Macy's Q1 2025 slides: Mixed results prompt guidance cut as tariff concerns loom

Macy's (M) reported better-than-expected Q1 results with net sales of $4.6 billion, a 5.1% YoY decline, and adjusted EPS of $0.16, down 40.7% YoY, while Bloomingdale's and Bluemercury showed strength. However, the company significantly lowered its full-year 2025 guidance, projecting adjusted EPS of $1.60-$2.00 (previously $2.05-$2.25) and citing an expected 20-40 basis point impact on gross margin due to tariffs on Chinese imports, which account for approximately 20% of its product sourcing.

Analysis

Macy's Inc. (NYSE:M) presented a mixed financial picture for its first quarter of fiscal 2025, reporting net sales of $4.6 billion, a 5.1% year-over-year decrease, and an adjusted diluted earnings per share of $0.16, marking a 40.7% decline from the prior year's quarter; however, both metrics exceeded the company's internal forecasts. This quarterly outperformance was significantly overshadowed by a substantial downward revision to its full-year 2025 guidance, with adjusted EPS expectations cut to $1.60-$2.00 from the previous $2.05-$2.25 range, largely attributed to the anticipated impact of tariffs on Chinese imports and a more challenging consumer landscape. Performance across Macy's brand portfolio was divergent: the flagship Macy's nameplate experienced a 2.1% decline in comparable sales, though its strategically important "Reimagine 125" locations saw a milder 0.8% dip. In contrast, Bloomingdale's achieved a strong 3.8% increase in comparable sales, bolstered by luxury brand introductions and approximately 55% growth in marketplace gross merchandise value, while Bluemercury recorded its 17th consecutive quarter of comparable owned sales growth at 1.5%. Macy's anticipates tariffs will erode fiscal 2025 gross margin by 20 to 40 basis points, translating to a $0.10 to $0.25 reduction in annual EPS, given that about 20% of its products originated from China in fiscal 2024. Despite ongoing efforts to reduce this exposure—private brand sourcing from China is down to ~27% from over 50% pre-pandemic—and implement mitigation strategies, the company projects Q2 2025 adjusted EPS between $0.15 and $0.20. The company returned $152 million to shareholders in Q1 ($51 million in dividends, $101 million in share repurchases) but its stock, trading near its 52-week low of $9.76 despite a slight pre-market gain to $12.21, reflects a moderately negative sentiment (-0.6 for ticker M) amidst these challenges.

Key Decisions for Investors

• Given the substantial cut to full-year EPS guidance to $1.60-$2.00 and an anticipated 20-40 basis point gross margin impact from tariffs, investors should adopt a cautious stance and re-evaluate Macy's earnings power.
• Investors should closely monitor the progress of the "Bold New Chapter" strategy, particularly the performance of "Reimagine 125" locations and the growth in luxury (Bloomingdale's) and beauty (Bluemercury) segments, to assess if these initiatives can meaningfully offset the decline in the core Macy's business and mitigate overall tariff impacts.
• Consider the stock's valuation near its 52-week low against the revised, lower profitability outlook and ongoing capital returns, assessing whether the current price reflects the heightened risks or presents a potential value opportunity contingent on successful strategic execution and effective tariff mitigation.