Best Buy, Macy's 4Q reports underscore consumer slowdown

NEW YORK - Quarterly earnings from Macy's and Best Buy show how Americans have pulled back their spending on clothes and gadgets as inflation strains household budgets.

Macy's profit and sales in the holiday quarter slid, though it beat Wall Street expectations and its outlook for 2023 didn't disappoint given the uncertain economic environment.

It was the same at Best Buy, though the nation's largest consumer electronics chain issued a downbeat financial outlook for the year.

It's a retreat from the heavy spending on technology during the pandemic when millions of parents and children worked or attended classes largely from home.

"The consumer electronics industry continues to feel the effects of the broader macro environment and its impact on consumers," said Matt Bilunas, Best Buy's chief financial officer.

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Best Buy reported weak spending on computers, home theaters, appliances and mobile phones in the fourth quarter, though tablets and gaming were still hot categories.

Major retailers over the past week have said that they don't know what to expect in 2023 with so many unknowns regarding the strength of the U.S. and global economy.

However, unlike big retailers that have already reported results, Macy's on Thursday remained relatively positive about its profit this year.

The department store expects to earn between $3.67 and $4.11 per share in 2023, potentially outperforming Wall Street consensus projections for per-share earnings of $3.78.

Shares jumped more than 9% to $22.34 on Thursday.

Retailers are feeling the sting of a consumer spending slowdown in an economic environment that's growing more unpredictable. Kohl's, Walmart and Target have all issued cautious outlooks. Many stores had to discount heavily in the last six months to get rid of unwanted merchandise as shoppers shifted their spending more to necessities and services. Now, many stores seem to have inventory in control and they're trying to be more surgical in their price cuts.

While inflation has eased in recent months, it remains stubbornly high. And a sustained campaign by the Federal Reserve to cool inflation through interest rate hikes makes it more expensive to use credit cards to buy goods in stores, in addition to raising the cost of auto, home and business loans.

Macy's, which also operates beauty chain Blue Mercury and upscale Bloomingdale's in addition to its namesake stores, said Thursday that it "anticipates that the heightened level of uncertainty within the macroeconomic environment will continue" this year.

Chairman and CEO Jeff Gennette told The AP in a phone interview on Thursday that all income tiers including the wealthy shoppers are pulling back. But he said there are big opportunities to sell more items to well-heeled shoppers who are not cutting back at the levels others are. At Bloomingdale's, which recently celebrated its 150th anniversary, members of its loyalty program accounted for more than 70% of sales and spent 7% more in the fourth quarter compared to a year ago.

Macy's earned $508 million, or $1.83 per share, in the quarter ended Jan. 28. Stripping out certain items, earnings were $1.88 per share. That tops the per-share earnings of $1.57 that Wall Street had expected, according to a survey by Zacks Investment Research.

That compares with net income of $742 million, or an adjusted profit of $2.45 per share, in the year-ago period.

"Although Macy's expects challenges in the year ahead (with an net sales decline of 1% to 3% in the fiscal year ahead), its better-than-expected Q4 results bode well as they demonstrate that the myriad changes it has been making over the past few years," said Insider Intelligence senior analyst Zak Stambor.

Sales declined to $8.26 billion from $8.67 billion, but that also topped analyst projections. Macy's Inc. expects sales of $23.7 billion to $24.2 billion for 2023, which is a bit light of analyst projections.

Comparable sales dropped 3.3% on an owned basis and were down 2.7% on an owned-plus-licensed basis.

Best Buy earned $495 million, or $2.23 per share, for the three-month period ended Jan. 28, down from the $626 million it earned during the same period last year, but better than the per-share earnings of $2.10 Wall Street had expected.

Revenue declined 10% to $14.73 billion, still slightly better than expected, and comparable store sales fell by the same percentage.

The company expects comparable sales to decline anywhere from 3% to 6%, worse than the 1.7% decline expected by industry analysts, according to a poll by FactSet.

Best Buy said expects earnings per share between $5.70 and $6.50 this year, short of the $6.79 projections on Wall Street. Its revenue projection of between $43.8 billion and $45.2 billion was also shy of the $45.73 billion analysts are looking for.

Company shares slipped nearly 2%, or $1.38 per share, to $81.16.