Dive Brief:

• Macy’s lowered its Q4 guidance on Friday, saying it now expects sales to land at the low to middle point of its previous estimate of between $8.2 billion and $8.4 billion.

• End-of-quarter inventories look to be “slightly below last year and down mid-teens relative to 2019,” the department store also said in a press release.

• “Based on current macro-economic indicators and our proprietary credit card data, we believe the consumer will continue to be pressured in 2023, particularly in the first half,” Macy’s CEO Jeff Gennette said in a statement.

Dive Insight:

There were already signs that Macy’s might be in for a more subdued holiday season than expected or hoped for. In early December, Macy’s Chief Financial Officer Adrian Mitchell joined Nordstrom’s CEO Erik Nordstrom in reporting that many shoppers, particularly those in lower-income households, were noticeably pulling back.

Gennette in his statement noted that Black Friday weekend sales were in line with the company’s expectations, and the weeks just before and just after Christmas Day beat expectations. Throughout, special occasion apparel and gifts sold well, and inventory and price points matched up well with demand, he said.

“However, the lulls of the non-peak holiday weeks were deeper than anticipated,” he said, adding that higher-end Bloomingdale’s and Bluemercury outperformed. 

Speaking at the ICR Conference in Orlando, Florida, Monday, Gennette added that purchases that people make for themselves, including more casual clothing and home goods, were a disappointment. That, plus higher credit card balances, other internal company data and the wider macroeconomics indicate ongoing pressure on many Macy’s customers.

“That is why we came out with some conservatism as it relates to 2023,” he said, noting that the company has noticed such indications since Q2 2022. “We definitely commented about it during our third quarter call. We’re now just underlining it, as we think about the future ... that self purchase is a question for us.”

The lowered guidance still falls within expectations, Credit Suisse analysts led by Michael Binetti said in emailed comments. “[B]ut we thought lower sales could've supported at least some margin upside & [earnings] at/above high end of range,” Binetti said, noting that Macy’s warning about the first half of this year was its second note of caution for the period.

Macreconomics don’t tell the whole story, considering that retail overall grew, according to GlobalData Managing Director Neil Saunders. By contrast, the department store’s updated guidance suggests that its holiday sales shrank by some 4% year over year to just under 6%, below 2019. That indicates a loss of market share, he said.

“Put bluntly this is not a particularly good performance, especially as it includes the impact of higher prices, meaning Macy’s volumes must be down considerably,” Saunders said.

Aside from the economy, people likely avoided Macy’s for a variety of reasons, including that department stores aren’t the holiday destination they once were and that apparel sales are soft, according to Saunders.

“However, some is also down to Macy’s lack of competence on the shop floor,” Saunders said. “While the company speaks of its superior execution, the reality on the ground is very different with many shops firmly on the back foot in terms of merchandising and shopkeeping standards. In a more constrained economy where consumers are easily deterred from spending, a lack of discipline matters and it makes a difference.”