In a challenging quarter, Macy's revealed a significant decline in comparable-store sales, which dropped by 8% at their owned stores. Additionally, their adjusted earnings per share experienced a sharp decline of 74% due to a pension shift.
Macy's Chief Financial Officer (CFO) and Chief Operating Officer (COO), Adrian Mitchell, shed light on the financial state of the consumer. Specifically, Mitchell highlighted a decrease in credit-card revenue during the quarter.
While it was expected that delinquencies would increase as the credit environment normalized, Mitchell noted that the rate of growth was unexpectedly rapid. This sudden rise negatively impacted the company's second-quarter results and led to an unfavorable bad debt outlook for their portfolio.
When asked for further details by Gordon Haskett analyst Greg Sommer, Mitchell explained that the delinquency increase primarily occurred in June and July. He also mentioned that Macy's is collaborating with their credit-card partner, Citigroup, to strategically reduce exposure by targeting higher-risk segments. In simpler terms, they are lowering available credit limits for individuals who are more likely to struggle with bill payments.
Mitchell predicted more troubling news on the horizon, particularly regarding the debt service ratio. This metric serves as an indicator of consumers' ability to pay off debts using their disposable income and personal earnings. It encompasses credit card balances, student loans, auto loans, and mortgages. Mitchell believes that customers are facing increasing pressure due to these financial responsibilities and expects these challenges to persist throughout the second half of this year and into the next.
It is worth noting that consumer spending has not yet been significantly impacted. Retail sales witnessed a notable increase of 0.7% last month. Moreover, the Bureau of Economic Analysis has access to more recent weekly data based on card transactions, which continues to reflect growth in spending.