Macy's (M): Buy, Sell, or Hold After Q4 Earnings?

Macy’s (NYSE:M) reported its Q4 2024 earnings with a mix of progress and caution, sparking debate over its investment merits. While the company showcased resilience in its luxury segments and improved cash flow, its broader retail challenges and cautious guidance have left investors torn. Here’s a deep dive into whether the stock is a buy, sell, or hold post-earnings.

Q4 Results: A Fragile Balance of Strength and Struggle

Macy’s Q4 net sales fell 4.3% to $7.8 billion, reflecting the impact of store closures and a shorter reporting period compared to 2023’s 53-week year. However, comparable sales trends offer a glimmer of hope:
- Owned-plus-licensed-plus-marketplace sales rose 0.2%, the strongest result since Q1 2022.
- Bloomingdale’s and Bluemercury shone, with comparable sales jumps of 6.5% and 6.2%, respectively, driven by luxury collaborations and beauty trends.

The company’s adjusted EPS of $1.80 beat estimates, fueled by cost discipline and asset gains from closing 64 underperforming stores. Free cash flow surged 71% to $679 million, supported by $283 million in asset sales, while cash reserves hit $1.3 billion, signaling financial flexibility.

2025 Guidance: Caution Amid Uncertainty

Macy’s 2025 outlook is tempered by macroeconomic headwinds and store rationalization:
- Sales are projected to drop to $21.0–$21.4 billion, reflecting the loss of $700 million in revenue from closed stores.
- Comparable sales for the "go-forward business" (350 prioritized stores) are expected to decline 2% to flat, with challenges persisting outside its reimagined stores.
- Adjusted EPS guidance of $2.05–$2.25 falls short of consensus estimates, while margins face pressure due to rising SG&A costs and a leaner sales base.

The stock dipped 6% post-earnings, reflecting skepticism about the conservative outlook.

Strategic Wins and Lingering Risks

Strengths:
1. Luxury Growth: Bloomingdale’s and Bluemercury are outperforming, with exclusive partnerships (e.g., Wicked and Coachtopia) driving traffic and media buzz.
2. Operational Efficiency: The China Grove distribution center (opening mid-2025) promises cost savings and faster delivery.
3. Cash Generation: Free cash flow rose 71%, and the company plans to resume buybacks under its $1.4B authorization.

Weaknesses:
- Sluggish Core Performance: Macy’s nameplate sales fell 5.3%, with only 36% of its go-forward stores reimagined.
- Economic Exposure: Consumer spending trends and inflation remain risks, particularly in discretionary retail.
- Store Closures: While 64 stores were closed in 2024, another 150 non-go-forward locations will shut by 2026, potentially hurting local market share.

Analyst and Market Sentiment: Hold, But With Reservations

Analysts are split but broadly cautious:
- Bullish Take: The stock’s 5x forward P/E is cheap, and cash flow improvements suggest turnaround efforts are paying off. Bloomingdale’s and Bluemercury’s growth could offset broader declines.
- Bearish Concerns: Same-store sales have averaged a 4.7% annual decline over two years, and Wall Street forecasts a 5.6% revenue drop over the next 12 months. A five-year ROIC of 0.4% highlights poor capital efficiency.

Conclusion: Hold Macy’s (M) for Now

Macy’s is a Hold, with its valuation offering some protection but its challenges limiting upside:
- Pros: Strong liquidity ($1.3B cash), luxury brand momentum, and a disciplined capital allocation strategy.
- Cons: Sluggish core sales, margin pressures, and macroeconomic risks.

The stock’s 5.22% dividend yield adds defensive appeal, but investors should remain cautious until the company demonstrates sustained sales growth in its reimagined stores or broader consumer recovery. While the $12.50 price reflects pessimism, risks—including store closures and a weak retail environment—outweigh near-term upside.

Final Recommendation: Hold Macy’s (M) until clearer signs of turnaround emerge.

Investors should also monitor the company’s progress in reimagining its remaining stores and the broader retail recovery.