Macy’s Earnings: Some Progress, but Holiday Season and 2025 Outlook Disappoint

Key Morningstar Metrics for Macy’s

• Fair Value Estimate: $25.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Macy’s Earnings

Macy’s M met the fourth-quarter sales forecast that we revised downward after its Jan. 14 holiday sales update, but this result was overshadowed by the firm’s uninspiring 2025 guidance. Specifically, the firm projects adjusted earnings per share of $2.05-$2.25 on an owned comparable sales decline of 0.5%-2.0% versus our respective estimates of $2.63 and flat. As such, we expect to lower our $25 per share fair value estimate by a low-single-digit percentage.

Even so, we see opportunity in Macy’s shares and believe positive sales trends at its “First 50,” Bloomingdale’s, and Bluemercury stores provide confidence in its “Bold New Chapter” strategy.

Macy’s matched our forecast with a 4.3% sales decline and a 35.7% gross margin in the fourth quarter. However, its $1.80 in adjusted EPS was $0.31 better than estimates, due to higher credit card revenue and lower selling, general, and administrative expenses than expected. Macy’s results continue to be dragged down by the performance of its weakest stores, 64 of which closed by the end of January, and uneven consumer demand for apparel and home goods.

Macy’s posted an adjusted EBITDA margin of 8.6% in 2024, and it projected a similar margin of 8.4%-8.6% in 2025. In the long run, we anticipate the firm can lift this margin to about 9.0%-9.5% after it closes another 85 or so stores and its remaining stores benefit from the “First 50” upgrades. Moreover, the firm has invested in its supply chain and inventory management. Even so, we forecast Macy’s comparable sales growth to be just 0.5%-1.0% in the long run, given its poor competitive position.

Despite its problems, Macy’s reached its goal of debt-to-adjusted EBITDAR of 2.5 times in 2024. The firm closed the year with $2.8 billion in debt, down from $4.9 billion four years ago, and has limited maturities until 2029. We intend to adjust our Uncertainty Rating to High from Very High, based on Macy’s improved balance sheet and our quantitative model.