Shares of Macy's, which also operates the luxury chain Bloomingdale's, closed the day down 4.5 percent at $46.33, leading other retail stocks lower.
The retailer said comparable sales and overall sales slid 0.8 percent in the second quarter. Analysts expected comparable sales to rise 2.3 percent, according to Thomson Reuters I/B/E/S.
It also lowered full-year profit targets, saying the "continuing uncertainty" people have about spending on items they do not need in a tough economy is weighing on results. In May, the retailer warned its budget-conscious shoppers were again being cautious.
On a conference call with Wall Street analysts, Chief Financial Officer Karen Hoguet said shoppers are directing more of their spending to cars, housing and home improvement. Adding to the pain was a drop in traffic to malls.
Some Macy's pain was self inflicted. The company did not offer enough of the low-price merchandise shoppers wanted, Hoguet said.
The results come a week after a group of large U.S. retailers posted disappointing sales for July, and had to resort to discounts to spur buying. [ID:nL1N0G91SX] Kohl's Corp (KSS.N) and Wal-Mart Stores Inc (WMT.N) will report on Thursday, while big chains such as J.C. Penney Co Inc (JCP.N), Target Corp (TGT.N) and Sears Holdings Corp (SHLD.O) report next week.
"The sales environment is tough. The low-to-mid end customer is still struggling," said Edward Jones analyst Brian Yarbrough.
Many U.S. shoppers, including Macy's middle-class customers, are contending with payroll taxes and gas prices that are higher than a year ago and a job market improving at a snail's pace.
In a research note earlier this week, Morgan Stanley analyst Kimberly Greenberger said the quarter was generally tough for department store chains in part because of less mall traffic, particularly in July.
Still, Chief Executive Terry Lundgren said in a statement he was "encouraged" so far with the back-to-school season, the second-most important time of year after the holiday season for chains such as Macy's and rivals Kohl's and Penney.
Despite the sales decline, merchandise inventory levels were up 6 percent at the end of the quarter, something Edward Jones' Yarborough said could portend more discounting.
Macy's said it had accelerated the receipt of orders to be able to sell more merchandise in areas of the country where schools open earlier.
Macy's also got help from its luxury Bloomingdale's chain, where sales rebounded after some weakness in the spring.
Macy's reported net income of $281 million, or 72 cents a share for the quarter that ended August 3, up slightly from $279 million, or 67 cents per share a year earlier. That was 6 cents per share less than expected, according to Thomson Reuters I/B/E/S.
The retailer resorted to slashing prices to clear unsold merchandise and lowered its profit forecast for the year. It now expects earnings of between $3.80 and $3.90 per share, compared with a previous range of $3.90 to $3.95, saying it does not expect to make up for the sales shortfall of the second quarter.
Smaller rival Dillard's Inc (DDS.N) also reported disappointing sales on Wednesday. Its second-quarter same-store sales rose 1 percent, while Wall Street was expecting a 2 percent increase. Overall revenue was down 0.5 percent to $1.52 billion, below forecasts for $1.54 billion.
But Dillard's reported a profit of $36.5 billion, or 79 cents per share, compared with $31 million, or 63 cents a year earlier, helped in part by lower advertising costs. That was 5 cents better than expected, sending the company's shares up 5.2 percent to $83.10 in after hours trading.
(Reporting by Phil Wahba in New York; Editing by Maureen Bavdek and Andre Grenon)
