Macy's (M) Q4 2025 earnings review
Top-Line Turnaround Materializes, But Profitability Continues to Erode
Macy's 'Bold New Chapter' strategy delivered on its primary objective in Q4: returning the business to positive comparable sales growth. Q4 comps grew 1.8%, driven by a massive 9.9% surge at Bloomingdale's and steady growth in go-forward Macy's locations. However, beneath the positive top-line narrative, earnings are steadily deteriorating. Gross margins compressed by 50 basis points due to tariffs, and full-year Adjusted EPS fell from $2.64 in FY24 to $2.32 in FY25. More concerning is management's FY26 guidance, which forecasts another significant drop in Adjusted EPS to a midpoint of $2.00. The company is successfully driving foot traffic and luxury spending, but at a high cost to the bottom line.
🐂 Bull Case
The luxury portfolio is accelerating rapidly. Bloomingdale's posted a massive 9.9% comp in Q4, its best holiday performance on record, proving the company can successfully capture high-end market share amidst broader luxury sector disruptions.
The 125 'Reimagine' locations posted a 0.9% comp growth in Q4, outperforming the legacy fleet. Management's decision to expand this model to 75 more stores ('Reimagine 200') shows confidence in the ROI of these modernized locations.
🐻 Bear Case
Despite returning to positive comp growth, FY25 Adjusted EPS fell 12% YoY, and FY26 guidance implies another ~14% decline. The cost of achieving top-line growth (promotions, store investments) and external headwinds (tariffs) are structurally lowering the margin profile.
Due to the ongoing closure of non-go-forward stores, total net sales declined 1.7% in Q4 and 2.4% for the full year. The company must prove its core fleet can grow fast enough to offset the planned loss of roughly $700M in annual sales from closed locations.
⚖️ Verdict: ⚪
Neutral. Management deserves credit for executing the 'Bold New Chapter' and stabilizing comps. However, shrinking overall revenue and guided multi-year earnings compression make this a difficult turnaround to underwrite for growth-focused investors.
Key Themes
Bloomingdale's Accelerates as Crown Jewel
Bloomingdale's significantly outperformed the core Macy's brand, accelerating to 9.9% comp growth in Q4 (up from 9.0% in Q3 and 5.7% in Q2). This sustained momentum underscores its ability to elevate the customer experience and successfully capture demand across premium contemporary to luxury businesses.
Tariff Costs Dragging Down Gross Margins
Q4 gross margin fell 50 basis points to 35.2%, with approximately 60 basis points of that decline directly attributable to tariffs. Management expects the first half of FY26 to have an even larger tariff impact. This indicates the company lacks the pricing power to fully pass these costs onto the consumer.
Macy's Media Network & High-Margin Ancillary Revenue
A crucial technology-driven bright spot is the Macy's Media Network, which grew revenue by 12.5% to $72 million in Q4 and hit $188 million for the full year. Alongside a healthy credit card portfolio (net revenues up 17.1% in Q4), these high-margin alternative revenue streams are critical to offsetting merchandise margin compression.
SG&A Rate Creeping Upwards
SG&A expense increased 10 basis points to 29.8% of total revenue in Q4, and 20 basis points to 36.4% for the full year. While the company achieved net savings from closed stores, these were entirely consumed by ongoing investments in the 'Reimagine' locations and digital channels, confirming that the turnaround remains highly capital and expense intensive.
Earnings Guidance Contradicts the 'Momentum' Narrative
While management cited 'growth and progress' and 'accelerating momentum,' the FY26 Adjusted EPS guidance of $1.90-$2.10 represents a definitive step backward from FY25's $2.32 and FY24's $2.64. Top-line improvements are currently failing to translate into bottom-line shareholder value.
Other KPIs
Accelerating/Improving from $679 million in FY24. This was achieved despite lower net income, aided by tight inventory management (inventories down 1.3% YoY) and steady operating cash flow of $1.43B. This healthy cash generation supported $448M in shareholder returns (dividends + share repurchases).
A significant one-time benefit related to the settlement of credit card interchange fee litigation matters. This heavily inflated GAAP Net Income to $507 million in Q4 (up from $342M last year), but was properly excluded from Adjusted Net Income.
Decelerating significantly from $144 million in FY24. The company has moved past the initial bulk monetization of its 64 non-go-forward stores closed last year, meaning fewer real estate windfalls will be available to supplement earnings going forward.
Guidance
Decelerating/Declining. The midpoint of $21.525B is a decline from FY25's actual $21.8B. This reflects the mechanical drag of closing roughly $145M worth of non-go-forward annual store sales, keeping absolute top-line growth elusive.
Decelerating vs FY25. After achieving +1.5% in FY25, management is setting a very cautious bar, effectively guiding for flat comps. This incorporates assumptions of macroeconomic/geopolitical factors influencing discretionary spend.
Reversing/Declining. The midpoint ($2.00) implies a roughly 14% drop from FY25's $2.32. Management explicitly called out heavier tariff impacts in the first half of the year and ongoing investments in the 'Reimagine 200' and luxury nameplates as the primary margin drags.
Stable to slightly declining. Compares to 7.9% in FY25. Note that the company updated its definition to exclude gains on the sale of real estate, which makes this a cleaner metric for core retail operations, but still shows a lack of margin expansion.
Key Questions
Tariff Mitigation Elasticity
You noted a 60 bps tariff impact in Q4 and expect heavier impacts in 1H26. Have you reached the ceiling of your ability to pass price increases to the consumer, or are you intentionally absorbing these costs to maintain market share?
Reimagine 200 Payback Period
With the expansion from 125 to 200 Reimagine stores, how are the capital requirements and SG&A investments scaling? At what point do these investments begin to yield net operating margin expansion rather than just stabilizing top-line comps?
Bloomingdale's Growth Sustainability
Bloomingdale's posted an exceptional 9.9% Q4 comp. How much of this was driven by unique new brand introductions versus a fundamental shift in luxury consumer behavior, and what is the normalized baseline growth expectation for this banner?
Absolute Revenue Growth Timeline
With FY26 net sales guided down again due to store closures, in what fiscal year do you anticipate the go-forward fleet's comp growth will finally outpace the top-line drag of portfolio rationalization, resulting in absolute enterprise revenue growth?