Macy's, Inc.
M rates a BUY because the market is still valuing Macy's like a melting department-store asset even as comps have turned positive, guidance was raised, and the stock trades at 9.11x earnings versus 15.1x peers.
The market is still pricing Macy's like a retailer in slow erosion, but the current facts are better than that. The latest quarter was not just an EPS beat. It was a broad operating beat, with $4.7B of sales above guidance, +3.0% comp growth across all nameplates and channels, and management raising FY26 guidance to $21.5B-$21.75B of revenue and $2.00-$2.20 of adjusted EPS. Against a stock price of $21.51, that is a forward earnings multiple around 10x, despite a business that has now beaten EPS expectations for 8 straight quarters.
The case depends on three things. First, the better parts of the portfolio need to keep carrying more weight. Bloomingdale's at +10.2% comps and Bluemercury at +6.4% are not side notes. They show that the company does have banners with pricing power and traffic appeal, even if the core Macy's banner remains more promotional. Second, the core store base has to keep improving through the Reimagine rollout. Management now has 200 stores in that program, representing roughly 75% of FY25 go-forward Macy's sales, which means store productivity gains are large enough to matter at the enterprise level. Third, expense and inventory control must offset a still-choppy consumer backdrop. The company is not getting paid as if it needs perfection, but it does need stability.
The margin picture is the reason conviction is medium, not high. Q1 gross margin fell to 38.9%, down 30 bps YoY, and adjusted EBITDA margin slipped to 5.9% from 6.3% despite stronger sales. Macy's also carries 2.78x Debt/EBITDA and generated only $0.2B of FCF in FY2025, so there is less financial flexibility than the cheap multiple alone suggests. This is not a pristine compounder. It is a turnaround with evidence.
The stock setup helps. Shares are down 19.1% from the 52-week high after a 15.31% one-month pullback, yet the business just posted its best Q1 comp result in four years and raised the full-year view. That disconnect is the opportunity. If comps revert negative and margins crack further, the thesis breaks. If management simply delivers the current guide and shows another quarter of broad-based positive comps, the shares should not remain stuck near 9x earnings.
Bloomingdale's and Bluemercury stay strong, Reimagine and automation drive cleaner expense leverage, and FY26 EPS lands above $2.20 with a sharper sentiment shift against the 11.73% short base.
Raised guidance holds, Macy's sustains flat to low-single-digit comps, and the market rerates the shares toward a more normal earnings multiple from 9.11x.
Comps slip back negative, gross margin remains below 39%, and FY26 EPS tracks toward or below $2.00, keeping the stock near the low end of its $16.51-$26.59 range.
Quant call (BUY) diverges from analyst consensus (Hold: 0 buy / 5 hold / 1 sell) — resolve explicitly.
In the short run, the market is a voting machine, but in the long run, it is a weighing machine.
FY26 earnings power now looks closer to a stable $2.00-$2.20 business than a collapsing one, which puts the stock at roughly 9.8x to 10.8x forward earnings at $21.51, still inexpensive if comps stay around flat to modestly positive. The moat is not wide, but it is improving at the margin through better banner mix, a stronger beauty and luxury exposure, and operational upgrades such as the China Grove automation ramp and 35 AI tests/pilots across inventory, supply chain, and labor productivity. Over the next 3 to 5 years, AI is more likely to help Macy's defend margins than create a new growth engine, while the secular threat remains that digital-native and off-price competition compresses department-store relevance if the core Macy's banner cannot sustain traffic gains. Higher rates at 4.80% on the 10-year and 3.63% Fed funds also argue for favoring near-term cash earnings and disciplined capex over any long-duration turnaround narrative, which fits this rating.
- Valuation is still depressed at 9.11x P/E and 0.26x P/S versus peer averages of 15.1x and 1.3x.
- Operations improved in the latest quarter, with Q1 comp sales +3.0%, Bloomingdale's +10.2%, Bluemercury +6.4%, and revenue beating guidance at $4.7B.
