Macy’s cuts profit outlook as tariffs, promotions hit its business

Macy's beat Q1 earnings expectations with adjusted EPS of 16 cents versus the expected 14 cents and revenue of $4.60 billion versus the expected $4.50 billion; however, the company cut its full-year adjusted EPS guidance to $1.60-$2.00, down from $2.05-$2.25, citing higher tariffs, increased promotions, and a moderation in discretionary spending. While reaffirming its full-year sales guidance of $21-$21.4 billion, Macy's comparable sales declined 2.1%, though Bloomingdale's and Bluemercury saw increases of 3.8% and 1.5%, respectively, as the company continues its turnaround plan involving store closures and strategic investments.

Analysis

Macy's reported fiscal first-quarter results that surpassed Wall Street expectations, delivering adjusted earnings per share of 16 cents against a consensus of 14 cents, and revenue of $4.60 billion compared to the anticipated $4.50 billion. Despite this quarterly outperformance, the company significantly revised its full-year adjusted earnings per share guidance downwards to a range of $1.60 to $2.00, from the previous $2.05 to $2.25, attributing the reduction to anticipated headwinds from higher tariffs, increased promotional activity, and a noted moderation in discretionary consumer spending. Net income for the quarter fell to $38 million from $62 million in the prior year, and sales declined from $4.85 billion year-over-year, although Macy's maintained its full-year sales forecast between $21 billion and $21.4 billion, which still represents a decrease from the $22.29 billion reported in the last full year. The company's ongoing three-year turnaround strategy, which includes closing approximately 150 underperforming stores by early 2027 and investing in its stronger Bloomingdale's and Bluemercury brands, faces complexities from economic uncertainties, including tariff impacts as highlighted by CEO Tony Spring. Performance across its portfolio was mixed: overall comparable sales for Macy's owned and licensed businesses, including its online marketplace, declined 2.1% year-over-year. However, Bloomingdale's and Bluemercury posted comparable sales growth of 3.8% and 1.5%, respectively. Efforts to revitalize the namesake Macy's stores, with 125 locations receiving enhanced investment, showed some positive effect, with these stores reporting a narrower comparable sales decline of 0.8%. The stock has underperformed significantly, down approximately 29% year-to-date compared to the S&P 500's near 1% gain, reflecting investor concerns amplified by the guidance cut and the challenging retail environment. The appointment of a new Chief Financial Officer, Thomas Edwards, effective June 22, signals a leadership change aimed at navigating these challenges.

Key Decisions for Investors

• Assess the sustainability of Macy's Q1 revenue beat against the lowered full-year profit guidance, focusing on margin erosion risks from tariffs and promotional pressures.
• Closely track the sales trajectory of the core Macy's brand relative to Bloomingdale's and Bluemercury, and the impact of the store revitalization program, as key indicators of the turnaround's viability.
• Given the significant year-to-date stock decline and reduced earnings outlook, exercise caution and await further evidence of stabilization in discretionary spending and successful execution of the restructuring plan before increasing exposure.
• Anticipate further details on pricing strategy and tariff mitigation from management, particularly with the new CFO, to gauge the potential for improved profitability and strategic direction.