Why Macy’s (M) Stock Tumbled Despite Beating Q2 Earnings Expectations

TLDR

• Shares of Macy’s declined up to 8% following second-quarter results, even though both earnings per share and revenue surpassed analyst projections
• The company reported adjusted EPS of $0.63 versus the anticipated $0.35, but $0.23 of this figure stemmed from tariff-related reimbursements
• Total sales increased 1% to $4.87 billion; comparable store sales climbed 2.7%, extending the positive streak to five quarters
• Full-year adjusted EPS forecast was upgraded to a range of $2.15-$2.35 from the previous $2.00-$2.20
• Third-quarter projections point to an adjusted loss between $0.19-$0.23 per share, potentially dampening market enthusiasm

Shares of Macy’s tumbled by as much as 8% Thursday following the department store chain’s second-quarter report, which exceeded Wall Street’s projections for both earnings and sales. In premarket trading, the stock hovered near $20.66, down from the prior session’s close of $21.51.

Macy’s, Inc., M

On the surface, the quarterly performance appeared strong. The retailer delivered adjusted earnings of $0.63 per share, compared to $0.35 in the year-ago period and significantly ahead of the $0.35 consensus. Sales totaled $4.9 billion, topping forecasts of $4.78 billion.

However, there’s an important asterisk. Company executives disclosed that the quarter benefited from a $0.23-per-share windfall related to tariff reimbursements. Removing this one-time item brings adjusted EPS to $0.40, representing a more measured 14% increase year-over-year, albeit still exceeding the $0.37 estimate.

The stock’s negative response indicates that market participants weighed this nuance more heavily than the topline figures.

Transformation Gaining Traction

Comparable store sales advanced 2.7%, extending the retailer’s streak of positive comparable sales to five consecutive quarters. Bloomingdale’s emerged as the star performer with 11.3% comparable sales expansion, achieving its strongest second-quarter sales performance in its 154-year history. Bluemercury registered 6.2% growth, while Macy’s flagship stores within the Reimagine 200 initiative posted 1.9% comparable sales gains.

Adjusted EBITDA expanded to $457 million from $373 million, pushing the margin higher to 9% from 7.5%. Operating cash generation during the first half reached $586 million, more than doubling the $255 million generated in the comparable period last year.

The company’s cash position strengthened to $1.3 billion from $829 million a year prior. Macy’s faces no significant long-term debt obligations until 2030.

Chief Executive Tony Spring highlighted progress across the portfolio. “We delivered revenue growth, comparable sales increases across all nameplates and channels, and better-than-expected performance across all key financial metrics,” he stated.

Updated Outlook and Third-Quarter Concerns

Macy’s lifted its full-year financial targets. Management now anticipates net sales between $21.68-$21.83 billion and adjusted EPS in the $2.15-$2.35 range, up from the previous $2.00-$2.20 guidance.

The challenge lies in third-quarter expectations. The retailer projected net sales of $4.65-$4.70 billion with comparable sales ranging from a 0.5% decline to a 0.5% increase. More concerning, the company forecasts an adjusted loss of $0.19-$0.23 per share for the period, which represents its most difficult year-over-year comparison.

For shareholders focused on income, the dividend situation appears manageable. Macy’s announced a quarterly distribution of $0.1915 per share, translating to approximately $0.77 on an annual basis. This payout represents roughly 34% of the midpoint of annual EPS guidance, providing cushion if business conditions deteriorate.

The equity currently trades at approximately 9x forward earnings and below 1x forward sales. Macy’s has now surpassed earnings projections for seven consecutive quarters and exceeded revenue estimates in six straight periods.

Chief Financial Officer Tom Edwards emphasized that even after adjusting for tariff refunds, the core business showed improvement. “Adjusted EPS would have been up 14% versus prior year and above the high end of our guidance,” he explained.