection of $23.7bn to $24.2bn.

The company also anticipates a 6% to 7.5% decline in comparable owned-plus-licensed sales, worse than the earlier outlook of a 2% to 4% decrease.

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Adjusted earnings per share for the year were significantly reduced to $2.70 to $3.20, compared to the previous guidance of $3.67 to $4.11 per share.

CEO’s insight and strategies

During an interview with CNBC, Macy’s CEO Jeff Gennette revealed that the retailer had adopted a cautious approach for the remainder of the year following a decline in sales during the spring season.

Gennette stated that the company expects continued markdowns on seasonal products and plans to reduce merchandise orders in preparation for the upcoming quarters.

The higher end of the earnings guidance range would indicate a continuation of the trends witnessed in March and April throughout the year while the lower range would suggest a further deterioration in consumer spending.

Impact on Macy’s brands and the industry

Macy’s experienced weaker sales across its various brands, including Bloomingdale’s and Bluemercury. Gennette attributed the slower sales to factors such as headlines about layoffs and the banking crisis, which compounded the already challenging economic environment.

The company reported a first-quarter net income of $155m, or 56 cents per share, compared to $286m, or 98 cents per share, during the same period last year. Revenue fell by approximately 7% to $4.98bn from $5.35bn a year ago.

Concerns in the retail sector

Macy’s joined Nordstrom in reporting lacklustre results and foreseeing more challenging times ahead. In response, Macy’s plans to drive sales through investments in private brands, the opening of more off-mall stores and the expansion of its luxury business and online marketplace.

The overall demand for clothing and accessories in the US has weakened, as indicated by the performances of other department stores and brands within the industry, such as Tapestry (which includes Coach and Kate Spade) and Capri (which includes Michael Kors).

Dollar General also witnessed a decline in shares after missing earnings estimates and lowering its outlook due to the challenging economic backdrop.

Customer behaviour and prospects

Gennette highlighted that Macy’s sales have been affected as customers with constrained budgets face pressure. Approximately half of Macy’s namesake brand customers have a household income of $75,000 or less.

The company also observed a drop-off in the “aspirational customer” segment at Bloomingdale’s, who had previously purchased luxury brands during the Covid-19 pandemic with the aid of stimulus money.

However, Gennette mentioned that the company noticed signs of recovery in May, with warmer weather leading to increased sales of spring apparel, particularly at Bloomingdale’s.

The beauty category has remained one of Macy’s strongest areas and there are indications of a rebound in popular pandemic items, such as textiles and housewares.

Future partnerships and market performance

As Macy’s prepares for a potentially tougher year, CEO Gennette announced a significant development to attract customers in the fall and during the holiday season.

Starting in October, Nike will return to Macy’s stores and website, providing a broader range of products, including apparel for women, men and kids. This partnership had experienced a pause, as Nike had reduced wholesale orders and focused more on direct-to-consumer sales.

Macy’s stock closed at $13.59 on Wednesday, resulting in a market value of $3.69bn. Year-to-date. The company’s stock has declined by 34%, lagging behind the gains of the S&P 500 and the retail-focused XRT, which experienced nearly 9% and approximately 6% changes, respectively.