10-Q: Macy's Q2 Profit Plunges Amid Strategic Overhaul

Macy's, Inc. reports a significant drop in second-quarter net income and diluted EPS, despite comparable sales growth in its go-forward businesses and luxury brands.

Summary

• Net sales for the second quarter of 2025 decreased by $125 million, or 2.5%, to $4,812 million compared to $4,937 million in the prior year, primarily due to the closure of 64 non-go-forward locations.
• Excluding the impact of store closures, net sales grew 0.9% in Q2 2025, driven by Bloomingdale's and Bluemercury.
• Net income for the second quarter fell to $87 million from $150 million in the prior year, a 42% decrease.
• Diluted earnings per share (EPS) for the second quarter was $0.31, down from $0.53 in the same period last year.
• Gross margin rate declined by 80 basis points to 39.7% in Q2 2025, attributed to proactive markdowns and the impact of 145% China tariffs.
• Comparable sales on an owned-plus-licensed-plus-marketplace (O+L+M) basis increased by 1.9% for Macy's, Inc. in Q2 2025.
• Bloomingdale's achieved its highest second-quarter sales and Net Promoter Score on record, with comparable sales increasing 5.7% on an O+L+M basis.
• Bluemercury recorded its 18th consecutive quarter of comparable sales growth, up 1.2% on an owned basis.
• The company issued $500 million in 7.375% senior notes due 2033 and used proceeds to fund a tender offer and redeem other outstanding debt, resulting in a $13 million loss on extinguishment of debt.
• The asset-based credit facility was reduced from $3,000 million to $2,100 million and extended to April 2030, with no outstanding borrowings as of August 2, 2025.

Sentiment

Score: 4

Explanation: While strategic initiatives show some positive traction in comparable sales for key brands and go-forward locations, the significant decline in net income, operating income, and diluted EPS, coupled with gross margin pressure and ongoing tariff risks, indicates a challenging financial performance for the quarter. The debt refinancing is a positive for liquidity management, but the overall profitability metrics are concerning.

Positives

• Macy's, Inc. comparable sales increased by 1.9% on an owned-plus-licensed-plus-marketplace (O+L+M) basis in Q2 2025, reversing a 3.3% decline in Q2 2024.
• Macy's go-forward business comparable sales (O+L+M) increased by 2.2% in Q2 2025.
• Reimagine 125 locations continued to outperform the rest of the Macy's fleet in traffic, average order value, and Net Promoter Scores.
• Bloomingdale's achieved its highest second-quarter sales and Net Promoter Score on record, with O+L+M comparable sales up 5.7%.
• Bluemercury achieved its 18th consecutive quarter of comparable sales growth, up 1.2% on an owned basis.
• Other revenue increased by $28 million in Q2 2025, primarily driven by a strong credit portfolio and active management of net credit card losses.
• Net cash provided by operating activities for the first half of 2025 increased to $255 million from $137 million in the prior year, driven by decreased working capital requirements and lower cash taxes.
• Long-term debt decreased to $2,432 million as of August 2, 2025, from $2,773 million at February 1, 2025, and $2,993 million at August 3, 2024.
• The ABL Credit Facility was extended to April 2030, providing $2,100 million of committed liquidity for the next five years.

Negatives

• Net sales decreased by 2.5% to $4,812 million in Q2 2025, and by 3.8% to $9,411 million for the first half of 2025.
• Net income significantly declined by 42% to $87 million in Q2 2025 from $150 million in Q2 2024.
• Diluted earnings per share decreased to $0.31 in Q2 2025 from $0.53 in Q2 2024.
• Operating income decreased by 32.9% to $149 million in Q2 2025 from $222 million in Q2 2024.
• Gross margin rate declined by 80 basis points in Q2 2025, primarily due to proactive markdowns and the flow-through of 145% China tariffs.
• A $13 million loss on extinguishment of debt was recognized in Q2 2025 due to debt financing activities.
• Net cash used by financing activities increased significantly to $471 million for the first half of 2025, compared to $152 million in the prior year, largely due to debt repayments and stock repurchases.

Risks

• Dependence on vendors and other sources of merchandise, goods, and services outside the U.S., primarily Asia, exposes the company to supply network disruptions.
• Current economic conditions may adversely impact vendors, potentially leading to an inability to access financing, insolvency, or increased cash collateral requirements for Macy's.
• Major changes in tax policy, such as the disallowance of tax deductions for imported merchandise, could materially adversely affect business, results of operations, and liquidity.
• Potential for delays in merchandise inventory receipts and product delivery due to shortages of vessels and air freight, port congestion, worker shortages, truck driver shortages, and rail congestion.
• Increases in shipping rates from Trans-Pacific ocean carriers and trucking costs due to shortages and fuel costs could negatively impact profitability.
• Geopolitical, trade, and investment tensions, including the U.S.-China trade dispute, tariffs, sanctions, and differing policies on China-Taiwan and the Russia-Ukraine war, create uncertainty and increased costs.
• The imposition of tariffs by the Trump Administration on products from over 90 countries, including Canada, Mexico, and China, is expected to lead to strategic price increases across product categories, with uncertain impact on consumer demand.
• Volatility in tariff rates and trade policy could negatively impact demand for consumer discretionary products and contribute to a heightened competitive promotional landscape.
• Prolonged manufacturing or transportation disruptions due to public health conditions or other unforeseen events could adversely impact the ability to source products.

