Macy’s Inc (M) delivered better-than-expected earnings for the second quarter (Q2) of the fiscal year, but the retail giant acknowledged challenges within its credit card business. The company reported earnings on Tuesday before the market opened, revealing a decline in credit card revenues due to increased delinquencies across various stages of aged balances in its portfolio.
In its Q2 earnings report, Macy’s highlighted the adverse impact of heightened delinquency rates on credit card revenues. The company, while anticipating a rise in delinquencies as part of the normalization of the credit environment, expressed concern over the accelerated increase in delinquencies. The pace of this increase outpaced expectations, both for Macy’s and the broader credit card industry, since the previous quarter’s earnings call.
Despite the credit card setback, Macy’s net revenue came in at $5.13 billion, surpassing analysts’ predictions of $5.1 billion. However, credit card delinquencies adversely affected the “other revenue” category, leading to an $84 million reduction compared to the previous year.
During a call with investors, Macy’s Chief Financial Officer, Adrian Mitchell, explained the revenue dynamics. “While we’ve witnessed revenue growth due to rising interest rates, this gain has been offset by higher bad debt assumptions and write-offs,” Mitchell stated. These financial impacts stem from rising delinquencies, ultimately resulting in elevated net credit losses and an increase in bad debt within the credit portfolio. Macy’s is actively collaborating with its partner, Citibank (C), to address these challenges through adjustments in underwriting strategies.
The surge in delinquencies and the influence of higher interest rates reflect broader issues facing Americans, as consumers grapple with credit card debt repayment. Macy’s CEO, Jeff Gennette, acknowledged the macroeconomic uncertainties the company faces. He shared, “We continue to see uncertainty in the macroeconomic environment. We are leveraging our robust data science tools to refine inventory composition, while reading and reacting to shifting consumer preferences to meet demand.”
Despite these challenges, Macy’s stands by its 2023 guidance. The company’s net sales projection remains between $22.8 billion and $23.2 billion. However, sales are predicted to remain negative on a year-over-year basis, ranging from a decline of 7.5% to 6%.
Market response to Macy’s earnings announcement was mixed. Initially, the company’s stock showed an increase in premarket trading following the release of the results. However, by the time the market opened, the stock experienced a drop of more than 8%.
Macy’s noted a 10% year-over-year decrease in inventory and an 18% decline since 2019, attributed to disciplined inventory management and the clearance of excess spring seasonal products. Additionally, the company announced plans to open four new store locations this fall, featuring smaller footprints to adapt to evolving consumer preferences.
Source: Yahoo Finance
