A tale of two retailers: Target reverses sales slump while Macy's reports another quarterly decline

NEW YORK (AP) — Grocery aisle deals and an emphasis on affordable but stylish clothes helped Target reverse a year-long sales slump, while Macy’s on Wednesday reported another quarterly decline and said sales for the fiscal year will be weaker than expected due to a “more discriminating consumer” outlook.

The difference in fiscal second-quarter results reported by the two retailers underscores the financial circumstances of U.S. shoppers: Consumers are still spending, but they're being selective about where they make purchases when the costs of housing, food and other essentials remain inflated. When it comes to clothing, for example, they're often choosing store label brands, which are typically less expensive than national brands.

“You have to believe that everybody is being a little more cautious as they kind of watch what’s going on in the macro environment and are just being more judicious in the purchases they make,” Macy's CEO Tony Spring told analysts Wednesday.

Target’s shares shot up more than 12%, while Macy’s shares fell more than 11% in late morning trading.

Target’s profits and sales beat Wall Street expectations. Sales rose 3% to $25.45 billion in the latest quarter, slightly better than expected. But even though the number of transactions increased, the average amount spent by customers fell during the quarter, underscoring how Americans remain focused on deals, company executives said.

Target CEO Brian Cornell described how customers becoming choosier with how they spend their money poses a challenge for retailers.

“In an environment where consumers continue to make meaningful trade-offs, our results demonstrate the power that comes from the right combination of newness, seasonal relevance, and compelling value,” Cornell said during an earnings call with analysts.

The Minneapolis-based company reported that its comparable sales — the sales from stores and digital channels operating for at least 12 months — rose 2% in the second quarter. The increase in the April-June period reversed months of declines, including a 3.7% drop in the first quarter and a 4.4% decline during the company’s final quarter of 2023.

The number of sales transactions increased 3% compared with the same period last year, with all six main merchandising categories, including fashion and home goods, showing strength. Online sales rose 8.7%, and comparable clothing sales increased 3% from a year ago as customers embraced new store brands like All in Motion and Wild Fable.

Target now has 45 private labels, including Figment, a kitchenware collection launched last year.

To boost sales, Target said this spring that it would cut prices on thousands of necessities ranging from diapers to milk. The retailer also is rolling out programs to make shopping easier as it competes with fellow discounters Walmart and Amazon. Target announced a paid membership program in April called Target Circle 360, which comes with unlimited free same-day delivery for orders over $35 and free two-day shipping for all orders.

Such moves appear to be paying off.

Target earned $1.19 billion, or $2.57 per share during the quarter, edging out Wall Street expectations by a penny, according to a survey of industry analysts by FactSet. That compared with $835 million, or $1.80 per share, during the year-ago period.

The company increased its annual profit outlook but was still circumspect with its sales guidance, saying sales could be unchanged from a year ago amid overall economic uncertainty.

Macy’s, on the other hand, saw weaker sales even as expense-cutting helped it swing back to a profit in the second quarter.

The company, which also operates upscale Bloomingdale’s stores and cosmetics chain Bluemercury, reported that net sales fell nearly 4% to $4.94 billion from $5.13 billion a year ago and below the $5.06 billion that the industry had projected. Macy's downgraded its annual sales forecast, citing a need to roll out more discounts to entice customers.

Macy's posted a profit of $150 million, or 53 cents per share, in the three-months ended Aug. 3, topping Wall Street expectations for per-share earnings of 30 cents, according to a survey by FactSet. It had a loss of $22 million, or 8 cents per share, in the same period a year ago.

The results came one month after Macy’s terminated its monthslong buyout talks with two investment firms, citing a substandard offer and the lack of certainty over financing.

Macy’s said in July that it will focus on its own turnaround efforts. That previously unveiled plan includes closing 150 Macy’s stores over the next three years and upgrading the remaining 350 stores.

The overhaul includes adding more salespeople to fitting areas and shoe departments. It’s also pivoting more to luxury sales, which have held up better overall. Macy’s said it will open 15 higher end Bloomingdale’s stores and 30 luxury Bluemercury cosmetics locations to cater to customers seeking higher end services and goods.

Spring, who became Macy's CEO and chairman earlier this year, said that the company is seeing two consecutive quarters of comparable sales gains in Macy’s first 50 stores that it has overhauled.

The company reaffirmed its annual outlook for earnings per share but said annual net sales would range from $22.1 billion to $22.4 billion, lower than its May projection of $22.3 billion to $22.9 billion. Analysts were expecting $22.53 billion, according to FactSet.

Macy’s also projected that comparable sales for the year, including for licensed businesses offering jewelry and cosmetics and in its third party marketplace, will be worse than previously projected.

The results follow Walmart’s announcement last week that it had another quarter of strong sales that topped almost all expectations with its comparatively low prices proving a powerful draw for millions who have struggled with post-pandemic inflation.