Macy’s and Dollar General Results Show Inflation’s Bite Is Far-Reaching

The markdown of retail stocks Thursday (June 1) signals that the summer of markdowns is here.

Macy’s financial results and a host of announcements from other firms Thursday morning showed that inflation’s pinch is indeed real.

As the company noted in its earnings announcement, brick-and-mortar sales decreased 6% in the first quarter of 2023 versus Q1 2022. Digital sales were off 8% versus the same period.

Commentary from management ahead of the call pointed to an inflation-fueled slowdown ahead, and the fact that the company will have to take markdowns to move inventory off the shelves.

“We planned the year assuming that the economic health of the consumer would be challenged, but starting in late March, demand trends weakened further in our discretionary categories,” Macy’s CEO Jeff Gennette said in that statement.

There will be “incremental clearance markdowns to address excess spring seasonal merchandise in the second quarter,” he added.

PYMNTS reported in April that markdowns would be in the offing. Census Bureau data detailed that U.S. wholesale inventories were up headed into the spring, indicating there was merchandise piling up.

Consumers Pull Back at Discounters Too

The impact has hardly been limited to department stores or Macy’s. Dollar General reported earnings results Thursday noting same-store slowdowns, as comparable sales in the first quarter of 2023 stood at 1.6%. The company is also forecasting comp sales growth in the current year of 1% to about 2%, where the firm had expected that this metric would grow by between 3% to 3.5%. Spending on consumables continued to be strong, but there was a slowdown in spending on seasonal, home and apparel offerings.

As of Thursday morning, shares in Macy’s were down 5%, while shares in Dollar General stock plummeted 20%.

It may be the case that the pullback in spending on tangible goods is simply a pivot by consumers toward experiences and services. Although its own shares dipped 1% in intraday trading, Southwest Airlines said Thursday that spending on leisure travel remains strong.

But as PYMNTS’ coverage of the state of the paycheck-to-paycheck economy shows, the macro headwinds are snaring all demographics, including high earners. As many as 66% of households and individuals earning more than $100,000 annually have reported cutting back on discretionary retail spending, with 55% decreasing their nonessential grocery purchases.

Additionally, April’s retail sales data sheds some light on just how discretionary the spending on discretionary goods has become. As measured in April, spending on sporting goods was off 3.3%, spending at electronics stores slid 0.5%, and furniture displayed a 0.7% decline. As a category, clothing and accessories were off by 0.3%. Sports and hobbies were 3.3% lower.

The summer looms, the retailers face a tough choice on how to clear the inventory that threatens to clog the real (and virtual) shelves, and margins are likely to be constrained. The tradeoff is a tough one, and merchants may feel the heat.