Macy's shares surge 18% as chain hikes profit, sales forecasts despite tariff costs

Macy's shares surged 18% after the retailer reported stronger-than-expected first-quarter results, including its first quarterly sales growth in three years, and raised its full-year profit and sales forecasts. The performance, highlighted by Q1 net sales of $4.81 billion and adjusted EPS of $0.41, suggests CEO Tony Spring's turnaround strategy is gaining traction, with Macy's comparable sales up 0.8%—its best in 12 quarters. However, the company also increased its estimated tariff impact to 40-60 basis points on gross margins, signaling ongoing cost pressures that may lead to further 'surgical' price increases and impact consumer spending.

Analysis

Macy's first-quarter results provide tangible evidence that CEO Tony Spring's turnaround strategy is gaining traction, sparking an 18% share price surge. The company posted its first quarterly comparable sales growth in three years, with the core Macy's brand up 0.8%, a 12-quarter high, and remodeled stores outperforming with 1.1% growth. The performance was further bolstered by the strength of its higher-end banners, with Bloomingdale’s and Bluemercury delivering comparable sales growth of 3.6% and 1.2%, respectively. Financially, Macy's significantly surpassed analyst expectations, reporting adjusted EPS of $0.41 against projections of $0.18 and net sales of $4.81 billion versus estimates of $4.76 billion. This operational success prompted management to raise full-year guidance for both sales and profit. However, significant headwinds are intensifying. The company increased its estimated negative impact from tariffs on gross margins to 40-60 basis points, up from a prior 20-40 basis points. Management is offsetting this with "surgical" price increases, but this strategy carries risk, as evidenced by the concurrent report of "soft" unit sales—a potential leading indicator of consumer price sensitivity. While adjusted earnings were strong, reported net income declined year-over-year to $87 million from $150 million, signaling that underlying profitability pressures persist despite the turnaround's top-line progress.

Key Decisions for Investors

• Investors should recognize the validation of the new turnaround strategy but remain cautious, as the 18% share rally may have already priced in the positive quarterly results and guidance uplift.
• Closely monitor gross margin evolution in the upcoming quarters, as the company's ability to manage the doubled tariff impact without further eroding 'soft' unit sales will be a critical test of its pricing power.
• Note the strategic importance and outperformance of the Bloomingdale's and Bluemercury segments, which serve as a partial hedge against potential demand weakness from the more price-sensitive consumer base of the core Macy's brand.