Best Stock to Buy: Macy's vs. Dick's Sporting Goods

Macy's reported a mixed Q1, beating EPS and revenue estimates but showing year-over-year declines in revenue, operating income, and net income, leading to a cut in its profit outlook for the year and plans to raise prices to offset tariff impacts. In contrast, Dick's Sporting Goods reported a 5.2% year-over-year increase in sales revenue and reiterated its earnings guidance for 2025, expecting to outperform 2024, while also expanding through the acquisition of Foot Locker for $2.5 billion, positioning itself for future growth.

Analysis

The retail sector is currently navigating a complex environment marked by tariff-induced price increases, impacting both consumers and retailers, as illustrated by the divergent paths of Macy's and Dick's Sporting Goods. Macy's reported first-quarter 2025 results that beat analyst estimates, with adjusted earnings of $0.16 per share and revenue of $4.60 billion, but these figures masked significant year-over-year deterioration. Revenue fell from $4.85 billion in the prior year, operating income declined 24.8% to $94 million, net income dropped 38.7% to $38 million, and diluted earnings per share decreased to $0.13 from $0.22 in Q1 2024. Consequently, Macy's has revised its full-year profit outlook downwards, projecting net sales between $21 billion and $21.4 billion (a decrease from $22.29 billion in 2024), and is implementing price increases alongside a plan to close over 100 stores, signaling a strategy of contraction to improve profitability. Conversely, Dick's Sporting Goods demonstrated stronger performance, reporting a 5.2% year-over-year increase in first-quarter sales revenue to approximately $3.18 billion, while non-GAAP income remained stable at $275 million. Dick's reaffirmed its positive guidance for 2025, anticipating earnings per share in the range of $13.80 to $14.40, potentially surpassing 2024's $14.05, and projects net sales between $13.6 billion and $13.9 billion, exceeding the previous year's $13.45 billion. This growth trajectory is further supported by its strategic $2.5 billion acquisition of Foot Locker, aimed at expanding its market position in footwear, and plans for new store openings, contrasting sharply with Macy's consolidation. Dick's more diversified product offerings and a valuation of just over 12 times earnings coupled with a 2.73% dividend yield also present a different investment profile.

Key Decisions for Investors

• Investors should exercise caution with Macy's (M) due to its declining year-over-year financial metrics, reduced profit outlook, and strategy of store closures, warranting a close watch for evidence of a successful operational turnaround before committing new capital.
• Dick's Sporting Goods (DKS) appears to offer a more favorable risk-reward profile, supported by consistent sales growth, positive forward guidance, strategic expansion via the Foot Locker acquisition, and a reasonable valuation with a P/E ratio just over 12x and a 2.73% dividend yield, although tariff impacts require ongoing assessment.
• Given the persistent tariff pressures affecting the retail landscape, portfolio allocations should consider the potential for margin compression and shifts in consumer spending, which could disproportionately affect retailers like Macy's with less diversified offerings compared to Dick's.