10-Q: Macy's Q1 Earnings Decline Amid Store Closures and Weak Tourism, Strategic Initiatives Show Mixed Results

Macy's, Inc. reported a significant decline in net sales, operating income, and net income for the first quarter of 2025, primarily due to the closure of underperforming stores and reduced international tourism, despite positive comparable sales growth in its luxury and beauty segments.

Summary

• Macy's, Inc. reported total revenue of $4,793 million for the 13 weeks ended May 3, 2025, a decrease from $5,000 million in the prior year period.
• Net sales declined by 5.1% to $4,599 million, largely attributed to the closure of 64 non-go-forward locations, which accounted for approximately $170 million of the decline.
• Net income fell to $38 million, down from $62 million in the first quarter of 2024, resulting in diluted earnings per share of $0.13 compared to $0.22 previously.
• Operating income decreased to $94 million from $125 million in the prior year.
• Comparable sales for Macy's, Inc. declined 2.0% on an owned basis and 1.2% on an owned-plus-licensed-plus-marketplace basis.
• Macy's comparable sales specifically declined 2.9% on an owned basis, impacted by weaker international tourism.
• In contrast, Bloomingdale's comparable sales increased 3.0% on an owned basis, and Bluemercury achieved its 17th consecutive quarter of comparable sales growth, up 1.5%.
• Other revenue increased by $40 million to $194 million, driven by a $37 million rise in credit card revenues due to higher profit share and an 8% growth in Macy's Media Network revenue.
• Gross margin rate remained flat at 39.2% of net sales, while merchandise margin rate improved by 40 basis points due to favorable shortage and lower liquidations.
• Selling, general and administrative (SG&A) expenses increased slightly by $2 million to $1,913 million, and as a percentage of total revenue, rose to 39.9% from 38.2% due to the decline in net sales.
• The company generated $16 million in gains from real estate sales, a significant increase from $1 million in the prior year.
• Net cash used by operating activities was $(64) million, a shift from $129 million provided in the prior year, primarily due to increased working capital requirements and lower earnings.
• Macy's repurchased approximately 8.7 million shares of its common stock for $101 million during the quarter, with $1.274 billion remaining under its share repurchase program.
• The company amended and extended its asset-based credit facility (ABL Credit Facility) to $2,100 million, extending its maturity to April 2030, providing $1,956 million in available borrowing capacity as of May 3, 2025, with no outstanding borrowings.
• The company changed its inventory valuation method from LIFO retail inventory method to LIFO cost method effective February 4, 2024, to improve cost accuracy and transparency.

Sentiment

Score: 4

Explanation: The overall financial performance for the quarter, including significant declines in net sales, operating income, net income, and cash from operations, indicates a challenging period. While strategic initiatives show some promise in specific segments (Bloomingdale's, Bluemercury) and there are positive aspects like real estate gains and improved merchandise margin, the core business's financial results are notably weaker year-over-year. The presence of ongoing supply chain and tariff risks further contributes to a cautious outlook.

Positives

• Other revenue increased by $40 million, driven by higher credit card profit share and 8% growth in Macy's Media Network revenue.
• Merchandise margin rate improved by 40 basis points due to favorable shortage and lower liquidations.
• Gains on sale of real estate significantly increased to $16 million from $1 million in the prior year, reflecting asset monetization and supply chain network right-sizing.
• Net interest expense decreased by $4 million due to a prior year debt tender offer.
• Bloomingdale's reported positive comparable sales growth of 3.0% on an owned basis.
• Bluemercury achieved its 17th consecutive quarter of comparable sales growth, increasing 1.5% on an owned basis.
• The 'Reimagine 125 locations' within Macy's outperformed the rest of the Macy's fleet, indicating positive customer response to redefined product and experience.
• Off-price concept Backstage outperformed full-line stores, and Macy's Marketplace achieved approximately 40% gross merchandise value growth.
• The company maintains strong liquidity with $932 million in cash and cash equivalents and $1,956 million available under its amended ABL Credit Facility.
• The ABL Credit Facility was extended to April 2030, providing committed liquidity for five years.
• Macy's repurchased $101 million of common stock, demonstrating a return of capital to shareholders.

