Macy’s Inc. comparable sales beat analyst expectations, but a significant drop from a year ago shows that department store customers are pulling back on purchases.

While US shoppers are spending at stores like Walmart Inc. for necessities, as well as forking out cash on travel and entertainment, outlays for apparel and accessories have fallen from record highs during the pandemic.

Promotions were “surgically implemented” to clear seasonal items, Macy’s chief executive officer Jeff Gennette said in a statement. “We continue to see uncertainty in the macroeconomic environment,” he said.

Same-store sales in the second quarter at the Macy’s namesake brand were down 9.2 percent on an owned basis, while the higher-end Bloomingdale’s fell 2.7 percent. Bluemercury rose 5.8 percent. Categories including active, casual and sleepwear remained challenged at Macy’s, the company said, while beauty and cosmetics were strong across the three brands.

The shares fell 11 percent at 11:36 a.m. in New York. The stock has tumbled more than 28 percent this year as of Monday’s close.

Adjusted earnings per share were 26 cents, compared with the average analyst estimate of 13 cents. Gross margin of 38.1 percent, meanwhile, weakened from the prior quarter due to clearance markdowns, the company said.

Credit card delinquencies accelerated in the second quarter, particularly in June and July, which negatively impacted results, chief financial officer Adrian Mitchell said on a call with analysts. The speed of the increase in bad debt since the first quarter was “faster than planned,” he said.

“A consumer slowdown is in play, with shoppers pulling back on discretionary spending — something that clearly affects Macy’s,” Neil Saunders, managing director at GlobalData Plc, wrote in a note. Macy’s sales decline “is significantly worse than the overall market,” an indication that “the once-iconic retailer is firmly on the back foot.”

Other analysts have a more optimistic outlook. Prior to the earnings report, analysts at Goldman Sachs added Macy’s to their “conviction list,” a group of companies that the bank expects to outperform.

The Goldman analysts noted that Macy’s strong financial position, launch of private label brands and development of small footprint stores should support long-term performance. Macy’s said Tuesday that it would add four new small-format stores this fall in the Northeast and Western regions of the US.

Results from those initiatives may take time to materialise as Macy’s navigates economic headwinds like the end of student loan forbearance and a broader cultural shift away from traditional department store shopping.

“When you look at the tailwinds, they’re diminished, and the headwinds are increasing,” Gennette said in an interview.

Quarterly reports this month from luxury retail companies Tapestry Inc. and Capri Holdings Ltd., which sell designer shoes and bags in department stores, also showed sales declines in the most recent quarter due to softening consumer demand across regions.

By Olivia Rockeman

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