NEW YORK (AP) — Macy's Inc. is expected to report higher earnings and sales when it reports second-quarter results Wednesday before the market opens. But investors are looking to see if the department store's business is showing some signs of consumer strain, given growing uncertainty about the economy and the job market.
WHAT TO WATCH FOR: The department store chain has been reaping the benefits of its strategy of tailoring merchandise to local markets, but in the latest sales reports, executives have noted challenges brought about by a weaker economy. Investors will want to know more details on shoppers' habits, particularly any commentary on buying for the back-to-school shopping season, which kicked off late July. The back-to-school period is the second most important period in the year, after the winter holidays.
Wall Street will also look for clues about whether Macy's is continuing to benefit from shopper confusion over J.C. Penney's new pricing strategy, launched Feb. 1, that eliminates hundreds of sales events in favor of every day pricing. Penney, which suffered a big loss and a 20 percent drop in the first quarter, said last week it was making major changes to the strategy — deepening permanent discounts and bringing back the word "clearance."
Investors will also be listening for any commentary on Macy's legal battle with supplier Martha Stewart Living Omnimedia Inc., which it sued in January in a bid to block a licensing deal the housewares company made with Penney. Macy's contends that it had exclusive rights to certain categories of the brand until 2018. Last month, Macy's won a preliminary injunction against Martha Stewart Living that would prevent it from selling some of its products at the rival chain.
Macy's reported last week that revenue at established stores rose 4.1 percent last month, despite a struggling broader economy and a major remodeling of its flagship New York City store. Revenue at stores open at least a year is a key measure for retailer health, because it strips out the possible benefit from newly opened stores. The results topped expectations of analysts, who forecast an increase of 3.2 percent, according to Thomson Reuters.
"Despite some challenges from a sluggish macroeconomic environment and a temporary disruption of sales from the remodeling project at our Herald Square flagship store in New York City, the spring season met our expectations," said Terry J. Lundgren, chairman, president and chief executive officer of Macy's Inc. in a statement issued last week.
But for Macy's overall second quarter, the metric rose 3 percent. Analysts surveyed by FactSet had expected 3.5 percent growth back in June, but had ratcheted down expectations in recent weeks.
WHY IT MATTERS: Macy's is seen as a barometer of spending among middle- and upper-income shoppers.
WHAT'S EXPECTED: Analysts, on average, expect earnings of 64 cents on revenue of $6.12 billion.
LAST YEAR'S QUARTER: Macy's, based in Cincinnati, earned 55 cents per share on revenue of $5.94 billion