Macy’s Inc. showed signs of recovering from the disruption caused by COVID-19, but it wasn’t enough to impress investors as slowing digital sales growth raised concerns amid a holiday season in which online performance will be crucial.

Comparable-store sales for owned and licensed stores, a key measure of retail performance, fell 20.2 per cent in the quarter ended Oct. 31, better than the estimated 23.4 per cent decline from Consensus Metrix. Digital sales grew 27 per cent compared to the same quarter last year -- though that was a deceleration from the second quarter’s brisk 53 per cent rate.

“Macy’s may point to its success in online,” Neil Saunders, managing director at GlobalData Retail, said in a statement. “This is a reasonable performance, but it is a long way below the online sales growth of many other retailers. It also doesn’t make up for the severe sales declines in stores.”

Retailers like Macy’s need a strong showing in e-commerce this holiday because many shoppers plan to stay away from stores, especially with COVID cases setting new highs in many states. In response, the chain has expanded its curbside pick-up service and other e-commerce offerings. This season is also important because in a normal year department stores can bring in about a quarter of annual sales in November and December.

Macy’s Chief Executive Officer Jeff Gennette said the retailer’s three brands -- Bloomingdale’s, Bluemercury and Macy’s -- had solid performance in the third quarter. Still, “we continue to watch the resurgence of COVID-19, and its potential impact on our business,” he said in a statement. Key cities such as New York and Chicago have already moved to place some restrictions on businesses.

Poonam Goyal, an analyst for Bloomberg Intelligence, said there will be more pressure on the digital platform to deliver on holiday than there was a month or two ago.”

The results also come after major retailers like Target Corp. and Lowe’s Cos. posted robust sales growth that blew past analysts’ expectations as online revenue more than doubled.

Macy’s shares declined five per cent as of 8:41 a.m. The stock had fallen about 47 per cent this year through Wednesday’s close.

The company offered limited guidance on the final quarter of the year. The measure of earnings known as Ebitda, which excludes items like taxes and depreciation, would improve “sequentially” in the fourth quarter from the one that just ended, it said in a presentation.

Margins “are expected to peak in the third quarter,” the company said, suggesting more challenges ahead. Macy’s gross margin rose to 35.6 per cent in the most recent quarter, compared to 23.6 per cent in the second quarter. The retailer said it had “disciplined inventory management” and was able to use fewer markdowns to sell its merchandise.