Macy’s on Tuesday cut its full-year forecast, saying it anticipates deteriorating consumer spending on discretionary items like apparel that will force the department store chain to use heavy markdowns to move items off shelves.

The warning comes even as the retailer reported a fiscal second-quarter profit and revenue that topped analysts’ expectations. Macy’s also teased that its digital marketplace, which was announced last year, is launching in the coming weeks.

Macy’s now sees fiscal 2022 revenue in a range of $24.34 billion to $24.58 billion, down from prior estimates of $24.46 billion to $24.7 billion. It puts its annual adjusted earnings per share in a range of $4 to $4.20, down from prior guidance of $4.53 to $4.95. Wall Street analysts had been looking for full-year guidance of $24.36 billion and $4.51 per share, according to Refinitiv consensus estimates.

The revised forecast from Macy’s follows big-box giants Walmart and Target last week both reiterating their annual forecasts even as their profits are pressured. Kohl’s, however, cut its guidance again saying that its middle-income customers are being hurt by inflation.

Companies that rely on sales of discretionary items like apparel and footwear are at greater risk of underperforming in an environment where shoppers are increasingly thinking about pulling back spending. Over summer in particular, many Americans opted to splurge on vacations and dining out rather than physical goods.

“The consumer is not as healthy as they were in prior quarters,” Chief Financial Officer Adrian Mitchell told analysts on a conference call. “We have seen declining retail traffic in areas of weakening apparel sales over the quarter as the consumer faces higher costs on essential goods, particularly grocery.”

Macy’s noted both its Bloomingdale’s and Bluemercury banners captured demand in the latest quarter from higher-income customers spending on luxury items. Both businesses outperformed, it said.

The department store chain also said that while lower-income consumers slowed their spending during the quarter, they didn’t necessarily trade down to less costly brands. Instead, they’re just being more selective, according to Gennette.

Here’s how Macy’s performed in its fiscal second quarter compared with what analysts were anticipating, based on Refinitiv estimates:

• Earnings per share: $1 adjusted vs. 85 cents expected
• Revenue: $5.6 billion vs. $5.49 billion expected

Net income in the three-month period ended July 30 fell to $275 million, or 99 cents per share, from $345 million, or $1.08 a share, a year earlier.

Net sales fell slightly to $5.6 billion from $5.65 billion a year earlier.

Macy’s comparable sales on an owned plus licensed basis dropped 1.6% from the prior year. Analysts had been looking for a 2% decrease, according to Refinitiv.

Digital sales fell 5% from the prior year but were still up 37% compared with pre-pandemic levels, Macy’s said. E-commerce revenue accounted for 30% of total sales, down slightly from the prior year, as people returned to stores to shop.

CEO Jeff Gennette said that Macy’s so-called Polaris turnaround plans, which have entailed store closures and investments in its digital operations, have made the company faster and more agile. This has been “essential to navigate rapidly changing consumer trends and macro conditions,” he said in a press release.

As Macy’s scales back its exposure to traditional shopping malls, the company is opening smaller-format stores in off-mall locations. It’s also testing other ways to lure shoppers into its stores, including a partnership with the owner of Toys R Us to bring an assortment of toys and games to hundreds of Macy’s locations ahead of the holidays.

Gennette said he anticipates shoppers will begin buying gifts, decorations and other holiday merchandise as soon as October, as was the case during 2020 and 2021.

Still, Macy’s can’t escape changing consumer behavior amid decades-high inflation.

Spending trends fell as June progressed, Gennette said on a conference call. After Father’s Day and into July, Macy’s year-over-year sales trended about five percentage points lower than they had been in the preceding weeks, he said.

Macy’s reported inventory levels in the second quarter up 7% from prior-year levels. The department store chain said it is targeting “appropriate” inventory levels by the end of the year.

It said it’s using markdowns to clear aged inventory in seasonal goods, private-brand merchandise and pandemic-related categories like active wear, sleepwear and home goods.

At the same time, Macy’s said it will invest in bringing in fresh inventory of categories that its customers are looking for over the holiday season.

During its second quarter, Macy’s reported strength in dresses and work wear for women, tailored sports wear for men, fragrances and luggage.

“The past couple of years have been good ones for Macy’s and the company is now in a better state than it was pre-pandemic,” said Neil Saunders, managing director of GlobalData Retail. “However, unless the business capitalizes on this fortune to make major changes, it will continue to lag the overall market.”