Macy's is quietly laying an egg - and more may be coming for retail

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Macy’s (M) dropped bad news Friday night.

Public company management teams will sometimes think it’s smart to try to bury bad news in a weekend in the hope that investors will forget about it before Monday’s opening bell.

The lame tactic rarely works.

So let’s break down this dump of textbook information that Macy’s released on Friday afternoon:

Net sales: Should be between the low and middle of the forecast for $8.16 billion to $8.40 billion. Analysts had expected sales of $8.31 billion, according to Yahoo Finance Data.
Adjust EPS: Should be within the indicative range of $1.47-$1.67. Yahoo finance Data shows that analysts were betting on $1.60 per share.
Key management comment: “Based on current macro indicators and our proprietary credit card data, we believe the consumer will continue to be under pressure in 2023, particularly in the first half of the year, and have forecast inventory mix and depth initial purchases accordingly,” Macy’s CEO Jeff said. Gennette “We take a balanced approach to merchandise receipts and remain committed to delivering fashion and value across nameplates and channels, with flexibility to adjust in-season purchases and seek out strengths .”

A person poses for a photo during a Macy's interactive holiday showcase in New York, U.S., December 9, 2022. REUTERS/David 'Dee'; Delgado — A person poses for a photo during a Macy’s interactive holiday showcase in New York, U.S., December 9, 2022. REUTERS/David ‘Dee’ Delgado

With this advance earnings announcement, Macy’s essentially issued a profit warning for the first half of 2023 in addition to telegraphing a less than stellar holiday season.

While Macy’s inventory levels appear to be in good shape despite missed sales, expect the Street to cut its 2023 earnings estimates amid margin pressures and a more cautious consumer. The stock is likely dead money – with a downward bias – until we get evidence of a reacceleration in consumer spending (for Macy’s and other retailers, let’s hope that happens before the spring selling season).

The bad fourth quarters and outlook probably come from Ralph Lauren (RL), VF Corp. (VFC), Under protection (UAA) and other department store suppliers. If Macy’s is cautiously planning first-half orders, you better believe that rivals such as JC Penney (jcp), Kohl (KSS) and Dillard (DDS) do the same.

The negative comments on Target (TGT) Last week by Wells Fargo make even more sense in the wake of this warning from Macy’s. Target’s merchandise is more discretionary than Walmart’s (wmt), putting its numbers at risk amid sluggish spending. In that sense, I agree with Hasbro’s cautious analysis of anticipated earnings on toymakers (HAS) and Mattel (CARPET) – lots of excess toy inventory was seen following the peak holiday season.

Macy’s called its Blue Mercury cosmetics banner strong. Walgreens (WBA) also said in its earnings release last week that cosmetics performed well. Signs point to another good quarterback from Ulta (ULTA).

The Wall Street vibe on retailers

Inflation in discretionary retail, apparel, handbags, other accessories, footwear, home goods and electronics likely hit 3% in Q4 2022 and will hit that number or lower in first quarter of 2023. And they will end the year between 2.5% and 3%. inflation Why? The demand for new mortgages and new mortgages is driving the sale of real estate. We are back in 2019. We have at least a marginal increase in unemployment and a marginal decline in JOLTS. Discretionary retail inflation is dead. -Jan Rogers Kniffen JK Worldwide Enterprises

“Continuedly weaker footfall in the quarter to date suggests that Q4 sales could be below or below forecasts/revenue forecasts. This trend, in addition to the fact that 1) the main shopping days of Q4 are for most behind us, 2) Potentially adverse year-over-year weather is in store for January (despite Omicron’s easy ride), 3) retailers still seem to be holding high inventory levels (with targets to be “clean” by the end of the year…), & 4) some retailers/brands have already faltered in terms of increasing discount activity above levels of 2019, heightens our concerns that promotional/discount activity will likely worsen from here. This would subsequently put pressure on Q4 merchandise margin. Q4 guidance and consensus estimates, and retailers are confr Went to an easier comparison between GM and Q3.” Kimberly Greenberger Morgan Stanley

Have a good week. Good negotiation!