Macy's: Comps Finally Up, Profits Still Guided Down

On a Wednesday when stocks slipped after PCE inflation came in sticky and investors counted down to Nvidia's earnings report, Macy's rose about 1 percent, to just above $22.80. The giants were selling off and the department store was going up — that inversion is the whole story of this stock in one line. The company investors spent years treating as a fading category has become one of the better performers in the market: up roughly 75 percent from a 52-week low of $13.09 and still priced at about nine times trailing earnings with a dividend yield above 3 percent.

The rally is not happening for nothing. It is the market repricing the first operating proof this business has produced in years. The open question — and what next week's earnings will begin to answer — is whether the proof has caught up with the price.

Why the market is buying

In the fiscal first quarter, reported June 3, comparable sales — same-store growth, taking out the effect of openings and closings — rose 3.0 percent, the strongest first quarter in four years and a fourth consecutive quarter of gains. Net sales reached $4.68 billion, up 1.8 percent even as the company kept shuttering stores. Bloomingdale's drew the praise: a 10.2 percent comparable increase, its seventh straight quarter of gains, while the remodeled "Reimagine 200" locations grew comparable sales 2.4 percent.

Management backed the momentum with a full-year guidance raise in June: net sales of $21.5 billion to $21.75 billion, comparable sales of positive 0.5 percent to 1.2 percent, and adjusted EPS of $2.00 to $2.20. For a stock that had been trading at single-digit trailing multiples, that is the sort of concrete, reportable news that can carry a re-rating — and it got one. Sentiment help arrived in July, when Morgan Stanley revived coverage with an Overweight rating and a $30 price target, roughly 30 percent above the stock.

The number the rally is hiding

Now the part that does not show up on the chart. That raised 2026 guidance — $2.00 to $2.20 of adjusted EPS — is lower than what Macy's actually earned in fiscal 2025, when adjusted EPS came in at $2.32. The company that just posted its best quarter of sales growth in years is guiding profit down.

The culprit is tariffs. Import duties have been the cost shock of this retail year, with retailers across apparel bracing for tariff-driven price hikes, and they hit Macy's gross margin directly: down 40 basis points for fiscal 2025, including a roughly 60-basis-point tariff effect in the fourth quarter alone. Management has said the first half of 2026 will carry a larger tariff impact than the second half — another way of saying the improvement is supposed to arrive in the back half. Even net sales, guided to roughly $21.6 billion, would be flat to slightly down from last year's $21.8 billion once closed stores drop out.

The growth underneath is also narrower than the headline. The Macy's nameplate itself comped only 1.6 percent in the first quarter; Bloomingdale's carried the group. Foot traffic is still shrinking — store visits were down 3.6 percent year over year in the spring quarter, with July flattening toward flat — so the comp gains are coming from the remodeled stores and better conversion, not from the sector suddenly recovering. And inventory rose 3.6 percent, faster than sales, a small flag for clearance activity ahead.

What the multiple is actually paying for

After the run, the stock still looks cheap: about nine times trailing earnings, roughly 11 times the midpoint of guided earnings, about 3.7 times EV/EBITDA, with a yield near 3.3 percent. Cheap needs a reason, and here it is. The trailing multiple leans on last holiday season's strong quarter; the forward number the company itself issues is lower. And Macy's is no longer the cheapest ticket in the department store group — Kohl's trades near 7.5 times earnings and 2.3 times EV/EBITDA precisely because it has produced no comparable-sales proof. The market has paid Macy's up for its evidence. That is rational, but it means the easy leg of the trade — buying a single-digit multiple as comps turn positive — is mostly complete.

What keeps a floor under the multiple is not only the operating turn. Macy's ended the first quarter with about $1.3 billion of cash and $2.4 billion of debt, no material maturities until 2030, roughly $0.8 billion of free cash flow in fiscal 2025, a dividend covered by about 30 percent of trailing earnings, and about $1.1 billion of buyback authorization still available. Add the takeover history: the $24.80-a-share bid Arkhouse and Brigade made in 2024 — rejected as "not compelling" — sits above today's price, and activists have argued the real estate alone was worth $5 billion to $9 billion. None of that is a growth engine, but it is a downside floor built of cash flow and property, not hope.

The test is next week

Second-quarter results land Thursday, September 10, with the call at 8 a.m. Eastern. It is the right falsifiable moment: early fall is Macy's weakest selling quarter, it carries the last of the first-half tariff weight, and the consensus calls for earnings near zero for the quarter. What matters on the call is not a headline beat against that low bar. It is whether comparable sales hold near the recent 2 to 3 percent pace, whether gross margin shows the tariff trough, and whether management keeps the full-year range with signs that second-half relief is genuinely arriving — the bridge between the comp story the market has already paid for and the profit story it has not.

The evidence genuinely supports the direction: four consecutive quarters of positive comparable sales is the strongest thing this business has said about itself in years, and a roughly $6 billion equity backed by $1 billion-plus of cash flow is not a broken-balance-sheet cheap. But the stock has already done most of a year's work while the company guides profit down, so the disciplined read is to let the September 10 print place the evidence rather than chase a stock up 75 percent into its seasonally weakest quarter. The sales line has turned; the profit line is the remaining test, and the $7 gap between where the shares trade and where a bank says they're worth is the market's way of pricing that doubt.