Macy’s Earnings: Strategic Actions Have Brought Stability Despite Challenges

Key Morningstar Metrics for Macy’s

• Fair Value Estimate: $23.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Macy’s Earnings

Macy’s M achieved 2.5% (owned) same-store sales growth in the third quarter. Its gross margin fell 20 basis points to 39.4% (with 50 basis points of negative impact from tariffs), but its selling, general, and administrative expenses as a percentage of revenue improved by 90 basis points to 41.2%.

Why it matters: CEO Tony Spring’s Bold New Chapter strategy (strengthen the Macy’s nameplate, simplify and modernize its logistics, and increase its luxury sales) is progressing faster than expected—we had forecast a slight (0.4%) decline in third-quarter comparable (owned) sales.

• Although the plan is incomplete, Macy’s cost-cuts and investments in its stores, service, and inventory management have driven improvement in sales and efficiency. The firm had an unexpected profit in the quarter, with $0.09 in adjusted EPS versus our estimate of a $0.15 loss.
• Even so, the department store model remains challenged, and many apparel and home retailers continue to outperform Macy’s. In the long run, we forecast annual same-store sales growth of just about 1% and operating margins of 4%-5%, short of our expectations for many peers.

The bottom line: We expect to raise our $23 fair value estimate on no-moat Macy’s shares by a low-single-digit percentage, given the firm’s improving results, but shares are fully valued after soaring by about 70% over the past three months.

• With most of the holiday shopping period still to come, Macy’s issued a cautious fourth-quarter outlook given pressure on consumer spending. Nonetheless, its guidance for comparable sales (owned and licensed) to be flat to down 2.5% implies possible upside to our down 2.4% estimate.

Key stats: Macy’s fiscal 2025 guidance includes negative tariff impact on gross margin of about 40 to 50 basis points, or about $0.25-$0.35 in EPS. This impact is less than originally expected, reflecting successful mitigation through supplier negotiations and price increases.