Macy’s, Inc. (NYSE:M) and Nordstrom, Inc. (NYSE:JWN) have joined the bandwagon of U.S. retailers that have fallen prey to the shift in consumers spending preferences and economic uncertainties in the United States. The companies, which reported better-than-expected earnings in the second quarter of Fiscal 2022 (ended July 30, 2022) on Tuesday, lowered their projections for the year, citing high inventory levels as their biggest problem.
Curtailed income during the pandemic period and a greater desire for leisure traveling post the easing of COVID-19 restrictions seem to have influenced consumers’ spending pattern a lot. Also, cost inflation, an economic slowdown in the U.S., high energy prices and supply-chain bottlenecks are other major spoilers.
According to the U.S. Census Bureau’s latest report, retail sales in the United States were unchanged, month-over-month, in July 2022 versus a 0.8% gain in June. The poor retail sales were despite an unchanged Consumer Price Index (CPI), for urban consumers, in July.
Amid this backdrop, it is evident that the operating environment for U.S. retailers is presently tough. Now, let us discuss Macy’s and Nordstrom’s revised projections for the full year and understand how they fared in Q2.
Macy’s Projections for Fiscal 2022 Disappoint Stakeholders
Shares of this $5.2-billion retailer declined 1.21% in Tuesday’s extended trade after gaining 3.4% (to close at $19.31) in the normal trading session. Macy’s adjusted earnings in Q2 were $1 per share, above the consensus estimate of $0.86 per share. Revenues of $5.6 billion surpassed the consensus estimate of $5.49 billion.
The bottom line declined 22.5% year-over-year and revenues declined 0.8%. The top-line story is underpinned by a 1.73% decline in the number of total estimated visits to Macy’s website in Q2. Learn how Website Traffic can help you research your favorite stocks.
The company’s Chairman and CEO, Jeff Gennette, opines that Macy’s is “well positioned to respond to changing consumer behaviors” and that consumers still prefer “Macy’s as a style source and leading gifting destination.”
For Fiscal 2022 (ending January 2023), Macy’s predicts revenue to be within the $24.34-$24.58 billion range and adjusted earnings to be $4-$4.20 per share. However, these projections are lower than the company’s previous forecast of $24.46-$24.7 billion range for revenues and $4.53-$4.95 per share for earnings.
The revision incorporates the impacts of the economic slowdown, lower spending by consumers, and high inventory levels. To address its inventory problems, the company is ready to mark down its products and resort to promotional actions. Notably, Macy’s merchandise inventory increased 7.3% year-over-year to $4.61 billion at the end of Q2.
Nordstrom Stock Declines on Weak Projections for Fiscal 2022
Shares of Nordstrom declined 14.2% in the extended trading session on Tuesday after the $3.7-billion retailer announced upbeat results for the second quarter and lowered projections for Fiscal 2022.
Earnings were $0.81 per share, above the consensus estimate of $0.80 per share. Revenues of $3.99 billion came in above the Street’s estimate of $3.96 billion. On a year-over-year basis, earnings per share grew 65.3%, and the top line expanded 11.9%. The increase of 19.41% in the number of total estimated visits to the company’s website supports the company’s top-line strength.
Notably, the company’s inventory was $2.4 billion at the end of Q2, up 9.9% year-over-year.
Nordstrom’s CEO Erik Nordstrom said that “customer traffic and demand decelerated significantly beginning in late June” and so the company is adjusting “plans and taking action to navigate this dynamic in the short term, including aligning inventory and expenses to recent trends.”
For Fiscal 2022, the company forecasts revenues to grow 5% to 7% year-over-year, compared to its previous expectation of growth within the 6%-8% range. Adjusted earnings are expected to be $2.30-$2.60 per share, below the $3.20-$3.50 per share range anticipated earlier.
Should You Buy Macy’s & Nordstrom Stocks Now?
If analysts and retail investors tracked by TipRanks are to be believed, a wait-and-watch approach for Macy’s and Nordstrom could be a good idea for prospective investors.
Analysts have a Hold consensus rating on Macy’s based on four Buys, six Holds, and three Sells. M’s average price target of $25.25 suggests 30.76% upside potential from the current level. Also, investor sentiment is Neutral on M stock.
For Nordstrom, analysts’ Hold consensus rating is based on two Buys, five Holds, and three Sells. JWN’s price target is $22.20, reflecting a downside risk of 4.31% from the current level. Meanwhile, investors have a Negative stance on JWN.
A pictorial representation of the two stocks is provided below.
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