Future Outlook

The company expects the provisions of the One Big Beautiful Bill Act (OBBBA) to ultimately decrease its fiscal 2025 cash tax payments, though not materially impact its estimated fiscal 2025 effective tax rate. Management believes available cash, expected future cash from operations, and the Amended & Extended ABL Credit Facility will be sufficient to satisfy anticipated needs for working capital, capital expenditures, and cash dividends for at least the next twelve months and the foreseeable future. The company continues to evaluate the impact of currently effective tariffs and potential future retaliatory tariffs, working on mitigation strategies, but the effectiveness and timing of these strategies are uncertain.

Management Comments

• Our strategy, A Bold New Chapter, firmly places energy and focus on the needs of our customer and is centered on an enhanced omni-channel shopping experience across all three of our nameplates.
• The Reimagine 125 locations continued to outperform the rest of the Macy's fleet in the second quarter of 2025, with customers responding well to elevated merchandise, more effective staffing, and localized events.
• Bloomingdale's achieved its highest second quarter sales and net promoter score on record.
• Bluemercury achieved its 18th consecutive quarter of comparable sales growth.
• We are finding efficiencies through automation, resource optimization and streamlining of processes and are continuing to explore practical applications of artificial intelligence and machine-based learning.
• The decline in net sales was mainly due to the closing of 64 non-go-forward locations last year, which contributed to approximately $170 million of the decline in net sales for Q2 2025.

Industry Context

Macy's continues to navigate a challenging retail environment, marked by shifting consumer behaviors towards digital channels and a competitive landscape. The 'A Bold New Chapter' strategy, focusing on omni-channel experience, luxury growth, and operational efficiency, aligns with broader industry trends of digital transformation and targeted store investments. The strong performance of Bloomingdale's and Bluemercury highlights the resilience and growth potential in the luxury and beauty segments, which have generally outperformed the broader retail market. The impact of tariffs and supply chain disruptions remains a significant concern across the retail sector, affecting sourcing costs and pricing strategies.

Comparison to Industry Standards

• The comparable sales growth on an O+L+M basis of 1.9% for Macy's, Inc. in Q2 2025, while positive, lags behind some digitally native or fast-fashion retailers that have seen higher growth rates. However, it represents a significant improvement from the prior year's decline.
• Bloomingdale's achieving its highest second-quarter sales and Net Promoter Score on record suggests strong performance within the luxury department store segment, potentially outperforming peers like Nordstrom's luxury division or Saks Fifth Avenue in specific categories.
• Bluemercury's 18th consecutive quarter of comparable sales growth indicates sustained strength in the beauty retail sector, a segment that has shown robust growth even during broader retail slowdowns, comparable to the consistent performance seen by Ulta Beauty or Sephora.
• The gross margin decline of 80 basis points in Q2 2025, partly due to proactive markdowns and China tariffs, reflects pressures common across general merchandise retailers facing inventory management challenges and geopolitical trade impacts, similar to those experienced by other large apparel and home goods retailers.

Corporate Governance

Legal Proceedings

• The company and its subsidiaries are involved in various proceedings incidental to the normal course of their businesses, none of which are expected to have a material adverse effect on financial position or results of operations as of the report date.

Related Party Transactions

• The company has a long-term marketing and servicing alliance with Citibank for its credit card program, which expires on March 31, 2030, subject to a three-year renewal term. Credit card revenues, net, are generated from this program.

Stakeholder Impact

• Shareholders: Impacted by the significant decline in net income and diluted EPS, but also by ongoing share repurchases and consistent dividend payments. The strategic initiatives aim for long-term value creation.
• Employees: Affected by store closures as part of the 'Bold New Chapter' strategy, but also by investments in go-forward businesses and operational efficiencies.
• Customers: Benefiting from an enhanced omni-channel shopping experience, revitalized assortments, and elevated customer service in 'Reimagine' locations and luxury brands.
• Suppliers: Exposed to risks related to economic conditions, financing access, and potential supply chain disruptions, as well as the impact of tariffs on sourcing costs.
• Creditors: The company's debt refinancing activities and extension of the ABL Credit Facility demonstrate active liquidity management, aiming to maintain a healthy balance sheet and access to funding.

Next Steps

• Continue execution of the 'A Bold New Chapter' strategy, focusing on strengthening the Macy's nameplate, accelerating luxury growth, and simplifying operations.
• Monitor and evaluate the impacts of new accounting pronouncements (ASU 2023-09, ASU 2024-03, ASU 2025-05) on future financial statements.
• Continue to evaluate the impact of currently effective tariffs and potential future retaliatory tariffs, and work on mitigation strategies.
• The Board of Directors will continue to approve subsequent dividends based on market and other conditions.
• May continue or suspend share repurchases under the existing $1,224 million authorization, depending on market conditions and capital allocation.

Key Dates

Recommendation

While Macy's is executing a strategic overhaul ('A Bold New Chapter') that shows some promising signs in comparable sales for its key brands and go-forward locations, the overall financial performance for the quarter, particularly the significant decline in net income and diluted EPS, is concerning. Gross margin pressure from markdowns and tariffs also weighs on profitability. The company's debt management and liquidity position appear stable, but the core retail business's profitability needs to demonstrate a clearer turnaround. Given the mixed signals – strategic progress versus declining bottom-line results – a 'hold' recommendation is appropriate, suggesting investors await further evidence of sustained profitability improvements from the strategic initiatives before making a more aggressive move.

Keywords

Retail, Department Store, Macy's, Bloomingdale's, Bluemercury, Omni-channel, Financial Results, Earnings, Sales, Gross Margin, Debt, Share Repurchase, Tariffs, Supply Chain, SEC Filing, 10-Q