- Management raised FY26 guidance to $21.5B-$21.75B sales and $2.00-$2.20 EPS after delivering 8 straight EPS beats.
- The business is executing better than the market assumes, shown by 8 consecutive EPS beats, including $0.13 versus $0.03064 in June 2026 and $1.67 versus $1.53 in March 2026.
- Forward earnings remain solid relative to price. Against FY26 adjusted EPS guidance of $2.00-$2.20, the stock at $21.51 trades at roughly 9.8x to 10.8x forward earnings, still below the stated 9.11x trailing multiple context and well below the 15.1x peer average.
- The better parts of the portfolio are carrying more weight, with Bloomingdale's at +10.2% comps and Bluemercury at +6.4%, while the Reimagine base now covers 200 stores, about 60% of go-forward Macy's stores and 75% of FY25 go-forward Macy's sales.
- Cash generation improved materially in Q1, with operating cash flow inflow of $292M versus an outflow last year, supporting both $0.1B of buybacks and $0.1B of dividends despite a still-challenged backdrop.
- Profitability is not clean yet. Q1 gross margin of 38.9% fell 30 bps YoY, and adjusted EBITDA margin of 5.9% was down from 6.3% last year despite the sales beat.
- Balance-sheet flexibility is only middling, with Debt/EBITDA 2.78x, Debt/Equity 1.06, and a low Financial Health score of 36/100.
- Cash flow is positive but thin for the size of the company, with only $0.2B of FCF on $22.6B of FY2025 revenue, limiting room for mistakes if sales soften again.
- Short interest remains elevated at 11.73% of float, or 30.3M shares and 5.2 days-to-cover, signaling that a meaningful part of the market still expects the turnaround to fade.
| Metric | Value | Context |
|---|---|---|
| Current price | $21.51 | Reference price for upside and scenario framing |
| Quant price target | $29.22 | 35.9% upside vs current, Medium confidence, basis: earnings_growth_blend |
| FY2025 revenue | $22.6B | -2.9% YoY, still declining on a trailing basis |
| FY2025 EPS | $2.37 | 5177.8% YoY, reflecting much easier comparison off a depressed prior year |
| Operating margin | 4.0% | Flat versus prior FY, shows turnaround has not yet restored higher structural profitability |
| Valuation | P/E 9.11x | P/S 0.26x | P/B 1.23x | Discount to peers, with peer avg 15.1x P/E and 1.3x P/S |
| Leverage | Debt/EBITDA 2.78x | Debt/Equity 1.06x | Total debt $5.1B | Manageable but not low risk for a cyclical retailer |
| Liquidity and cash flow | Current ratio 1.48 | FCF $0.2B | Liquidity is adequate, but free cash flow is modest for the revenue base |
| FY26 guidance | Revenue $21.5B-$21.75B | EPS $2.00-$2.20 | Raised after Q1 beat |
| Latest quarter | Q1 comp sales +3.0% | EBITDA $0.33B on $4.89B revenue | Best Q1 comps in four years, EBITDA margin 6.7% on reported framework from the call intelligence |
| Price action | 52-week range $16.51-$26.59 | Stock is -19.1% vs high, -0.3% below the $21.58 200-day average |
| Short interest | 11.73% | 30.3M shares short, 5.2 days-to-cover, elevated skepticism remains |
The biggest risk is that margin repair stalls even if sales hold, because FY2025 operating margin was only 4.0% and Q1 adjusted EBITDA margin slipped to 5.9%, leaving little cushion against promotion, tariff pressure, or category weakness.
The immediate catalyst is the earnings release on September 10, 2026, with the key watchpoints being whether Q2 lands inside guidance of $4.75B-$4.80B sales, flat to +1.0% comps, and $0.29-$0.34 adjusted EPS.
Ownership is concentrated, with the top 3 institutions at 70.6%, which can dampen incremental sponsorship unless fundamentals keep improving. Short interest is elevated at 11.73%, or 30.3M shares with 5.2 days-to-cover, so good numbers can force covering, but the options backdrop is less friendly because near-dated gamma is negative and the zero-gamma level sits at $23.69, above spot. That mix suggests higher event-driven volatility than the calm chart around the 200-day average implies.