Negatives

• Net sales decreased by 5.1% to $4,599 million, primarily due to the closure of 64 non-go-forward locations and weaker international tourism impacting Macy's.
• Total revenue declined by $207 million to $4,793 million.
• Net income decreased by $24 million to $38 million.
• Diluted earnings per share fell to $0.13 from $0.22 in the prior year.
• Operating income decreased by $31 million to $94 million.
• Macy's, Inc. comparable sales declined 2.0% on an owned basis and 1.2% on an owned-plus-licensed-plus-marketplace basis.
• Macy's comparable sales specifically declined 2.9% on an owned basis and 2.1% on an owned-plus-licensed-plus-marketplace basis.
• Net cash used by operating activities was $(64) million, a significant decline from $129 million provided in the prior year, driven by increased working capital requirements and lower earnings.
• The effective income tax rate increased to 44.1% from 36.7% in the prior year.
• The company incurred a $3 million loss on extinguishment of debt in the current quarter.

Risks

• Dependence on vendors and other sources of merchandise, goods, and services outside the U.S., primarily Asia, exposes the company to supply network disruptions.
• Economic conditions may adversely impact vendors' ability to access financing or lead to insolvency, potentially requiring Macy's to increase cash collateral or provide guarantees.
• Major changes in tax policy, such as disallowance of tax deductions for imported merchandise, could materially affect business, results of operations, and liquidity.
• Experienced delays in merchandise inventory receipts and product delivery due to shortages of vessels and air freight, port congestion, worker shortages, truck driver shortages, and rail congestion.
• Increases in shipping rates from Trans-Pacific ocean carriers and trucking costs due to driver shortages and fuel costs.
• Geopolitical, trade, and investment tensions (e.g., U.S.-China trade dispute, tariffs, sanctions, human rights violations, China-Taiwan, Russia-Ukraine war) create uncertainty and increased risk in sourcing and costs.
• Volatility in tariff rates and trade policy may negatively impact demand for consumer discretionary products and contribute to a heightened competitive promotional landscape.
• The inability to effectively mitigate the impact of tariffs and trade policy changes could adversely affect the business.
• Prolonged manufacturing or transportation disruptions due to public health conditions or unforeseen events could adversely impact product sourcing and results of operations.

Future Outlook

Macy's believes its available cash, expected future cash from operations, the Amended & Extended ABL Credit Facility, and credit available in the market will be sufficient to satisfy its anticipated needs for working capital, capital expenditures, and cash dividends for at least the next twelve months and the foreseeable future. The company's capital allocation goals include maintaining a healthy balance sheet, achieving investment-grade credit metrics, investing in long-term profitable growth initiatives, and returning capital to shareholders through dividends and share repurchases. Future dividends are subject to Board approval, and share repurchases may continue or be suspended based on market conditions and capital allocation priorities. The company is also evaluating the impacts of new accounting pronouncements (ASU 2023-09 and ASU 2024-03) on its financial statements.

Management Comments

• The Company started its second year in the implementation of its strategy, 'A Bold New Chapter,' which firmly places energy and focus on the needs of our customer and is centered on an enhanced omni-channel shopping experience across all three of our nameplates.
• This strategy prioritizes improving the shopping environment and elevating the customer experience, while closing underproductive Macy's stores to focus resources and investments on its go-forward enterprise.
• Macy's net promoter scores continued to improve year-over-year.
• The 'Reimagine 125 locations' outperformed the rest of the Macy's fleet in the first quarter of 2025, with customers responding well to redefined product and experience.
• Our assortment matrix evolution continues to gain traction, with recently introduced contemporary apparel brands and established brands resonating with customers.
• Our off-price concept, Backstage, and Macy's Marketplace remained strong, with Backstage outperforming full-line stores and Marketplace achieving approximately 40% gross merchandise value growth.
• Bloomingdale's positive comparable sales benefited from brand launches and improvements in availability and pricing.
• Bluemercury achieved its 17th consecutive quarter of comparable sales growth, driven by new and remodeled doors, strength in dermatological skincare, and targeted loyalty communications.
• Efforts to drive meaningful change for our customers, and operational and financial performance, continues to move forward, simplifying the business model, containing costs, streamlining the asset portfolio, and reinvesting benefits.
• The decline in net sales was mainly due to the closing of 64 non-go-forward locations and weakness in Macy's due to weaker than expected international tourism.
• The increase in other revenues, particularly credit card revenues, reflects a strong credit portfolio and continued active management of net credit card losses.
• Asset sale gains reflected the monetization of store locations and right-sizing of the Company's supply chain network.
• The decrease in net interest expense was primarily driven by reduction in interest expense as a result of the tender offer completed in the third quarter of 2024.
• The net cash used by operating activities was primarily driven by increased working capital requirements and lower earnings after excluding non-cash adjustments.
• Capital expenditures in the current year are primarily focused on digital and technology investments as well as omni-channel capabilities.

