Is Macy's (M) Stock a Sell or a Buy: A Deep Dive into Earnings, Valuation, and Strategic Turnaround?

Macy's (M) has long been a bellwether for the health of the U.S. retail sector. With its Q2 2025 earnings report now in the rearview mirror and a revised full-year outlook, investors are left to weigh whether the department store giant's strategic overhaul can offset persistent headwinds. This article examines Macy's financial performance, valuation metrics, and operational shifts to determine if the stock is a compelling buy or a cautionary sell in today's market.

Earnings Performance: A Mixed Bag of Resilience and Challenges

Macy's Q2 2025 results revealed a tale of two businesses. While the company's luxury segments—Bloomingdale's and Blue Mercury—posted modest gains (2% and 1.5% comp sales, respectively), the broader Macy's nameplate saw a 3.6% decline in comparable sales. The Q2 adjusted EPS of $0.53 beat guidance, driven by gross margin expansion and disciplined SG&A expenses. However, full-year guidance was downgraded to $22.1–22.4 billion in sales, with comp sales expected to fall by 2% to -0.5%.

The company's store-closure plan—55 non-go-forward locations in 2025—has generated $115 million in asset gains but also signals a painful contraction in its physical footprint. Meanwhile, the “Bold New Chapter” strategy, which includes reimagining 125 stores and expanding digital capabilities, has shown early promise. For instance, the first 50 reimagined stores achieved a 1% comp sales gain, outpacing other locations.

Valuation Metrics: A Discounted Stock in a Competitive Sector

Macy's valuation appears strikingly cheap relative to peers and historical benchmarks. As of Q1 2025, the stock trades at a P/E ratio of 6.3x, far below the Department & Discount Retail sector average of 29.7x and the industry median of 1.57 for the P/B ratio. Analysts estimate a fair value of $20.59, implying the stock is undervalued by 37%.

The company's P/S ratio is also depressed, with a market cap of $3.52 billion against $4.6 billion in Q2 revenue. This suggests investors are pricing in significant risks, including macroeconomic uncertainty and the lingering shift to e-commerce. However, Macy's disciplined inventory management (down 0.5% entering Q2) and a 5.6% dividend yield add to its appeal for income-focused investors.

Strategic Turnaround: Can Macy's Reclaim Its Retail Crown?

Macy's “Bold New Chapter” strategy hinges on three pillars: strengthening the core Macy's brand, growing luxury segments, and simplifying operations. The company's focus on Bloomingdale's and Blue Mercury is a smart move, as these divisions have shown resilience amid a weak consumer environment. For example, Bloomingdale's plans to leverage New York Fashion Week with immersive experiences, while Blue Mercury's 14th consecutive quarter of comp growth underscores its appeal to beauty-conscious shoppers.

However, the store-closure plan and asset sales raise questions about long-term sustainability. Closing 55 stores in 2025 and 150 over the next three years will reduce costs but also shrink Macy's physical presence at a time when omnichannel integration is critical. The company's investment in digital enhancements—such as improved mobile experiences and SEO—could mitigate this, but execution risks remain.

Macro Risks and Mitigants

Macy's faces a challenging macroeconomic backdrop. Tariffs on Chinese goods are expected to cut 20–40 basis points from annual gross margins, and a lackluster tourism rebound further dampens sales. Yet, the company's cost-cutting measures, including renegotiated supplier contracts and distribution center right-sizing, provide a buffer. Additionally, the 5.6% dividend yield offers a compelling income stream in a low-yield environment.

Investment Thesis: A High-Risk, High-Reward Proposition

Macy's stock is a buy for value investors who believe in the company's ability to execute its strategic turnaround. The undervalued metrics, strong luxury performance, and disciplined cost management create a margin of safety. However, the risks are non-trivial: a prolonged economic slowdown, further margin compression from tariffs, or missteps in the store-closure plan could derail progress.

For more aggressive investors, the stock could serve as a speculative bet on a retail sector rebound. The company's focus on customer experience (e.g., higher NPS scores in reimagined stores) and digital innovation positions it to capture market share if consumer spending stabilizes.

Conclusion: A Calculated Bet in a Turbulent Sector

Macy's is neither a clear buy nor a definitive sell. The stock's valuation and strategic initiatives offer upside potential, but the risks of a weak retail environment and operational challenges cannot be ignored. Investors with a medium-term horizon and a tolerance for volatility may find value in Macy's, particularly if the company can sustain its luxury growth and digital momentum. For now, a cautious “hold” rating seems prudent, with a closer eye on Q3 earnings and the pace of store closures.