Macy's (M)

Department store chain Macy’s (NYSE:M) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, but sales fell by 1.9% year on year to $5.00 billion. The company’s full-year revenue guidance of $21.3 billion at the midpoint came in 0.6% above analysts’ estimates. Its non-GAAP profit of $0.41 per share was significantly above 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).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $22.7 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 it’s harder to find incremental growth when you’ve penetrated most of the market. To accelerate sales, Macy's likely needs to optimize its pricing or lean into international expansion.

As you can see below, Macy's struggled to generate demand over the last six years (we compare to 2019 to normalize for COVID-19 impacts). Its sales dropped by 2% annually as it closed stores and observed lower sales at existing, established locations.

This quarter, Macy’s revenue fell by 1.9% year on year to $5.00 billion but beat Wall Street’s estimates by 2.7%.

Looking ahead, sell-side analysts expect revenue to decline by 4.6% over the next 12 months, a slight 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.

Over the last two years, Macy's has generally closed its stores, averaging 3.5% 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 gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Macy’s demand has been shrinking over the last two years as its same-store sales have averaged 2.7% 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 rose 1.9% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

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 40.5% gross margin over the last two years. That means for every $100 in revenue, $59.49 went towards paying for inventory, transportation, and distribution.

Macy's produced a 42% gross profit margin in Q2, in line with the same quarter last year and exceeding analysts’ estimates by 5%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Macy's was profitable over the last two years but held back by its large cost base. Its average operating margin of 2.4% 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 2.4 percentage points over the last year.

In Q2, Macy's generated an operating margin profit margin of 3%, down 1.4 percentage points year on year. Since Macy’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Macy's, its EPS declined by 7% annually over the last six years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q2, Macy's reported adjusted EPS of $0.41, down from $0.53 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Macy’s full-year EPS of $2.41 to shrink by 25%.

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 2%, subpar for a consumer retail business.

Taking a step back, an encouraging sign is that Macy’s margin expanded by 1.3 percentage points over the last year. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Macy’s free cash flow clocked in at $153 million in Q2, equivalent to a 3.1% margin. Its cash flow turned positive after being negative in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared 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 9.5%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Macy's reported $829 million of cash and $5.48 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 $1.88 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 $55 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.

It was good to see Macy's beat analysts’ EPS expectations this quarter. We were also excited its full-year revenue and EPS guidance were both raised. Zooming out, we think this was a very solid print. The stock traded up 11.4% to $15.04 immediately after reporting.

Updated: November 11, 2025 at 9:44 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Macy's, you should also grasp the company’s longer-term business quality and valuation.

Macy's falls short of our quality standards. To begin with, 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 declining physical locations suggests its demand is falling. On top of that, its shrinking same-store sales tell us it will need to change its strategy to succeed.

Macy’s P/E ratio based on the next 12 months is 10.5x. At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $16.59 on the company (compared to the current share price of $20.48), implying they don’t see much short-term potential in Macy's.