Macy's Q1 Earnings & Sales Surpass Estimates, Comps Decline Y/Y

Macy's reported Q1 fiscal 2025 results exceeding consensus estimates for both EPS and net sales, though both metrics declined year-over-year, with net sales at $4.599 billion, down 5.1%, and adjusted EPS at $0.16, a 40.7% decrease. Comparable sales fell 2% on an owned basis, driven by a decrease at Macy’s, offset by growth at Bloomingdale’s and Bluemercury. The company updated its FY25 guidance, projecting net sales between $21 billion and $21.4 billion and adjusted EPS between $1.60 and $2.00, reflecting headwinds including tariffs and a pullback in consumer spending.

Analysis

Macy's reported first-quarter fiscal 2025 results that, while surpassing Zacks Consensus Estimates for both earnings and revenue, showed a significant year-over-year decline, reflecting persistent challenges in the retail environment. Adjusted earnings per share fell 40.7% to $0.16, and net sales dipped 5.1% to $4.599 billion. Comparable sales on an owned basis decreased by 2.0%, primarily driven by a 2.9% decline at the core Macy's brand, although this was partly mitigated by growth at Bloomingdale’s (comps up 3.0% owned) and Bluemercury (comps up 1.5% owned, its 17th consecutive growth quarter). Net credit card revenues provided a positive contribution, increasing 31.6% year-over-year to $154 million, representing 3.3% of sales, and Macy's Media Network revenues grew 8.1% to $40 million, reported as 4.2% of sales. Despite progress on its "Bold New Chapter" strategy, which the company stated contributed to stronger-than-expected performance across its three nameplates, the overall financial picture indicates pressure. Gross margin remained flat year-over-year at 39.2% as improved merchandise margins were offset by higher delivery costs. Selling, general, and administrative (SG&A) expenses rose 170 basis points as a percentage of revenue to 39.9% due to sales deleverage, contributing to an 11% decrease in adjusted EBITDA to $324 million and a 50 basis point contraction in adjusted EBITDA margin to 6.8%. The company ended the quarter with $932 million in cash and cash equivalents and continued its share repurchase program, buying back 8.7 million shares for $101 million, with $1.3 billion remaining under authorization. However, Macy's revised its full-year fiscal 2025 guidance downwards, now projecting net sales between $21.0 billion and $21.4 billion and adjusted EPS between $1.60 and $2.00, citing headwinds such as tariffs, a pullback in consumer discretionary spending, and a competitive promotional landscape. This revised outlook, combined with a 14.1% stock decline over the past three months (compared to the industry's 1.1% decline) and a Zacks Rank #4 (Sell), underscores the ongoing operational and market challenges.

Key Decisions for Investors

• Investors should maintain a cautious stance considering Macy's Q1 year-over-year declines in key financial metrics and significantly lowered FY25 guidance, closely monitoring the efficacy of the "Bold New Chapter" strategy in revitalizing core Macy's brand performance.
• The divergent performance trends, with the core Macy's banner struggling while Bloomingdale's, Bluemercury, net credit card revenues, and media network revenues show growth, warrant careful evaluation to determine if these positive elements can sufficiently offset the broader challenges and drive a sustainable recovery.
• Given management's acknowledgement of external headwinds including tariffs, weakening consumer discretionary spending, and an intensely promotional retail environment, investors should reassess their risk exposure to Macy's, particularly in light of its recent stock underperformance and the current Zacks Rank #4 (Sell) designation.
• The reduced profitability outlook for FY25, specifically the lowered adjusted EBITDA margin (7.4-7.9%) and adjusted EPS ($1.60-$2.00) projections, should be carefully factored into valuation models, even as the company continues its share repurchase program with $1.3 billion remaining in authorization.