Industry Context

Macy's Q1 2025 results reflect a challenging retail environment, particularly for traditional department stores, as evidenced by the overall decline in net sales and comparable sales for the Macy's brand. The company's 'A Bold New Chapter' strategy, which includes store optimization and investment in omni-channel capabilities, aligns with broader industry trends where retailers are adapting to changing consumer behaviors, emphasizing digital integration, and streamlining physical footprints. The strong performance of luxury (Bloomingdale's) and beauty (Bluemercury) segments, along with off-price (Backstage) and marketplace growth, indicates a strategic focus on higher-growth or differentiated segments within the broader retail landscape. The impact of 'weaker than expected international tourism' on Macy's sales highlights the vulnerability of certain retail models to macroeconomic and geopolitical factors, a common theme across the industry.

Comparison to Industry Standards

• The document states that the change in inventory valuation method to LIFO cost method is 'consistent with the practices of many other retailers, improving comparability,' but does not provide specific comparable companies, projects, or results for direct assessment.
• The decline in overall comparable sales for Macy's contrasts with the growth seen in its luxury (Bloomingdale's) and beauty (Bluemercury) segments, suggesting that while the core department store model faces headwinds, specialized or higher-end retail segments may be more resilient or benefiting from specific strategic investments.
• The company's focus on digital and omni-channel investments aligns with industry-wide efforts to integrate online and offline shopping experiences, a critical benchmark for modern retail competitiveness.

Corporate Governance

Legal Proceedings

• The Company and its subsidiaries are involved in various proceedings incidental to the normal course of their businesses. As of the report date, the Company does not expect any of these proceedings to have a material adverse effect on its financial position or results of operations.

Related Party Transactions

• The company has a long-term marketing and servicing alliance with Citibank (Credit Card Program Agreement, expiring March 31, 2030), where Macy's receives payments for providing interrelated services and intellectual property, and a profit share based on portfolio performance. Credit card revenues increased by $37 million in Q1 2025 due to higher profit share.
• The company has agreements with third-party financial institutions for supply chain finance (SCF) programs, allowing qualifying suppliers to sell their receivables from Macy's to the financial institution. Macy's obligations to suppliers are not impacted. Outstanding obligations under these programs were $114 million as of May 3, 2025.

Stakeholder Impact

• **Shareholders**: Experience reduced net income and diluted EPS, but benefit from ongoing share repurchases ($101 million in Q1) and continued quarterly dividends. The long-term 'Bold New Chapter' strategy aims to drive profitable growth.
• **Employees**: Affected by the strategic decision to close 'underproductive Macy's stores' as part of the 'go-forward enterprise' focus. Compensation plans, including restricted stock units, are subject to performance and clawback policies.
• **Customers**: Targeted by initiatives to improve shopping environment, elevate customer experience, and revitalize assortment, with positive responses noted in 'Reimagine 125 locations' and growth in Bloomingdale's, Bluemercury, Backstage, and Marketplace.
• **Suppliers**: Engaged in supplier finance programs, which allow them to manage receivables. They are also exposed to supply chain disruptions, increased shipping costs, and tariff impacts, which Macy's is working to mitigate.
• **Creditors**: The company's liquidity position, including $932 million cash and a $2.1 billion ABL Credit Facility with no outstanding borrowings, provides financial stability. Debt management efforts, such as the prior year's tender offer reducing interest expense, benefit creditors.

Next Steps

• Continue implementation of the 'A Bold New Chapter' strategy, focusing on enhancing the omni-channel shopping experience and elevating customer experience.
• Further invest in customer-facing go-forward business initiatives, digital, technology, and omni-channel capabilities.
• Monitor and work through strategies to mitigate the impact of currently effective tariffs and other changes in foreign trade policy.
• The Board of Directors will continue to evaluate and approve subsequent quarterly dividends.
• The company may continue or suspend share repurchases under its existing $1.274 billion authorization, depending on market conditions and capital allocation.
• Evaluate the impacts of adopting new accounting pronouncements, ASU 2023-09 (effective fiscal year ending January 31, 2026) and ASU 2024-03 (effective fiscal year ending January 29, 2028).

Key Dates

Recommendation

Keywords

Retail, Department Store, Omni-channel, Macy's, Bloomingdale's, Bluemercury, SEC Filing, 10-Q, Financial Results, Sales Decline, Earnings, Comparable Sales, Supply Chain, Tariffs, Liquidity, Share Repurchase, Credit Card Revenue, Strategic Initiatives