FY2025 revenue declined 2.9% YoY, but the latest quarter showed better momentum with positive comps across all nameplates.
The core banner remains the key swing factor, with the Reimagine base expanded to 200 stores representing about 60% of go-forward Macy's stores and 75% of FY25 go-forward Macy's sales.
Luxury is a relative strength, with Q1 comps +10.2%, materially outpacing the enterprise and helping mix.
Beauty remains a structural bright spot, with Q1 comps +6.4%, supporting better customer economics than the core department-store business.
Macy's posted a broad Q1 beat and raised FY26 guidance.
Execution has improved versus the 2024 Q2 setup, but credibility is earned on cost control more than on sustained sales growth. In the 2024 Q2 call, management cut FY24 sales guidance to $22.1B-$22.4B and comp guidance to -2.0% to -0.5%, while reaffirming $2.55-$2.90 EPS on margin discipline, after Q2 sales were slightly below outlook and Macy's nameplate comps fell 3.6%. Since then, the strategy has stayed consistent, improve stores, close weaker doors, lean into better banners, and protect margin, and recent evidence is stronger: Q1 FY26 delivered $4.7B sales above guidance, +3.0% comps, adjusted EPS of $0.13 versus guidance of -$0.01 to +$0.01, and a raised FY26 EPS outlook of $2.00-$2.20. They also followed through on the operational agenda hinted two years ago, expanding the test base from the early First 50 concept to 200 Reimagine stores. The weak spot is that margin progress has been less durable than sales execution, with Q1 adjusted EBITDA margin at 5.9% versus 6.3% last year and FY2025 operating margin only 4.0%. Overall, management looks credible on tactical execution and expense control, but not yet proven on restoring structurally higher profitability.
We are pleased with our second quarter performance to date and are raising our full year outlook.
Looking at second quarter guidance, we expect net sales of approximately $4.75 billion to $4.8 billion. Comparable sales to be approximately flat to up 1%.
For the full year, we now expect net sales of approximately $21.5 billion to $21.75 billion. Adjusted diluted EPS of $2 to $2.20.
In the first quarter, we delivered enterprise-wide growth, better-than-expected performance across all key metrics and our best comparable sales in four years with all nameplates and channels positive.
For tariffs, our guidance now reflects current rates, which are lower than our previous assumptions. For fuel and transportation costs, we are factoring in elevated levels based on what we know today.
Macy's moat is narrow but real in a few areas: national brand recognition, a large store and fulfillment footprint, a scaled loyalty and credit ecosystem, and stronger positions in beauty and accessible luxury through Bloomingdale's and Bluemercury. The durability is mixed. Those assets still matter for convenience, vendor relationships, and omnichannel fulfillment, but the core Macy's banner faces constant price transparency and low switching costs. The moat is better in beauty and luxury than in broadline department-store apparel and home.
Capital allocation looks pragmatic rather than aggressive. With only $0.2B of FCF and $0.1B of capex, Macy's still returned cash through $0.1B of buybacks and $0.1B of dividends, which is acceptable but leaves little room for excess leverage or major M&A. Given Debt/EBITDA 2.78x, the right bar is disciplined spending on store productivity, supply chain automation, and digital tools rather than financial engineering.
M rates a BUY at Medium conviction. The stock is cheap on both trailing and forward earnings, recent execution has improved, and the latest guide raise is hard to reconcile with a share price still near 9x earnings and 19.1% below the 52-week high. This is not a quality-first story, so conviction stops short of high because margins and leverage still matter a lot. The view would turn less favorable if comps fall back negative or if FY26 EPS starts to drift below $2.00. It would get more bullish if Reimagine productivity and AI-led cost savings show up in cleaner margin expansion, not just better sales.
