NEW YOUR (TheStreet) -- Macy’s (M) - Get Report second-quarter earnings surprisingly fell short of consensus forecasts. The department store retailer also reduced its full-year same-store sales outlook, outlining third-quarter same-store sales growth that is expected to be slower than in the holiday quarter.

The primary reason for the whirlwind of negative news on earnings day for the company can be traced back to its ratio of inventory growth to sales growth in the first-quarter, where the company over-forecasted demand in the face of inclement weather.

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Macy’s reported second-quarter net sales of $6.26 billion, below the Bloomberg consensus forecast for $6.30 billion. Comparable-store sales including licensed departments increased 4%, or 3.4% when excluding licensed departments. Cautious spending by the U.S. consumer was evident in the components of Macy's same-store sales figures. Although the number of customer transactions rose 2.7% year-over-year, and average unit retail prices expanded 1.5%, units per transaction fell 0.3%.  "We had hoped that the number of transactions would have increased more," noted Macy's CFO Karen Hoguet on the earnings call.

Weaker-performing sales categories included women's and men's sportswear, and non-athletic shoes.  Hoguet referenced activewear from the likes of Nike (NKE) - Get Report and Under Armour (UA) - Get Report as on "fire," which hints at another sluggish quarter from yoga-apparel maker Lululemon (LULU) - Get Report when it announces its latest earnings results on Sept. 11. 

Earnings per share came to 80 cents, below analyst forecasts for 86 cents, caused primarily by a $22 million miss in operating income -- $571 million vs. Bloomberg consensus forecast of $593.2 million.

"We are approaching the second half of 2014 with confident optimism in our business strategies, merchandise assortments and marketing plans, tempered with the reality that many customers still are not feeling comfortable about spending more in an uncertain economic environment," noted Chairman and CEO Terry Lundgren.

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Following this statement, Macy’s reduced its full-year 2014 comparable-store sales increase to a range of 1.5% to 2%, or an increase of 2% to 2.5% when including departments licensed to third-parties. Previous guidance by Macy’s was for full-year comparable-store sales to increase by 2.5% to 3%. "Even with an improved sales trend in the second-quarter, the company was unable to make up its sales shortfall from the first quarter," noted the company.

Although Macy’s reaffirmed its full-year earnings per share outlook of $4.40 to $4.50, the second time in a row it has done so as the company clearly looks forward to a strong holiday season, the market is likely to view the guidance as at risk given year-to-date profit margin trends and commentary.

Macy’s earnings miss for the second quarter could be traced back to outsized inventory growth in the first quarter. On a 1.6% same-store sales decline in the first-quarter, inventory increased 4.72% year over year, suggesting the company entered the second-quarter with more inventory at risk for unprofitable markdowns. In the second quarter, Macy’s inventory rose 1.1% year-over-year compared to a 4% same-store sales increase, a healthier level vs. the first-quarter, but something that took its toll in the form of gross profit margins falling 40 basis points.

Macy’s inventory issues coming into the second quarter were telegraphed by Hoguet at the Citi Global Consumer Conference on May 28. Hoguet remarked to an analyst question regarding inventory levels: "We are, I mean, the inventory numbers sounded a little high to people because it was obviously higher than the first-quarter sales," she said. "Remember again, we had expected the second quarter to be better than the first quarter. But it was a little higher than we had expected because of the weak sales in the first-quarter."

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At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet.