Macy’s Lowers Expectations for the Year, Pointing to an Inventory Glut

Excess inventory weighed less on Macy’s balance sheet last quarter than it did for other retailers, but the glut of unpurchased goods throughout the retail sector is still having an impact on the way the department store chain does business.

The department store chain slightly lowered its outlook for the rest of the year on Tuesday, saying it expected to see net sales of $24.3 billion to $24.6 billion, compared with the $24.5 billion to $24.7 billion it previously forecast. It said the lower expectations came, in part, from the “level of inventory within the industry.”

Inventory has increased 7 percent compared with this time last year, Macy’s said in its earnings report, adding that in July it had become more difficult to sell all of its merchandise as shoppers pulled back on discretionary spending. Other retailers have been experiencing double-digit merchandise increases. Last week, Kohl’s said inventory was up 48 percent and Target said its inventory increased 36 percent.

And even though Macy’s was able to keep its excess inventory much lower, it was still a drag on the quarterly profit. Higher delivery expenses were also a factor. Gross margin dipped to 39 percent, down from 41 percent last year. Comparable sales decreased 1.5 percent and online sales fell 5 percent. Macy’s stock rose as much as 6 percent in early trading on Tuesday.

Macy’s monitored competitors’ online prices for certain categories, particularly those that performed best during the pandemic. It adjusted prices to keep up with the discounts, as a way to keep their shoppers from straying. Those price changes were compounded by the markdowns on seasonal apparel.

“We’re responding to make sure that our customers are getting the fair value and we’re liquidating the inventory that needs to be out by a certain date,” Jeff Gennette, Macy’s chief executive, said in an interview.

Others retailers this summer have been doing the same. Executives at Ross and BJ’s Wholesale Club have said the proliferation of discounting in the sector has pushed them to offer lower prices on their merchandise just to stay competitive.

Macy’s said it planned to deal with its excess inventory by the end of the year, a crucial time for retailers. It’s focusing specifically on discounting categories it has deemed “pandemic-related,” such as activewear, sleepwear and home goods. It said it was also lowering prices on private brand merchandise and seasonal goods.

The retailer pointed to its Polaris strategy, a turnaround plan put in place in February 2020 that focuses in part on strengthening relationships with existing customers, as part of the reason it was able to price better and respond more quickly to changes in what shoppers wanted to buy.