Macy's 2Q to offer clues on early fall spending

NEW YORK (AP) -- Macy's Inc. is expected to provide some insight into the start of the back-to-school shopping season when it reports its second-quarter results before the market opens Wednesday.

WHAT TO WATCH FOR: The department store chain, based in Cincinnati, has been reaping the benefits of its strategy of tailoring merchandise to local markets. But like other merchants, Macy's is grappling with a yo-yo economic recovery that is making middle- to upper-income shoppers remain frugal about their purchases heading into the heart of the back-to-school selling period.

While jobs are easier to get and the turnaround in the housing market is gaining momentum, the improvements have not been enough to sustain higher levels of consumer spending for most Americans. Most are juggling tepid wage gains with higher costs of living.

Analysts will dissect any comments on teens' and parents' spending for the back-to-school season, the second-most important period of a retailer's health behind the winter holidays. Other retailers like teen clothing sellers American Eagle Outfitters Inc. and Aeropostale Inc. have already warned of a slow start to the period. Both cited lots of discounting.

Analysts will want to know whether Macy's is also seeing business slow and whether it has had to increase discounts to bring shoppers in.

Macy's, along with many other major retailers, no longer reports monthly sales figures. But many of the ones that do including Costco Wholesale Corp. posted disappointing sales for July last week. Analysts expect Macy's to report a 2.3 percent gain in revenue at stores open at least year for the second quarter. That would be a slowdown from the 3.8 percent pace in the first quarter

Analysts will also be looking for executives' outlook and any details on Macy's orders for the holiday season. They'll want to know whether it has substantially increased holiday orders from a year ago. If so, that would represent confidence in consumer spending.

Analysts will also want to know how much Macy's is benefiting from J.C. Penney's woes. Penney is trying to stabilize its business at the same time it's now dealing with boardroom warfare over the future of Penney's leadership.

Penney fired Ron Johnson in April after his transformation strategy backfired and led to disastrous results. The board reinstalled Johnson's predecessor Mike Ullman as CEO to stabilize the business, but the company's largest investor and board member William Ackman is criticizing the board to push for a new chairman and new CEO as soon as possible.

Macy's is also locked in a legal battle with Penney over a partnership with Martha Stewart Living Omnimedia Inc. Macy's sued Penney and Martha Stewart for violating its pact with the home maven when the two signed a merchandising deal with Martha Stewart. A New York State Supreme Court judge is expected to make a ruling in the case soon after lawyers from the three companies made closing arguments on Aug. 1.

WHY IT MATTERS: Macy's is seen as a barometer of spending among middle- to upper-income shoppers.

WHAT'S EXPECTED: Analysts surveyed by FactSet, on average, expect earnings of 78 cents per share on revenue of $6.26 billion.

LAST YEAR's QUARTER: Macy's, based in Cincinnati, earned 67 cents per share on revenue of $6.12 billion.