Macy's Stock: Has the Recent Rally Gone Too Far?

In the past three months, Macy's shares have surged 44.6%, outpacing the 38.3% industry-wide growth in the retail sector. This rally has sparked debate among investors: Is the stock's ascent a justified reflection of strategic reinvention, or has the market overextended its optimism in the face of persistent uncertainties? To answer this, we must dissect Macy's valuation divergence from industry benchmarks and assess the risks embedded in its transformation playbook.

Valuation Divergence: A Tale of Two Metrics

Macy's current valuation metrics starkly contrast with those of its peers. As of November 18, 2025, the company trades at a price-to-earnings (P/E) ratio of 10.84, calculated using a trailing twelve months (TTM) earnings per share (EPS) of $1.80 and a stock price of $19.51. This is 39% below the Consumer Cyclical sector average of 17.81, suggesting a significant discount. Similarly, its enterprise value-to-EBITDA (EV/EBITDA) ratio stands at 6.00, derived from an enterprise value of $9.89 billion and TTM EBITDA of $1.65 billion, which is lower than the implied sector average of 5 times per Morningstar's fair value estimate.

The market cap of $3.7 billion as of August 2025 further underscores this divergence. While the retail sector's average P/E and EV/EBITDA ratios imply optimism about future growth, Macy's metrics suggest skepticism. However, this discount could reflect either undervaluation or a lack of confidence in the company's ability to execute its strategic vision.

Strategic Reinvention: Store Closures and Digital Acceleration

Macy's "Bold New Chapter" strategy, unveiled in 2025, centers on closing 66 underperforming stores this year as part of a broader plan to shutter 150 locations over three years. This aggressive rationalization aims to redirect capital toward 350 "go-forward" stores and digital upgrades. The company has already reduced its store count by 64 in 2024, leaving 856 locations, with a regional focus on the South (39%) and Midwest (28%).

Digital transformation remains a cornerstone. The "Polaris" initiative, launched in 2020, has prioritized cost reduction, supply chain optimization, and omnichannel integration. The "First 50" pilot stores, which received product and service upgrades, demonstrated consecutive quarterly sales growth in Q2 and Q3 2024. Meanwhile, the "Reimagine 125" program targets reinvestment in key stores to drive both in-store and online performance.

Strategic Uncertainties: Competition and Loyalty Challenges

Despite these efforts, Macy's faces headwinds. It ranks fourth in U.S. online fashion sales, trailing Walmart, Amazon, and Shein, and struggles with customer loyalty. While 92% of U.S. fashion customers recognize the brand, only 35% express a preference for it. This gap between awareness and loyalty highlights the challenge of converting digital engagement into sustained revenue.

Moreover, economic pressures persist. Inflation and shifting consumer preferences continue to reshape the retail landscape, with digital-first competitors setting new benchmarks for convenience and personalization. Macy's reliance on Adobe's technology for tailored content and its Star Rewards loyalty program are steps in the right direction, but execution risks remain.

Investor Sentiment: Cautious Optimism or Overconfidence?

The recent stock rally has been fueled by Macy's forward-looking metrics. Its forward 12-month price-to-sales ratio of 0.22X is below the industry average of 0.43X, signaling potential undervaluation. Analysts have raised 2025 and 2026 earnings estimates, with the Zacks Consensus projecting a 25.8% decline for 2025 but a 0.1% increase for 2026. This suggests a belief in the long-term viability of its strategies, albeit with near-term caution.

However, the market's optimism may not fully account for execution risks. Store closures, while cost-saving, could alienate local customer bases. Similarly, digital transformation requires sustained investment, and any missteps in personalization or supply chain efficiency could erode gains.

Conclusion: A Calculated Bet

Macy's valuation divergence reflects a market that is both skeptical and hopeful. The company's P/E and EV/EBITDA ratios suggest it is undervalued relative to peers, but this discount may also price in strategic uncertainties. Its strategic initiatives-store rationalization, digital acceleration, and omnichannel integration-have shown early promise, yet the path to profitability remains fraught with challenges.

For investors, the key question is whether the recent rally has priced in too much optimism. While Macy's forward-looking metrics and analyst projections hint at a potential turnaround, the execution of its "Bold New Chapter" will determine if this optimism is warranted. Until then, the stock remains a high-conviction bet, where valuation discounts and strategic risks walk a tightrope.