Macy’s flags acceleration in credit-card delinquencies

“While we had expected delinquencies to rise as part of our normalizing credit environment, the speed at which the increase occurred for us and the broader credit card industry since our first quarter earnings call was faster than planned. This negatively impacted second quarter results and led to an increase in the portfolio’s bad debt outlook,” Mitchell said, according to a transcript from S&P Global Market Intelligence.

Asked to give further insight by Gordon Haskett analyst Greg Sommer, Mitchell said the delinquency rise occurred primarily in June and July. And he said Macy’s was working with its credit-card partner, Citigroup
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“to target higher risk segments to surgically reduce exposure,” which in plain English means lowering available credit limits to the people most likely to struggle paying their bills.

Mitchell suggested more bad news is in store. “The one metric we find quite interesting is the debt service ratio, which we leverage as a proxy for the consumer’s ability to pay debt using their disposable income — personal income,” he said.

“So this is about credit card balances, this is about student loans which we know is going to come into focus in the next month or two, auto loans, mortgage. So we just believe that the customer is coming under pressure because these are new realities that they have to continue to deal with as we get through the back half of this year and move into next year,” he said.

Consumer spending, it should be emphasized, has yet to be impacted. Retail sales jumped 0.7% last month. The Bureau of Economic Analysis has more current weekly data based on card transaction data, and that too continues to show spending growth.