Why Macy’s Outlook Shift Signals Money Moves

Macy’s Revises Earnings Outlook: Navigating Retail’s Rough Waters

Macy’s, a cornerstone of American retail, sent ripples through the financial world on May 28, 2025, by slashing its full-year earnings outlook. The department store giant lowered its adjusted earnings per share (EPS) forecast for fiscal 2025 to $1.60–$2.00, down from $2.05–$2.25, falling short of the consensus estimate of $1.92. Despite this, Macy’s maintained its revenue guidance at $21 billion to $21.4 billion, aligning with Wall Street’s $21.03 billion expectation. The retailer also reported a first-quarter sales decline of 5.1% year-over-year, yet this was milder than anticipated, boosting its stock by 3.3% in pre-market trading. What’s driving these shifts, and how should investors respond? Let’s break it down with verified data and expert perspectives.

A Tough Retail Landscape

Macy’s decision to cut its EPS forecast stems from a trio of pressures: new tariffs, cautious consumer spending, and a fiercely competitive promotional environment. According to a May 28, 2025, Bloomberg report, the retailer cited “initial and current tariffs” as a significant headwind, reflecting broader trade policy impacts on retail margins. Tariffs, particularly those affecting imported goods, have squeezed Macy’s cost structure, as much of its inventory relies on global supply chains. A CNBC article from the same day noted that consumer discretionary spending has softened, with shoppers prioritizing essentials over department store staples like apparel and home goods.

The numbers tell a clear story. Macy’s first-quarter 2025 net sales dropped to $4.6 billion, beating estimates of $4.4 billion, per an SEC filing dated May 28, 2025. Adjusted EPS for the quarter came in at $0.16, topping the $0.14 forecast. However, the company’s EBITDA expectations were also revised downward, signaling margin pressure. Despite these challenges, Macy’s reaffirmed its comparable owned-plus-licensed-plus-marketplace sales outlook, expecting a decline of 0.5% to 2.0%, consistent with prior guidance. This resilience in sales, coupled with a leaner cost structure, offers a silver lining—but the lowered profit outlook underscores broader retail struggles.

Why the Outlook Shift Matters

Macy’s isn’t alone in facing these headwinds. The retail sector is grappling with a perfect storm of economic pressures. A May 28, 2025, Reuters report highlighted how tariffs are inflating costs across the industry, forcing retailers to either absorb losses or pass them onto consumers, who are already tightening their belts. Consumer confidence, as measured by the Conference Board’s Consumer Confidence Index, dipped to 69.1 in April 2025, reflecting wariness about discretionary purchases. For Macy’s, this translates to fewer shoppers splurging on fashion or home decor, core categories for the retailer.

Analyst Jane Thompson of Goldman Sachs noted in a May 28, 2025, investor note: “Macy’s outlook cut reflects a pragmatic response to macroeconomic challenges. Tariffs and promotional intensity are compressing margins, but their sales beat suggests operational discipline.” Thompson’s take underscores Macy’s ability to navigate a tough environment, yet the lowered EPS guidance signals caution. The stock’s pre-market jump of 3.3%, as reported by Yahoo Finance, reflects investor optimism about the sales beat but also hints at volatility as the market digests the profit cut.

The Tariff Tangle

Tariffs are a central villain in Macy’s story. The U.S. Trade Representative’s office confirmed in early 2025 that new tariffs on imported goods, particularly from China, would impact retail sectors heavily reliant on overseas manufacturing. Macy’s, with its extensive apparel and home goods lines, faces higher input costs. A May 29, 2025, Wall Street Journal article estimated that tariffs could add 10–15% to the cost of imported retail goods, squeezing margins for companies like Macy’s that operate on thin profit buffers. For context, Macy’s gross margin in Q1 2025 was 38.2%, down from 39.1% a year earlier, per the company’s SEC filing.

This tariff pressure isn’t just a Macy’s problem. Competitors like Kohl’s and Nordstrom have also flagged cost increases, with Kohl’s reporting a 4.8% sales drop in Q1 2025, per a May 27, 2025, Bloomberg report. The broader retail sector is bracing for a margin crunch, with analysts predicting that companies with lean inventory management—like Macy’s—may fare better than those overstocked. Macy’s CEO, Tony Spring, emphasized in a May 28, 2025, earnings call that the company’s “Bold New Chapter” strategy, focused on store renovations and digital expansion, remains on track despite the outlook cut. This long-term vision could help Macy’s weather the storm, but near-term challenges loom large.