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Executive Summary
BUY, Medium conviction. Rated BUY, Medium conviction. Macy's has moved from traffic stabilization to measurable operating progress, with Q1 comp sales +3.0%, a broad beat, and a raised FY26 EPS guide to $2.00-$2.20, yet the stock sits 19.1% below its 52-week high and only 0.3% below its 200-day average after a 15.31% one-month drawdown. The setup is attractive because the valuation already discounts a lot of skepticism, while earnings power looks more resilient than the market is giving credit for.
Investment Thesis
The market is still pricing Macy's like a retailer in slow erosion, but the current facts are better than that. The latest quarter was not just an EPS beat. It was a broad operating beat, with $4.7B of sales above guidance, +3.0% comp growth across all nameplates and channels, and management raising FY26 guidance to $21.5B-$21.75B of revenue and $2.00-$2.20 of adjusted EPS. Against a stock price of $21.51, that is a forward earnings multiple around 10x, despite a business that has now beaten EPS expectations for 8 straight quarters.
The case depends on three things. First, the better parts of the portfolio need to keep carrying more weight. Bloomingdale's at +10.2% comps and Bluemercury at +6.4% are not side notes. They show that the company does have banners with pricing power and traffic appeal, even if the core Macy's banner remains more promotional. Second, the core store base has to keep improving through the Reimagine rollout. Management now has 200 stores in that program, representing roughly 75% of FY25 go-forward Macy's sales, which means store productivity gains are large enough to matter at the enterprise level. Third, expense and inventory control must offset a still-choppy consumer backdrop. The company is not getting paid as if it needs perfection, but it does need stability.
The margin picture is the reason conviction is medium, not high. Q1 gross margin fell to 38.9%, down 30 bps YoY, and adjusted EBITDA margin slipped to 5.9% from 6.3% despite stronger sales. Macy's also carries 2.78x Debt/EBITDA and generated only $0.2B of FCF in FY2025, so there is less financial flexibility than the cheap multiple alone suggests. This is not a pristine compounder. It is a turnaround with evidence.
The stock setup helps. Shares are down 19.1% from the 52-week high after a 15.31% one-month pullback, yet the business just posted its best Q1 comp result in four years and raised the full-year view. That disconnect is the opportunity. If comps revert negative and margins crack further, the thesis breaks. If management simply delivers the current guide and shows another quarter of broad-based positive comps, the shares should not remain stuck near 9x earnings.
Key Metrics
| Metric | Value | Context | ||
|---|---|---|---|---|
| Current price | $21.51 | Reference price for upside and scenario framing | ||
| Quant price target | $29.22 | 35.9% upside vs current, Medium confidence, basis: earnings_growth_blend | ||
| FY2025 revenue | $22.6B | -2.9% YoY, still declining on a trailing basis | ||
| FY2025 EPS | $2.37 | 5177.8% YoY, reflecting much easier comparison off a depressed prior year | ||
| Operating margin | 4.0% | Flat versus prior FY, shows turnaround has not yet restored higher structural profitability | ||
| Valuation | P/E 9.11x | P/S 0.26x | P/B 1.23x | Discount to peers, with peer avg 15.1x P/E and 1.3x P/S |
| Leverage | Debt/EBITDA 2.78x | Debt/Equity 1.06x | Total debt $5.1B | Manageable but not low risk for a cyclical retailer |
| Liquidity and cash flow | Current ratio 1.48 | FCF $0.2B | Liquidity is adequate, but free cash flow is modest for the revenue base | |
| FY26 guidance | Revenue $21.5B-$21.75B | EPS $2.00-$2.20 | Raised after Q1 beat | |
| Latest quarter | Q1 comp sales +3.0% | EBITDA $0.33B on $4.89B revenue | Best Q1 comps in four years, EBITDA margin 6.7% on reported framework from the call intelligence | |
| Price action | 52-week range $16.51-$26.59 | Stock is -19.1% vs high, -0.3% below the $21.58 200-day average | ||
| Short interest | 11.73% | 30.3M shares short, 5.2 days-to-cover, elevated skepticism remains |
Financial Strength
Financial strength is adequate, not strong. Macy's can fund itself and still return some capital, but Debt/EBITDA 2.78x and $5.1B of total debt leave less margin for error than the cheap equity multiple implies. The encouraging point is the swing to $292M of operating cash flow inflow in Q1 from an outflow a year ago, which suggests inventory, working capital, and sales trends are improving. The weaker point is that full-year free cash flow was only $0.2B, while operating margin stayed at 4.0%, so the balance sheet is not a source of upside. It is something management must continue to protect through tighter costs and cleaner inventory.
