Macy’s has announced a reduction in its profit outlook for the fiscal year despite surpassing Wall Street’s expectations for quarterly earnings. The retail giant cited increased tariffs, an uptick in promotions, and a decrease in consumer spending as significant factors influencing this decision. Consequently, Macy’s plans to raise prices on certain items while continuing its efforts to restructure and strengthen its business.
| Article Subheadings |
|---|
| 1) Overview of Financial Adjustments |
| 2) Impact of Tariffs on Pricing Strategy |
| 3) Sales Performance and Future Outlook |
| 4) Efforts to Restructure and Enhance Store Performance |
| 5) Leadership Changes and Market Response |
Overview of Financial Adjustments
Macy’s has revised its profit guidance for the fiscal year 2025, anticipating adjusted earnings per share to be in the range of $1.60 to $2.00. This marks a decline from the previous forecast of $2.05 to $2.25 per share. Despite this adjustment, the retailer has held steady on its full-year sales projection, estimating sales between $21 billion and $21.4 billion. This is a decrease from last year’s sales of $22.29 billion, highlighting the ongoing challenges faced by the company.
The reductions in profit guidance can be attributed particularly to the implementation of higher tariffs, increased promotional activities, and noted moderation in discretionary spending, a trend that many retailers are currently facing. CEO Tony Spring acknowledged that about 15 to 40 cents per share of the guidance cut directly correlates with tariff impacts, especially since approximately 20% of Macy’s merchandise is sourced from China.
Impact of Tariffs on Pricing Strategy
In light of rising tariffs, Macy’s is taking proactive steps to adjust its pricing strategy. The company plans to implement price increases on select items while also discontinuing certain products that do not meet profit margins amid the heightened costs imposed by tariffs. This tactical approach was articulated by CEO Tony Spring, who emphasized the need for a methodical and flexible pricing strategy that caters to varying consumer demands and cost structures.
As Spring noted, “You’re dealing with it on both the demand side as well as the increased cost side.” He further explained that Macy’s is taking care to ensure its pricing strategy does not adopt a one-size-fits-all model, thereby adjusting pricing based on specific product categories. This approach intends to balance consumer expectations with the reality of market pricing and rising costs.
Sales Performance and Future Outlook
During the fiscal first quarter, Macy’s reported an adjusted earnings per share of 16 cents, surpassing analysts’ expectations of 14 cents. However, the overall sales were recorded at $4.60 billion, slightly above the anticipated $4.50 billion. Despite this positive note, the net income has decreased, falling to $38 million from $62 million in the previous year, indicating ongoing difficulties within the business.
The company’s comparable sales across its owned and licensed business, along with its online marketplace, saw a decline of 2.1% year-over-year. Even when excluding the stores slated for closure, the comparable sales for the remaining business declined 1.9%. This paints a challenging picture for the legacy retailer who is endeavoring to revitalize its operations amid significant economic uncertainties, including fluctuating tariffs.
Efforts to Restructure and Enhance Store Performance
Macy’s has embarked on a three-year plan aimed at restructuring its operations to create a leaner, more efficient business model. As part of this initiative, the company plans to close approximately 150 underperforming stores by early 2027. In contrast, the company is investing in stronger segments of its portfolio, such as the luxury department store Bloomingdale’s and beauty chain Bluemercury. An emphasis has also been placed on improving customer experience, exemplified through faster online deliveries and increases in store staffing.
Furthermore, Macy’s is focusing on revitalizing its underperforming namesake stores through an initiative referred to as “First 50,” which aims to enhance the shopping experience at select locations with increased staff, improved merchandising strategies, and sharper displays. This initiative is being extended to an additional 75 stores, totaling 125 locations under enhanced operational scrutiny. Results from these targeted locations indicate improved performance compared to the overall brand, even though comparable sales showed a decline of 0.8% year-over-year.
Leadership Changes and Market Response
In a bid to streamline operations amidst changing market conditions, Macy’s has announced significant leadership changes, including the appointment of a new Chief Financial Officer, Thomas Edwards, set to begin on June 22. Edwards comes from a well-regarded background, having served as CFO of Capri Holdings, parent company to Michael Kors. This change is perceived as a strategic move aimed at fortifying Macy’s financial leadership during a period of transition.
As the broader market reacts to these developments, Macy’s shares have fluctuated, recently experiencing a slight increase despite the reduction in profit guidance. As of the latest trading session, shares closed at $12.04, resulting in a market capitalization of approximately $3.35 billion. However, it’s worth noting that shares have declined by about 29% so far this year, contrasting with the S&P 500’s near 1% gains, underscoring the retailer’s struggle to regain investor confidence amid a challenging economic landscape.
| No. | Key Points |
|---|---|
| 1 | Macy’s cut its full-year profit outlook to $1.60-$2.00 per share due to tariffs and promotional costs. |
| 2 | The company plans to raise prices on certain items while discontinuing others to manage tariff impacts. |
| 3 | Sales decreased 2.1% year-over-year in the latest fiscal quarter, despite an increase in adjusted earnings per share. |
| 4 | Macy’s is closing about 150 underperforming stores to streamline its operations and improve profitability. |
| 5 | Leadership changes, including the new CFO, are part of a strategy to navigate economic challenges effectively. |
Summary
Macy’s latest financial adjustments reflect the ongoing challenges faced by retailers during economic uncertainty, particularly regarding increasing tariffs and changing consumer behaviors. The company’s strategies, including price adjustments and strategic store closures, aim to reposition it as a resilient player in the market. However, while efforts to restructure and enhance store performance are underway, the effectiveness of these initiatives will be paramount in determining Macy’s future trajectory in the retail landscape.
Frequently Asked Questions
Question: Why is Macy’s adjusting its profit outlook?
Macy’s is adjusting its profit outlook due to higher tariffs imposed on merchandise and increased promotional expenses, which have negatively impacted the company’s financial expectations.
Question: How is Macy’s planning to respond to rising costs from tariffs?
Macy’s plans to respond to rising costs by raising prices on selected items and discontinuing those that do not meet the required profit margins.
Question: What steps is Macy’s taking to improve its store performance?
Macy’s is investing in the “First 50” initiative to enhance customer experience at select stores through increased staffing and improved merchandising, while also planning to close underperforming locations to focus on more profitable segments.
