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Dive Brief:
Macy’s Inc. reported a better-than-expected Q1, with net sales down just over 5% year over year to $4.6 billion, and comps, including licensed and marketplace sales, down 1.2%. Credit card revenue rose more than 31% to $154 million and Macy’s Media Network net revenue rose 8.1% to $40 million.
Bloomingdale’s net sales rose 2.6% and comps 3.8%. Bluemercury net sales rose 0.8% and comps 1.5%, its 17th straight quarter of comp growth. Store closures helped drive Macy’s namesake net sales down 6.5% and comps down 2.1%. Excluding stores set to close, comps fell 1.9%, while at 125 overhauled “Reimagine” stores comps fell 0.8%.
Inventory was nearly flat (down 0.5%). Gross margin was flat to last year at 39.2%, as better merchandise margin was offset by higher delivery costs. Net income tumbled 38.7% to $38 million.
Dive Insight:
At a time of uncertainty that is shaping consumer behavior across income cohorts, Macy’s executives are on high alert. CEO Tony Spring sees opportunity in the age of tariffs, though, as long as customers encounter the right product at the right price. This has meant negotiations with vendors, shifts in supply chain and a close eye on price elasticity.
When it comes to sourcing, the retailer is in a better position than it was just months ago. At the end of last year, about 20% of Macy’s Inc. inventory was from China, with national brands sourcing about 18% and owned brands about 27%. Last year nearly a third of private labels were made in China and pre-pandemic more than half were.
Tariffs’ full impact on prices is still to come, however. The first quarter saw very little, but that “is working its way into the system slowly,” Spring said. Macy’s Inc. estimates tariffs as currently structured will siphon about 20 to 40 basis points from annual gross margin. That includes inventory purchased under the 145% China tariffs, shared costs with suppliers, vendor discounts and selective price increases, but not any potential tariff increases on goods from the European Union or other countries.
Macy’s Inc. has “vendors that are more committed to our brands and to our partnership than I’ve seen at my time with the company,” and Macy’s and Bloomingdale’s both have an opportunity to grab market share. But that doesn’t mean that Macy’s is stockpiling inventory to avoid tariffs, he said.
“Remember, as a multibrand, multicategory retailer, we have a lot of optionality,” he said. “If something isn’t priced fairly, we’re not going to buy it. If a price point is important, we’re going to hold it. We’re going to negotiate fairly and aggressively with our partners, as well as with our factories. And right now, I feel good about how we positioned our pricing in our inventory for the remainder of the year, but we’ve got a lot in front of us, and we’re going to take it kind of day by day and month by month.”
This cautious approach to inventory management and pricing is what Fitch Ratings Senior Director David Silverman expects from Macy’s and other retailers, and he, too, sees opportunity for Macy’s to gain share.
“Given the company’s reasonable financial position, good cash flow, and limited near term debt maturities, the company has the ability to absorb increased costs and the potential for market share gains if it chooses to support a competitive pricing position in the near term,” he said in emailed comments. “Longer term, Macy’s success will hinge on its ability to successfully execute against its ‘Bold New Chapter’ strategies to combat secular challenges affecting traffic at malls and department stores.”
Questions about that linger, given the comp decline at Macy’s Reimagine stores, according to GlobalData Managing Director Neil Saunders.
“This is slightly concerning as, ideally, these stores need to show positive progress to justify the Macy’s Bold New Chapter strategy,” he said in emailed comments. “In our view, management gets a pass for now as it is still early in the reinvention timeline; things are also being executed against the backdrop of a market that is becoming more difficult.”
Still, Macy’s stores require more newness and even unexpected brands, in light of the assertiveness at competitors like Dick’s and Nordstrom, according to Saunders. When asked Wednesday about further improvements to Reimagine stores and the possibility or timing of adding more stores to that fleet, Spring didn’t provide many details.
“As the year progresses, we’ll talk about what are the opportunities to test additional ideas in additional stores, and what the expansion might be in 2026,” he said. “But so far I would say the improvement in the 125 — we continue to see the differential between the rest of the Macy’s stores, and I’m cautiously optimistic that we have opportunity to improve that trend as the year progresses.”