Macy's, Inc. (NYSE: M)

Macy's Q1 2025 performance demonstrated resilience amid challenging market conditions, with net sales of $4.6 billion exceeding company guidance. Despite a 5.1% decline year-over-year, the results were better than expected, reflecting the impact of planned store closures which contributed approximately $170 million in Q1 2024. On a comparable basis, sales declined 2.0% on an owned basis and 1.2% on an owned-plus-licensed-plus-marketplace basis.

Total revenue of $4.8 billion included $194 million in other revenue, representing a 26% increase driven primarily by a 31.6% jump in credit card net revenues to $154 million and an 8.1% increase in Macy's Media Network revenue to $40 million. These revenue streams continue to provide important diversification beyond traditional retail sales.

Gross margin remained flat at 39.2%, demonstrating pricing discipline despite challenging market conditions. The company achieved improved merchandise margins that offset higher delivery expenses as a percentage of net sales, reflecting effective inventory and pricing management strategies.

Operating income declined to $94 million from $125 million in Q1 2024, primarily due to increased SG&A expenses as a percentage of sales. The company reinvested savings from closed locations and operational efficiencies into customer-facing initiatives, including investments in the Reimagine 125 locations, Bloomingdale's, and Bluemercury.

Adjusted diluted EPS of $0.16 exceeded the company's guidance range, while GAAP diluted EPS was $0.13. The outperformance reflected better-than-expected sales results and effective cost management across the organization.

Macy's nameplate saw net sales decline 6.5%, inclusive of store closures, with comparable sales down 2.9% on an owned basis. However, the Reimagine 125 locations demonstrated superior performance with comparable sales down only 1.3% on an owned basis and down 0.8% on an owned-plus-licensed basis. This outperformance validates the company's strategic focus on these key locations and the investments made in enhancing the customer experience.

Bloomingdale's delivered strong results with net sales up 2.6% and comparable sales increasing 3.0% on an owned basis and 3.8% on an owned-plus-licensed-plus-marketplace basis. The luxury department store continues to demonstrate resilience and strong customer appeal, benefiting from its differentiated positioning and customer base.

Bluemercury maintained its impressive growth trajectory with comparable sales up 1.5%, marking the 17th consecutive quarter of comparable sales growth. Net sales increased 0.8%, reflecting the strength of the beauty specialty retail format and the company's ability to capture market share in the expanding beauty category.

The go-forward business, which includes locations and digital operations planned to remain open, showed improved performance with comparable sales down 1.8% on an owned basis and down 0.9% on an owned-plus-licensed-plus-marketplace basis, demonstrating the strategic value of the company's portfolio optimization efforts.

The performance across nameplates highlights the effectiveness of Macy's diversified approach, with the stronger performance at Bloomingdale's and Bluemercury helping to offset challenges in the core Macy's business while the Reimagine 125 strategy shows promising early results.

Macy's continued executing its Bold New Chapter strategy during Q1 2025, with key initiatives showing positive momentum across customer experience improvements and operational efficiencies:

Reimagine 125 Initiative

• Performance Leadership: Reimagine 125 locations outperformed the broader Macy's fleet with comparable sales down only 1.3% versus 2.9% for the total Macy's nameplate
• Customer Experience Investments: Enhanced store layouts, improved assortments, and elevated service levels in these key locations
• Market Position: Focus on stores in strong markets with significant growth potential and customer loyalty
• Operational Excellence: Streamlined operations and improved inventory management in targeted locations

Digital and Omnichannel Enhancement

• Continued investment in digital capabilities and omnichannel customer experience
• Integration of online and in-store shopping experiences across all nameplates
• Enhanced mobile and e-commerce platform functionality
• Improved inventory visibility and fulfillment capabilities

Portfolio Optimization

• Strategic closure of underperforming locations to focus resources on high-potential stores
• Reinvestment of savings from closed locations into customer-facing initiatives
• Optimization of real estate portfolio to reduce costs and improve efficiency
• Focus on go-forward business performance and sustainability

The company's strategic approach emphasizes investing in customer experience while optimizing its operational footprint. Management noted confidence in having the right strategy and team in place to navigate the current environment while positioning for sustainable profitable growth.

Macy's maintained a solid financial position in Q1 2025, with strong liquidity and manageable debt levels providing flexibility for strategic investments and shareholder returns:

• Cash Position: $932 million in cash and cash equivalents at quarter-end, providing substantial liquidity for operations and strategic initiatives
• Inventory Management: Merchandise inventories decreased 0.5% year-over-year to $4.7 billion, demonstrating disciplined inventory management
• Credit Facility Enhancement: Amended asset-based credit facility on April 9, 2025, extending maturity to April 2030 from March 2027
• Available Capacity: $2.0 billion of available borrowing capacity under the asset-based credit facility
• Debt Profile: Total debt of $2.8 billion with no material long-term debt maturities until 2027

The company proactively improved its credit facility terms, reducing borrowing capacity to $2.1 billion from $3.0 billion while extending the maturity and improving flexibility. This reflects management's confidence in the business and reduced capital needs following portfolio optimization.

Working capital management showed improvement with favorable changes in accounts payable, though this was partially offset by seasonal inventory increases. The company's ability to generate positive cash flow from operations supports its capital allocation priorities of growth investment and shareholder returns.

Macy's demonstrated commitment to returning capital to shareholders while maintaining financial flexibility:

Q1 2025 Shareholder Returns

• Total returns of approximately $152 million consisting of $51 million in quarterly dividends and $101 million in share repurchases
• Repurchased 8.7 million shares for $101 million during the quarter
• Quarterly dividend of 18.24 cents per share declared for Q2 2025, payable July 1, 2025
• Remaining Authorization: Approximately $1.3 billion remaining under the $2.0 billion share repurchase program

Capital Allocation Strategy

• Balanced approach prioritizing growth investments, debt management, and shareholder returns
• Strategic reinvestment of savings from store closures into customer-facing initiatives
• Focus on enhancing the go-forward business through targeted investments
• Maintenance of dividend while opportunistically repurchasing shares

The company's capital allocation reflects confidence in its strategic direction and ability to generate sustainable cash flows. Management continues to balance growth investments with returning capital to shareholders, demonstrating financial discipline while positioning for long-term success.

Macy's updated its 2025 full-year guidance, reflecting current market conditions while maintaining confidence in its strategic direction:

The guidance revision reflects several challenging factors:

• Tariff Impact: Effects of initial and current tariffs on cost structure
• Consumer Spending: Some moderation in discretionary spending patterns
• Competitive Environment: Heightened promotional landscape affecting margins
• Market Conditions: Ongoing economic uncertainties impacting retail sector

Despite these headwinds, management expressed confidence in the company's ability to adapt through its diverse brand portfolio, range from off-price to luxury offerings, and strong financial position. The Bold New Chapter strategy provides flexibility to navigate changing market conditions while investing in long-term growth opportunities.