Macy's (M)

Department store chain Macy’s (NYSE:M) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 4.1% year on year to $4.79 billion. The company’s full-year revenue guidance of $21.2 billion at the midpoint came in 0.8% above analysts’ estimates. Its non-GAAP profit of $0.16 per share was in line with analysts’ consensus estimates.

Company Overview

With a storied history that began with its 1858 founding, Macy’s (NYSE:M) is a department store chain that sells clothing, cosmetics, accessories, and home goods.

Department stores emerged in the 19th century to provide customers with a wide variety of merchandise under one roof, offering a convenient and luxurious shopping experience. They played an important role in the history of American retail and urbanization, and prior to department stores, retailers tended to sell narrow specialty and niche items. But what was once new is now old, and department stores are somewhat considered a relic of the past. They are being attacked from multiple angles–stagnant foot traffic at malls where they’ve served as anchors; more nimble off-price and fast-fashion retailers; and e-commerce-first competitors not burdened by large physical footprints.

Department or general merchandise retail competitors include Nordstrom (NYSE:JWN), Kohl’s (NYSE:KSS), and Dillard’s (NYSE:DDS).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $22.8 billion in revenue over the past 12 months, Macy's is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only a finite number of places to build new stores, making it harder to find incremental growth. For Macy's to boost its sales, it likely needs to adjust its prices or lean into foreign markets.

As you can see below, Macy’s revenue declined by 2% per year over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as it closed stores and observed lower sales at existing, established locations.

This quarter, Macy’s revenue fell by 4.1% year on year to $4.79 billion but beat Wall Street’s estimates by 3.6%.

Looking ahead, sell-side analysts expect revenue to decline by 5.4% over the next 12 months, a deceleration versus the last six years. This projection is underwhelming and indicates its products will see some demand headwinds.

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

Macy's has generally closed its stores over the last two years, averaging 1.7% annual declines.

When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.

Note that Macy's reports its store count intermittently, so some data points are missing in the chart below.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Macy’s demand has been shrinking over the last two years as its same-store sales have averaged 3.8% annual declines. This performance isn’t ideal, and Macy's is attempting to boost same-store sales by closing stores (fewer locations sometimes lead to higher same-store sales).

In the latest quarter, Macy’s same-store sales fell by 1.2% year on year. This decrease was an improvement from its historical levels. It’s always great to see a business’s demand trends improve.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Macy's has good unit economics for a retailer, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 40.3% gross margin over the last two years. Said differently, Macy's paid its suppliers $59.73 for every $100 in revenue.

Macy's produced a 41.7% gross profit margin in Q1, in line with the same quarter last year and exceeding analysts’ estimates by 5.9%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Macy's was profitable over the last two years but held back by its large cost base. Its average operating margin of 2.3% was weak for a consumer retail business. This result is surprising given its high gross margin as a starting point.

On the plus side, Macy’s operating margin rose by 3.1 percentage points over the last year.

This quarter, Macy's generated an operating profit margin of 2%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Macy's has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.4%, subpar for a consumer retail business.

Taking a step back, we can see that Macy's failed to improve its margin over the last year. Its unexciting margin and trend likely have shareholders hoping for a change.

Macy's burned through $241 million of cash in Q1, equivalent to a negative 5% margin. The company’s cash burn increased from $100 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Macy's historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.2%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Macy's reported $932 million of cash and $5.66 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.93 billion of EBITDA over the last 12 months, we view Macy’s 2.5× net-debt-to-EBITDA ratio as safe. We also see its $111 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We liked that Macy's beat analysts’ revenue and gross margin expectations this quarter. On the other hand, its full-year EPS guidance was lowered and missed. The company cited "initial and current tariffs; some moderation in consumer discretionary spending; and a heightened competitive promotional landscape" as reasons for the guidance cut. Overall, this was a mixed print. The stock traded up 1.5% to $12.27 immediately after reporting.

Updated: June 12, 2025 at 10:38 PM EDT

Before deciding whether to buy Macy's or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We cheer for all companies serving everyday consumers, but in the case of Macy's, we’ll be cheering from the sidelines. To kick things off, its revenue has declined over the last six years, and analysts expect its demand to deteriorate over the next 12 months. And while its popular brand gives it meaningful influence over consumers’ purchasing decisions, the downside is its shrinking same-store sales tell us it will need to change its strategy to succeed. On top of that, its operating margins reveal poor profitability compared to other retailers.

Macy’s P/E ratio based on the next 12 months is 6.2x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $13.89 on the company (compared to the current share price of $11.92).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.