NEW YORK (AP) — Macy’s sales and profits fell during the first quarter as higher costs and other financial challenges had customers pulling back on spending.

The results, announced Tuesday, beat Wall Street expectations. And Macy’s raised its outlook for sales and profits, sending shares up more than 3% in pre-market trading.

Macy’s reported earnings of $62 million, or 22 cents per share for the quarter ended May 4. That compares with $155 million, or 56 cents per share in the year-ago period.

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Adjusted per-share earnings were 27 cents, much better than the 16 cents that Wall Street was looking for, according to a survey by FactSet.

Revenue dipped 2.7% to $4.85 billion, but that also topped analyst projections of $4.82 billion,

Macy’s comparable sales — those from online channels and from established stores — fell 1.2%. The figure excluded licensed businesses like beauty and its third-party marketplace. Including such businesses, the metric was down only 0.3%.

Americans are still spending but they’re getting more selective and are also more likely to wait until something goes on sale.

Against this background, Macy’s is trying to shore up sales by accelerating the expansion of small-format stores, while closing locations where sales have lagged.

The company is opening 30 small-format locations through the fall of 2025, nearly tripling the current count to roughly 42 of the new format locations that Macy’s believes are more convenient for customers. It’s closing 150 unproductive stores over the next three years, a third of them by the end of 2024.

At the same time, Macy’s is upgrading its remaining 350 traditional stores, adding more salespeople to fitting areas and shoe departments, and adding more visual displays. It is making a pivot to more luxury sales, which have held up better overall compared with other categories. Macy’s said it will open 15 higher-end Bloomingdale stores and 30 luxury Bluemercury cosmetics locations to cater to customers seeking higher-end services and goods.

Macy’s is under pressure from investors to accelerate growth. In April, it named two independent directors to its board backed by Arkhouse Management, ending for now a push by the activist investor to replace most of the board and eventually, acquire the iconic department store chain.