Macy’s surprises in first quarter, but cuts profit outlook as tariff costs seep in

Macy's Q1 sales and earnings exceeded expectations, with sales at $4.79 billion versus the $4.42 billion expected, but the retailer lowered its full-year profit outlook due to anticipated tariff impacts; adjusted earnings guidance was revised down to $1.60-$2.00 per share from $2.05-$2.25. CEO Tony Spring noted that limited price increases are beginning to appear due to tariffs, and the company is diversifying its supply chain and renegotiating or canceling orders where necessary. Despite the lowered outlook, shares rose 1% as the company reaffirmed its full-year sales forecast of $21 billion to $21.4 billion.

Analysis

Macy's reported first-quarter sales of $4.79 billion, a decrease from $5 billion year-over-year but surpassing analyst expectations of $4.42 billion, while adjusted earnings of 16 cents per share marginally beat estimates. Despite this Q1 outperformance, which contributed to a 1% share price increase, the company significantly reduced its full-year 2025 adjusted profit forecast to $1.60-$2.00 per share from $2.05-$2.25, primarily due to anticipated U.S. tariff impacts and increasingly cautious consumer behavior. CEO Tony Spring highlighted that "limited" tariff-related price increases are now materializing, prompting a "surgical" pricing strategy and proactive supply chain diversification, evidenced by a reduction in direct sourcing from China to 20% overall and private brand sourcing from China to 27% from 32% previously. While Macy's maintained its annual sales forecast of $21 billion to $21.4 billion, the lowered profit guidance aligns with a broader trend of uncertainty across the retail sector, where peers like American Eagle Outfitters and Ross Stores have also withdrawn or adjusted forecasts due to macroeconomic pressures. The overall cautious tone (general sentiment score: -0.3, Macy's specific sentiment: -0.2) reflects the significant challenges in navigating trade policies and shifting consumer demand, despite Macy's specific Q1 resilience.

Key Decisions for Investors

• Investors should closely monitor Macy's gross margin evolution and management's commentary on supply chain adjustments in upcoming quarters as key indicators of its ability to navigate tariff-related cost pressures.
• Given the dichotomy of a Q1 operational beat against a lowered full-year profit outlook, evaluate the effectiveness of Macy's strategies in balancing market share objectives with profitability amidst ongoing trade uncertainties and a potentially softening consumer environment.
• Consider the broader retail sector's vulnerability to tariffs and macroeconomic shifts, using Macy's experience as a bellwether, before making significant allocation changes, particularly noting the widespread cautious guidance from other major retailers.