Macy's and Dollar General slash sales outlook as consumer spending wanes

Retailers from Macy's to Dollar General have issued warnings on consumer spending, slashing their sales forecasts and citing an increasingly challenging economic environment, including stubbornly high inflation.

In an earnings report on Thursday, Macy's said same-store sales sank 8.7 percent last quarter, forcing the New York-based department store to cut prices on clothes and other discretionary items.

Macy's results concluded the retail industry's earnings season, which showed how stubbornly high inflation, particularly in food, is forcing shoppers to further cut back on discretionary items like clothing to afford their soaring grocery bills. 

Meanwhile, Dollar General, which caters to low-income shoppers and is the fastest-growing US retail chain by store locations, also cut its annual sales and profit outlook on Thursday, sending the company's stock down 19.55 percent for the day.

Dollar General said it saw sales growth in groceries and other basic necessities, but that was offset by declines in seasonal, home and apparel items as inflation bit into consumer budgets.

In an earnings report on Thursday, Macy's said same-store sales sank 8.7 percent last quarter, forcing the New York-based chain to cut prices on clothes and other discretionary items

Dollar General's net sales of $9.3 billion in the first quarter were up 6.8 percent from a year ago, though profits declined 6.9 percent on the year, to $514.4 million.

The budget retailer has expanded rapidly, particularly in rural areas, and as of May 5 operated 19,294 stores in the US under the brands Dollar General, DG Market, DGX and Popshelf. 

But the discount store chain now expects fiscal 2023 same-store sales to increase in the range of 1 to 2 percent, compared with its prior growth projection of 3 to 3.5 percent. 

In response to the consumer spending slowdown, Dollar General said it plans to scale back its expansion plans for Popshelf, a retail chain focused on home goods that is targeted at middle-class women.

Dollar General previously said it planned to 1,050 more new stores in fiscal 2023, including around 150 new Popshelf stores. 

Now, only 90 new Popshelf stores are slated to open, and the company plans only 990 new store openings across all its brands.

The economic challenges are starting to affect the wealthy, too, with Nordstrom on Wednesday reporting an 11 percent sales decline, despite posting a surprise profit.

Nordstrom said its wealthy shoppers are becoming more restrained. That's forced the Seattle-based company to take a conservative approach to inventory.

'They're pretty resilient, but they're also cautious,' Nordstrom CEO Erik Nordstrom told analysts during its earnings call.

Dollar General, which caters to low-income shoppers and is the fastest-growing US retail chain by store locations, cut its annual sales and profit outlook on Thursday

Dollar General said it plans to scale back its expansion plans for Popshelf (above), a retail chain focused on home goods that is targeted at middle-class women

Shares of Dollar General dropped on Friday after the company cut its sales outlook

Last week, Costco's Chief Financial Officer Richard Galanti noted that customers are trading down from beef to poultry and pork in recent months. 

The big-box chain, which primarily caters to high-income shoppers, noted that some are even switching to some canned food, like chicken and tuna.

Walmart, the nation's largest retailer, reported surging sales earlier last month, and said it's seeing an influx of wealthier shoppers trading down to the discount chain in search of low prices in the grocery aisle.

Macy's CEO Jeff Gennette told analysts on Thursday that sales started to weaken in late March and then worsen in April. 

Gennette cited cooler-than-normal temperatures that made spring clothing less appealing. 

He noted that headlines surrounding the banking crisis that started in mid-March also worried shoppers and said the compounding effect of inflation has made shoppers divert more of their money to food, essentials and services.

The decline was most pronounced at its Macy's stores, which has the largest exposure to the lower to middle income shopper with roughly 50 percent of its customers with average household income of $75,000 or under, Gennette said.

'Our customer became increasingly more deliberate in how they are allocating discretionary spend and buying closer to need,' Gennette told analysts. 

But on the flip side, areas that are less discretionary and less weather-dependent like fragrances, women's career sportswear and men's tailored items did well. He also noted a comeback in pandemic-related areas like housewares, which he believes is encouraging.

US Labor Department statistics show that prices rose 4.9 percent over last year in April

Walmart, the nation's largest retailer, reported surging sales earlier last month, and said it's seeing an influx of wealthier shoppers trading down to the discount chain

The company's luxury nameplates Bloomingdale's and beauty chain Bluemercury were also affected by the increasingly difficult economic environment but not to the same intensity as Macy's, Gennette noted.

Business improved slightly in May at Macy's stores, but sales enjoyed a more dramatic rebound at Bloomingdales, Gennette said. 

He noted during a phone interview with The Associated Press he wasn't sure that the difference reflected a split of the higher income consumer versus the lower income shopper or different offerings in fashion.

'We haven't heard the answer to that yet, and we need more time on that,' he said.

Macy's reported net income of $155 billion, or 56 cents per share, above the 45 cents Wall Street was looking for, but a significant decline from the $286 million earned during the same period last year.

Sales fell to $5.17 billion from $5.56 billion in the first quarter last year, missing analyst projections.

Comparable sales - sales coming from digital channels and stores opened at least a year - fell 7.2 percent across all categories, including licensed businesses like cosmetics.

'We have moved quickly to take the appropriate actions to meet current consumer demand and manage our expenses,' said Gennette, in a written statement.

The company slashed its sales projections for this year to the range of $22.8 billion to $23.2 billion, down from the previous range of $23.7 billion to $24.2 billion. 

The revised guidance reflected clearance markdowns on spring seasonal merchandise in the second quarter and cuts in inventory to adjust to the consumer slowdown, Gennette said.