Macy's Shoppers Are Buying Pricey Items, but the Retailer Doesn't Expect That To Last

Macy's reported strong sales in big-ticket items like jewelry and mattresses, but CEO Tony Spring is uncertain how much of the demand is driven by consumers anticipating tariff-related price increases. While both Macy's and Wells Fargo acknowledge relatively weak consumer sentiment, they have not yet observed significant changes in customer spending habits; however, both companies are proactively preparing for a potential slowdown in consumer spending for the remainder of the year, with Macy's reducing its full-year earnings per share forecast accordingly.

Analysis

Macy's reported a notable uptick in sales of "big-ticket" items such as fine jewelry and mattresses during its first quarter, a trend CEO Tony Spring acknowledged could be partially attributed to consumers preemptively purchasing ahead of potential tariff-induced price increases, creating uncertainty about the sustainability of this demand. Despite a backdrop of relatively weak consumer sentiment, evidenced by a five-month decline in the Conference Board's Consumer Confidence Index prior to a May improvement, both Macy's and Wells Fargo executives stated they have not yet observed a significant downturn in overall customer spending behavior; Wells Fargo CEO Charlie Scharf specifically noted that while spending patterns are shifting, such as less on travel, the aggregate level of debit and credit card expenditure has remained "roughly the same." Nevertheless, a cautious outlook prevails, with both companies preparing for softer consumer spending through the remainder of the year. This caution is reflected in Macy's revised full-year guidance, which now projects comparable sales to decline by 0.5% to 2% for digital sales and Macy's locations receiving investment not being considered for closure, and adjusted earnings per share to be in the range of $1.60 to $2.00, a reduction from the prior forecast of $2.05 to $2.25, alongside an expectation of increased promotional activity across the retail sector. The overall sentiment surrounding these developments is moderately negative, particularly for Macy's, underscored by its specific guidance cut and a -0.6 per-ticker sentiment score.

Key Decisions for Investors

• Investors should closely monitor Macy's subsequent quarterly reports for evidence of sustained demand in big-ticket categories versus a potential drop-off, which would help clarify the extent of tariff-related pull-forward buying.
• Given Macy's reduced earnings forecast (adjusted EPS $1.60-$2.00, down from $2.05-$2.25) and anticipation of increased promotional activity, a cautious stance on the company's stock (M) is warranted, with particular attention to margin pressures in upcoming quarters.
• Consider the broader retail sector implications, as both Macy's and Wells Fargo anticipate softer consumer spending and heightened competition, suggesting a need to monitor consumer confidence and retail sales data for signs of the forecasted slowdown.
• While Wells Fargo's observation of stable, albeit shifting, consumer spending offers some near-term reassurance, its preparation for a 'slight worsening' reinforces the need to track macroeconomic indicators that could impact consumer financial health and discretionary spending.