Macy’s Earnings Call: Growth Momentum Amid Margin Strain
Macy’s ((M)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Macy’s earnings call struck a cautiously upbeat tone, with management highlighting clear operational momentum despite macro and policy headwinds. Executives emphasized better‑than‑expected earnings, a return to positive comps, stronger cash generation, and visible traction from store reinvestments, while warning that tariffs and softer near‑term margins will temper the pace of profit growth.
EPS beats expectations as Macy’s outperforms guidance
Macy’s closed the year with a solid beat on profitability, as adjusted diluted EPS reached $1.67 in Q4 versus guidance of $1.35 to $1.55. For the full year, adjusted EPS of $2.32 came in above the previously signaled $2.00 to $2.20 range, underscoring effective cost control and mix management in a challenging retail backdrop.
Return to positive comps signals demand stabilization
The company marked a key inflection with a return to positive comparable sales at both Macy’s, Inc. and the Macy’s banner. Q4 comps rose 1.8%, handily beating guidance that had ranged from a 2.5% decline to flat, suggesting that merchandising changes and in‑store initiatives are beginning to resonate with shoppers.
Bloomingdale’s emerges as a standout growth engine
Bloomingdale’s delivered exceptional momentum, with Q4 comparable sales up 9.9% and full‑year comps up 7.4%. Management highlighted a 490 basis‑point year‑on‑year improvement and more than 1,000 basis points of progress over two years, positioning the higher‑end banner as a key growth and profit contributor within the portfolio.
Reimagine program shows tangible impact in core stores
The Reimagine store strategy continues to scale, now covering about 200 locations across the chain. Go‑forward Macy’s stores posted 0.6% comp growth for the year, with Reimagine 125 sites up 1% and generating positive comps in seven of the last eight quarters, and roughly 60% of go‑forward stores now carry the full suite of initiatives that drive 75% of store sales.
Cash generation underpins shareholder returns
Macy’s generated $1.4 billion of operating cash flow, up from $1.3 billion a year ago, and free cash flow climbed to $797 million. With a free cash flow yield above 15%, the company returned $448 million to shareholders through dividends and buybacks and still retains roughly $1.1 billion of remaining repurchase authorization for future deployment.
Digital, credit and media add diversified revenue streams
Digital commerce now accounts for about one‑third of annual sales, reflecting the shift in customer behavior and Macy’s omnichannel push. Other revenue streams are growing briskly, with Q4 credit card revenue up 17.1% year over year to $205 million and Macy’s Media Network generating $72 million, up 12.5%, for a total of $277 million in other revenue.
Inventory discipline and higher ticket support margins
Year‑end inventory stood at $4.4 billion, down 1.3% from last year, with a healthier mix that leans more toward newness and fewer aged goods. Average unit retail and basket size continued to increase, helped by a more favorable category mix and fresher assortments, which should provide some cushion against external margin pressures.
Tariffs weigh on gross margins and earnings power
Management acknowledged that tariffs are a meaningful earnings drag, shaving about $0.13 per share from Q4 results and expected to cost roughly $0.10 to $0.20 in the new fiscal year. The headwind is projected to compress gross margin by 20 to 30 basis points for the year and 40 to 60 basis points in Q1, contributing to a Q4 gross margin dip to 35.2% from 35.7%.
EBITDA margins show signs of pressure despite EPS beat
While EPS topped forecasts, underlying profitability softened as Q4 adjusted EBITDA fell to $840 million, or 10.6% of revenue, from $903 million and 11.3% a year earlier. Looking ahead, the company expects adjusted EBITDA margin of 7.7% to 7.9% for the new fiscal year, roughly flat to slightly below last year’s 7.9%, with Q1 margin guidance notably below the prior‑year level.
Asset monetization slows and weighs on reported EPS
Macy’s saw less benefit from real estate monetization, with Q4 asset sale gains of just $3 million versus expectations of $15 to $20 million and $41 million last year, trimming EPS by roughly $0.04. Monetization proceeds fell sharply to $107 million from $283 million in the prior period, adding another layer of variability to near‑term earnings.
Revenue decline tied to deliberate store pruning
Total Q4 revenue dipped 1.1% year over year to $7.9 billion, with net sales at $7.6 billion versus $7.8 billion previously. Management stressed that the entire decline stems from earlier closures of 64 non‑go‑forward stores, implying that the remaining store base plus digital is collectively back to growth.
Timing of remaining store exits introduces uncertainty
Roughly 65 additional store closures are now expected to be carried out through 2028, extending the original timeline. While the company reduced its near‑term monetization cadence, it increased its estimate of total proceeds to $650 million to $700 million, trading short‑term EPS boosts for potentially larger long‑term value.
SG&A creeps higher as Macy’s leans into investment
Operating expenses are slated to rise 1% to 2% year over year on a dollar basis, a modest increase that still runs below inflation but signals renewed investment. Management plans to channel this spend into Reimagine store upgrades, digital capabilities and talent, while acknowledging that last year’s SG&A savings from store closures will not repeat at the same magnitude.
Margin sensitivity underscores more fragile near‑term earnings
Despite several operational wins, Macy’s highlighted that adjusted EBITDA dollars fell in Q4 and will remain sensitive to tariffs, higher SG&A and the cadence of asset monetizations. This dynamic, combined with a slower ramp in margin recovery, helps explain why earnings growth is expected to lag the pace of underlying sales and traffic improvements in the near term.
Guidance points to steady progress, tempered by caution
For fiscal 2026, Macy’s guided net sales to a range of $21.4 billion to $21.65 billion, with comparable sales expected to be roughly flat, down 0.5% to up 0.5%, and other revenue about $920 million. The company sees gross margin at 38.3% to 38.6%, SG&A up 1% to 2%, adjusted EBITDA margin at 7.7% to 7.9%, adjusted EPS between $1.90 and $2.10 and Q1 comps modestly positive, but with Q1 EPS near breakeven as tariffs and investments weigh.
Macy’s earnings call painted a picture of a retailer rebuilding its growth engine while absorbing external shocks and self‑funded reinvestment. For investors, the story is one of improving top‑line quality, healthier stores and strong cash returns, offset by near‑term margin compression and policy‑driven headwinds that will require patience before the full benefits of the strategy show up in earnings.