Competitive Position
Macy's moat is narrow but real in a few areas: national brand recognition, a large store and fulfillment footprint, a scaled loyalty and credit ecosystem, and stronger positions in beauty and accessible luxury through Bloomingdale's and Bluemercury. The durability is mixed. Those assets still matter for convenience, vendor relationships, and omnichannel fulfillment, but the core Macy's banner faces constant price transparency and low switching costs. The moat is better in beauty and luxury than in broadline department-store apparel and home.
Management & Guidance
Guidance currently reads credible and slightly conservative after the latest beat. Management raised FY26 revenue to $21.5B-$21.75B and adjusted EPS to $2.00-$2.20, while Q2 guidance calls for $4.75B-$4.80B of sales, comps flat to +1.0%, adjusted EBITDA margin of 6.9%-7.2%, and EPS of $0.29-$0.34. That stance is supported by recent evidence, not tone: Q1 sales beat the prior range, comps came in at +3.0% versus the original +0.5% to +1.5%, and adjusted EPS of $0.13 was far above the guided -$0.01 to +$0.01. The credibility gap versus 2024 has narrowed materially, though the market still wants proof that higher sales can convert into better gross margin and sustained EBITDA leverage.
Segment Analysis
- Enterprise revenue ($22.6B FY2025): FY2025 revenue declined 2.9% YoY, but the latest quarter showed better momentum with positive comps across all nameplates.
- Macy's core stores (Majority of revenue, exact split not provided): The core banner remains the key swing factor, with the Reimagine base expanded to 200 stores representing about 60% of go-forward Macy's stores and 75% of FY25 go-forward Macy's sales.
- Bloomingdale's (Not disclosed): Luxury is a relative strength, with Q1 comps +10.2%, materially outpacing the enterprise and helping mix.
- Bluemercury (Not disclosed): Beauty remains a structural bright spot, with Q1 comps +6.4%, supporting better customer economics than the core department-store business.
Capital Allocation
Capital allocation looks pragmatic rather than aggressive. With only $0.2B of FCF and $0.1B of capex, Macy's still returned cash through $0.1B of buybacks and $0.1B of dividends, which is acceptable but leaves little room for excess leverage or major M&A. Given Debt/EBITDA 2.78x, the right bar is disciplined spending on store productivity, supply chain automation, and digital tools rather than financial engineering.
Management Execution & Track Record
Execution has improved versus the 2024 Q2 setup, but credibility is earned on cost control more than on sustained sales growth. In the 2024 Q2 call, management cut FY24 sales guidance to $22.1B-$22.4B and comp guidance to -2.0% to -0.5%, while reaffirming $2.55-$2.90 EPS on margin discipline, after Q2 sales were slightly below outlook and Macy's nameplate comps fell 3.6%. Since then, the strategy has stayed consistent, improve stores, close weaker doors, lean into better banners, and protect margin, and recent evidence is stronger: Q1 FY26 delivered $4.7B sales above guidance, +3.0% comps, adjusted EPS of $0.13 versus guidance of -$0.01 to +$0.01, and a raised FY26 EPS outlook of $2.00-$2.20. They also followed through on the operational agenda hinted two years ago, expanding the test base from the early First 50 concept to 200 Reimagine stores. The weak spot is that margin progress has been less durable than sales execution, with Q1 adjusted EBITDA margin at 5.9% versus 6.3% last year and FY2025 operating margin only 4.0%. Overall, management looks credible on tactical execution and expense control, but not yet proven on restoring structurally higher profitability.
