Macy’s Earnings: Signs of Progress, but Tariffs Cloud Outlook; Shares Very Undervalued

Key Morningstar Metrics for Macy’s

• Fair Value Estimate: $24
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Macy’s Earnings

Macy’s M first-quarter comparable sales on an owned basis fell 2%, as weakness at legacy stores offset a 1.3% decline at upgraded Macy’s stores and growth at Bloomingdale’s (3%) and Bluemercury (1.5%). Gross margin was flat at 39.2%, and adjusted EPS was $0.16, down from $0.27 a year ago.

Why it matters: There are signs that Macy’s “Bold New Chapter” strategy to increase its luxury exposure, operate more efficiently, and strengthen its namesake stores through merchandising, service, and store changes is working, but consistency in sales growth and margins remains elusive.

• Macy’s outperformed our forecast for a 5% same-store sales decline and $0.15 in earnings per share in the quarter. However, the firm lowered its full-year guidance for adjusted EBITDA margin to 7.4%-7.9% from 8.4%-8.6% and for adjusted EPS to $1.60-$2.00 from $2.05-$2.25.
• The reduced outlook is attributable to tariffs, costly investments in stores, and markdowns across retail. We think store upgrades are necessary and worthwhile. As for tariffs, we think Macy’s lacks the pricing or negotiating power to offset them completely but can mitigate them.

The bottom line: We expect to lower our full-year estimates for 8.3% EBITDA margin and $2.16 in EPS in response to tariffs and reduced guidance. Although our $24 fair value estimate should decline by a mid-single-digit percentage on this change, the shares are attractive, in our view.

• We rate Macy’s as a no-moat company due to the challenges facing US department stores, but we believe operating margin will improve from below 4% of late to more than 5% by 2027 as reforms are implemented and another 100 or so underperforming namesake stores are closed.
• Macy’s outlook is based on current tariffs (10% generally). About 20% of its merchandise is imported from China, which faces tariffs around 30%. Macy’s anticipates tariffs will reduce its 2025 gross margin by 20-40 basis points, accounting for much of its EPS guidance cut.