Macy's has been focusing on merchandise management to maintain profits amid reduced consumer spending. The retailer said in its earnings report that inventory levels fell 10% year-on-year in the second quarter, while sales were essentially flat.

Macy's said the drop in merchandise inventories reflected "continued rigorous inventory management and the clearing of excess spring seasonal product." The inventory decline came as net sales fell 8% to $5 billion.

“We will continue to leverage our data science tools to refine inventory composition, breadth and depth on a weekly basis and further streamline decision making to efficiently identify and execute on compelling opportunities that have a positive impact in the near and long term,” Chairman and CEO Jeff Gennette told analysts on Tuesday.

Macy's faced another quarter of sharply lower sales and operating profits, but tight control over inventory likely prevented a worse outcome as it did last quarter and last year.

Retailers don’t always claim as much. Macy’s ended the second quarter with 18% lower inventory and 15% higher sales compared with 2019, the company said.

The purpose of lean inventory is to limit the amount of excess inventory that would require significant markdowns to clear, which would in turn impact profit margins. Less inventory and faster turnover also means there is enough budget to sell the best-selling products. “We are committed to providing current and compelling products at appropriate receipt levels based on expected sales demand,” said Adrian Mitchell, CFO and COO.

Mitchell also noted that inventory composition “enables us to support full-price sales,” while the influx of new inventory provides the retailer with “preferred products that our customers can buy from us compared to our competitors.”

Clearance activity hurt the company's profitability amid a tough demand environment, with merchandise margins down 130 basis points. However, Gennette noted that "our data-driven tools shave weeks off seasonal clearance events," while promotional sales exceeded expectations and clearance markdowns were not as severe as the company had feared.

As we head into the second half of the year, Macy's will face a series of demand headwinds, including rising interest rates, student loan repayments and job losses. Mitchell is optimistic: "As we head into the third quarter, demand for clean, fresh, fashionable and seasonless products is strong, and our prices are compelling, and demand will rebound."

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