Positioning & Flows
Ownership is concentrated, with the top 3 institutions at 70.6%, which can dampen incremental sponsorship unless fundamentals keep improving. Short interest is elevated at 11.73%, or 30.3M shares with 5.2 days-to-cover, so good numbers can force covering, but the options backdrop is less friendly because near-dated gamma is negative and the zero-gamma level sits at $23.69, above spot. That mix suggests higher event-driven volatility than the calm chart around the 200-day average implies.
Bull Case
- The business is executing better than the market assumes, shown by 8 consecutive EPS beats, including $0.13 versus $0.03064 in June 2026 and $1.67 versus $1.53 in March 2026.
- Forward earnings remain solid relative to price. Against FY26 adjusted EPS guidance of $2.00-$2.20, the stock at $21.51 trades at roughly 9.8x to 10.8x forward earnings, still below the stated 9.11x trailing multiple context and well below the 15.1x peer average.
- The better parts of the portfolio are carrying more weight, with Bloomingdale's at +10.2% comps and Bluemercury at +6.4%, while the Reimagine base now covers 200 stores, about 60% of go-forward Macy's stores and 75% of FY25 go-forward Macy's sales.
- Cash generation improved materially in Q1, with operating cash flow inflow of $292M versus an outflow last year, supporting both $0.1B of buybacks and $0.1B of dividends despite a still-challenged backdrop.
Bear Case
- Profitability is not clean yet. Q1 gross margin of 38.9% fell 30 bps YoY, and adjusted EBITDA margin of 5.9% was down from 6.3% last year despite the sales beat.
- Balance-sheet flexibility is only middling, with Debt/EBITDA 2.78x, Debt/Equity 1.06, and a low Financial Health score of 36/100.
- Cash flow is positive but thin for the size of the company, with only $0.2B of FCF on $22.6B of FY2025 revenue, limiting room for mistakes if sales soften again.
- Short interest remains elevated at 11.73% of float, or 30.3M shares and 5.2 days-to-cover, signaling that a meaningful part of the market still expects the turnaround to fade.
Valuation & Price Target
Engine price target $29.22 (+35.9% vs current), Medium confidence.
- P/E Multiple: $27.45 (28% weight)
- P/S Multiple: $107.12 (2% weight)
- Quality-adjusted: $23.42 (20% weight)
- DCF: $27.17 (9% weight)
The rating stays aligned with the quant baseline BUY, but with Medium rather than high conviction because the valuation case is stronger than the quality case. The engine's $29.22 target is reasonable given the stock at 9.11x P/E, the forward guide of $2.00-$2.20 EPS, and the recent beat-and-raise pattern. The main brake is that peer-based valuation has limits here because the comparable set has wide dispersion of 6.1x and includes businesses that are not true department-store analogs, which is why the P/S multiple value of $107.12 is not a sensible anchor. Analyst consensus sits at Hold, 0 buy / 5 hold / 1 sell, but that is low-signal context and looks backward compared with the clear recent change in operating momentum.
Risk Assessment
Risk score 45/100 (Moderate). The biggest risk is that margin repair stalls even if sales hold, because FY2025 operating margin was only 4.0% and Q1 adjusted EBITDA margin slipped to 5.9%, leaving little cushion against promotion, tariff pressure, or category weakness.
The Bottom Line
M rates a BUY at Medium conviction. The stock is cheap on both trailing and forward earnings, recent execution has improved, and the latest guide raise is hard to reconcile with a share price still near 9x earnings and 19.1% below the 52-week high. This is not a quality-first story, so conviction stops short of high because margins and leverage still matter a lot. The view would turn less favorable if comps fall back negative or if FY26 EPS starts to drift below $2.00. It would get more bullish if Reimagine productivity and AI-led cost savings show up in cleaner margin expansion, not just better sales.
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