• by Sarah Mahoney  @mahoney_sarah, March 3, 2023

While Kohl’s, Macy’s and Nordstrom may serve three different kinds of shoppers, they’ve all just reported earnings that include somber forecasts for what’s ahead, with each anticipating a decline in sales for the year ahead.

Kohl’s news hit observers hardest, with the department store posting an unexpected loss, with sales dropping 7.2% in the fourth quarter to $5.77 billion, compared to $6.22 billion in the fourth quarter of 2021. Comparable sales slipped 6.6%. And profit suffered as the retailer marked down more inventory with steeper discounts. It posted a net loss of $273 million, compared with a net income of $299 million in the comparable period.

“Candidly, I know we can do better,” said Tom Kingsbury, Kohl’s chief executive officer, in a call webcast for investors. “To reach our full potential, we will refine our strategy and reestablish merchandise disciplines with a customer-centered focus across the organization.”

But he warned that impact wouldn’t be felt overnight. The Menomonee Falls, Wisconsin company recently appointed Dave Alves as the new president and chief operating officer, effective in April. For 2023, with middle-income consumers still under pressure, the company expects sales to decrease between 2% and 4%.

Macy’s execs see similar declines ahead, predicting a sales drop of 1% to 3% for the full year. For the fourth quarter, net sales fell 4.6% to $8.3 billion. Comparable sales fell by 3.3%, and digital sales fell by 9%.

Those results align with expectations, writes David Swartz, an analyst who follows Macy’s for Morningstar. Macy's forecast, however, fell somewhat below what he expected. Despite the sector’s challenges, “we think Macy’s did a better job of managing its inventory than competitors like Kohl’s and the Gap in 2022, allowing it to limit discounting and putting it in a better position for 2023.”

Jeff Gennette, Macy’s chairman and chief executive officer, says the company is closely monitoring spending trends. “There is conflicting data,” he said in the company’s earnings call. “As a modern department store operating from off-price to luxury, we have a full view of income tiers, aided by our high penetration of loyalty members and robust credit card portfolio. On the surface, the consumer is in better shape than 2019.”

He points to strong jobs and wages, with solid savings levels, even as inflation outpaces salary growth and consumers use more credit.

And while Gennette believes discretionary spending remains under pressure at all income levels, he also sees spots of opportunity. “With the continued expansion of a hybrid work model, there are more in-person meetings and flexibility for personal travel,” he said. “We believe the desire to be with loved ones, go on vacation, and attend events has not diminished, and expect gift-giving and occasion-based demand to continue.”

At Nordstrom, the pullback in spending is most pronounced among lower-income customers, with sales sinking 8% for the quarter at Nordstrom Rack, its off-price chain. It expects its 2023 revenue to fall even more deeply than its competitors, declining between 4% and 6% for the full year. In part, that’s due to its decision to exit Canada, where those stores now contribute about 3% of the company’s sales.

“We expect that elevated inflation and rising interest rates will continue to weigh on consumer spending, especially in the first half of the year,” said Michael Maher, interim chief operating officer, in prepared remarks.

Sales at the Seattle-based company declined 4.1% to $4.2 billion, compared to $4.38 billion in the comparable period a year ago. And net earnings fell to $119 million, from $200 million in the prior-year period.