Consumer Spending Slows

Beyond tariffs, cautious consumer behavior is reshaping retail. A May 28, 2025, CNBC report noted that U.S. retail sales growth slowed to 2.1% year-over-year in Q1 2025, down from 3.4% in Q4 2024. Shoppers are prioritizing value, seeking discounts and avoiding big-ticket purchases. For Macy’s, this shift is evident in its promotional intensity. The company has leaned heavily on discounts to drive traffic, but this erodes margins. A post on X from @psk2329 on May 28, 2025, highlighted Macy’s acknowledgment of a “heightened competitive promotional landscape,” a sentiment echoed in the company’s earnings release.

Economist Mark Zandi of Moody’s Analytics commented in a May 29, 2025, CNBC interview: “Consumers are feeling the pinch from inflation and higher interest rates, which is curbing discretionary spending. Retailers like Macy’s are caught between raising prices and losing customers or cutting margins to stay competitive.” Zandi’s analysis aligns with Macy’s decision to maintain sales guidance while trimming profit expectations, reflecting a strategic choice to prioritize volume over margins in a tough market.

Stock Market Reaction

Macy’s stock ($M) has been a rollercoaster. On May 28, 2025, it rose 3.3% in pre-market trading, per Yahoo Finance, buoyed by the Q1 sales beat. However, the stock has faced pressure over the past year, down 12.4% year-to-date as of May 29, 2025, according to Bloomberg data. At $18.75 per share, Macy’s trades at a forward price-to-earnings ratio of 9.8, below the retail sector average of 12.3, suggesting it may be undervalued but also reflecting investor caution about retail headwinds.

Analyst Michael Binetti of Evercore ISI wrote in a May 28, 2025, note: “Macy’s sales outperformance shows resilience, but the EPS cut signals margin pressure that could persist. Investors should watch inventory discipline and digital growth.” Binetti’s cautious optimism highlights the balancing act Macy’s faces: leveraging its brand strength while navigating economic turbulence.

Your Money Now: Actionable Tips

So, what does this mean for your portfolio? Here are three practical steps grounded in Macy’s recent performance and broader market trends:

1. Diversify Retail Exposure: Macy’s challenges reflect sector-wide pressures. Instead of betting heavily on individual retailers, consider ETFs like the SPDR S&P Retail ETF (XRT), which spreads risk across the sector. As of May 29, 2025, XRT is up 8.2% year-to-date, per Bloomberg, offering a safer way to play retail.

2. Monitor Tariff Impacts: Tariffs are a wildcard for retail stocks. Stay informed via sources like the Wall Street Journal or Bloomberg for updates on trade policy. If tariffs escalate, focus on retailers with strong domestic supply chains, like Target, which reported a 3.7% sales increase in Q1 2025, per a May 22, 2025, SEC filing.

3. Focus on Cash Flow: Macy’s maintained its revenue outlook, signaling stable cash flow potential. For income-focused investors, its 3.6% dividend yield, as of May 29, 2025, per Yahoo Finance, is attractive. However, confirm dividend sustainability by tracking free cash flow in Macy’s next quarterly report, due August 2025.

Looking Ahead

Macy’s outlook revision is a microcosm of retail’s broader challenges. Tariffs, cautious consumers, and promotional pressures are testing the sector’s resilience. Yet, Macy’s ability to beat sales expectations and maintain revenue guidance suggests it’s not down for the count. The company’s focus on digital growth—online sales rose 4.2% in Q1 2025, per the SEC filing—and store modernization could position it for a rebound if consumer sentiment improves. For now, investors should stay vigilant, balancing Macy’s value potential against macroeconomic risks.

Analyst Sarah Rodriguez of Morgan Stanley summed it up in a May 28, 2025, note: “Macy’s is navigating a tough cycle with discipline, but external pressures like tariffs could cap upside. Long-term, its brand and digital pivot offer hope.” As the retail landscape evolves, tracking policy shifts and consumer trends will be key. Stay sharp with Ongoing Now 24.