Macy's, Inc. (M) Earnings

Management highlights

### Strategy and Core Business Progress - Macy's "Bold New Chapter" three-pillar strategy is gaining traction, with five consecutive quarters of better-than-expected top and bottom line results and four straight quarters of positive enterprise comparable sales growth. - Customer response to updated merchandising, service, and experience initiatives is positive, with Macy's nameplate achieving its highest first quarter net promoter score on record, with even higher scores at reimagined locations. ### Merchandising Updates - Macy's has refined its best/better/good price point architecture, reduced product redundancies, and added new brands including Rothy's, Donna Karan Weekend, and Ted Baker Men's, and expanded distribution of popular existing brands. - Outperforming categories at Macy's include watches, petites, dresses, women's career apparel, kids, handbags, fragrances, and shoes; softness is seen in big-ticket home (especially furniture) and the plus-size business. - Bloomingdale's added multiple new luxury brands including Chloe Ready-to-Wear, Isabel Marant, and Phoebe Philo, and outperforming categories include men's ready-to-wear, fine jewelry, shoes, and tabletop. ### Operational and Digital Innovation - Launched Ask Macy's, an AI-powered conversational shopping assistant, with early favorable customer response; the company is running ~35 AI pilots across customer experience, associate support, inventory forecasting, and supply chain. - The new China Grove automated distribution facility is ramping well, delivering early improvements in service levels and cost efficiency, with capacity being built for the 2026 holiday season. - Inventory is well-positioned: total inventory is up 3.6% year-over-year, in line with comp sales growth, with lower aged inventory and more new product compared to last year. ### Experiential Marketing and Events - 2026 includes milestone celebrations: the 50th anniversary of Macy's Fourth of July Fireworks, the 100th Macy's Thanksgiving Day Parade, and the U.S. 250th anniversary, with activations across stores, digital, and partner venues. - Key upcoming activations include immersive World Cup experiences at flagship locations, a Hugo Boss-David Beckham collaboration at Bloomingdale's, and a summer partnership with Live Nation and Major League Baseball for national fan experiences.

Guidance

- Management raised full year 2026 guidance following better-than-expected Q1 top and bottom line results, and incorporates modestly higher expected sales for the remainder of the year. - Full year 2026 guidance: Net sales of $21.5 to $21.75 billion, comparable sales growth of 0.5% to 1.2%, gross margin of 38.4% to 38.6%, adjusted EBITDA margin of 7.7% to 7.9%, and adjusted diluted EPS of $2.00 to $2.20. The net impact of lower tariff rates and higher fuel costs is expected to be neutral for full year EPS, with a combined 10 to 20 cent headwind incorporated into guidance. - Q2 2026 guidance: Net sales of $4.75 to $4.8 billion, comparable sales of flat to up 1%, adjusted EBITDA margin of 6.9% to 7.2%, and adjusted diluted EPS of $0.29 to $0.34. A combined 3 to 4 cent negative EPS impact from tariffs and fuel is incorporated. - Management maintained a prudent approach to guidance to retain flexibility to navigate macroeconomic and geopolitical uncertainty.

Segment performance

Macy's Inc. enterprise-wide: Net sales grew 1.8% to $4.7 billion, up from $4.6 billion in Q1 2025; total revenue grew 2.1% to $4.9 billion. Comparable sales rose 3% (go-forward comparable sales 3.1%), the strongest first quarter comp result since 2022. Other revenue (including credit card and Macy's Media Network) was $210 million, up 8% year-over-year. Macy's nameplate: Comparable sales rose 1.6%, contributing approximately 77% of enterprise comparable sales growth. The 200 reimagined locations (representing 60% of go-forward Macy's stores and 75% of 2025 Macy's store sales) delivered 2.4% comparable sales growth. Bloomingdale's: Comparable sales grew 10.2%, delivered its highest first quarter sales volume in company history, contributing approximately 17% of enterprise comparable sales growth. Blue Mercury: Comparable sales growth accelerated to 6.4%, contributing approximately 6% of enterprise comparable sales growth. Outperformance was driven by growth in makeup, dermatological skincare, and fragrances.

Risks & headwinds

- Macroeconomic uncertainty and ongoing geopolitical volatility could impact consumer demand and the competitive landscape. - Elevated fuel and transportation costs represent a headwind to margins, offset in full year guidance by lower-than-expected tariff rates. - Big-ticket home categories, particularly furniture, face ongoing headwinds from high interest rates and the weak housing/mortgage environment. - Timing and amounts of potential tariff refunds remain uncertain, and any benefit from refunds is not included in current guidance.

Analyst Q&A

• Q: What have been the drivers of outperformance at reimagined Macy's stores, and how does marketing spend plan to shift to support upcoming milestone events? /

  A: The acceleration in reimagined store growth comes from the full combination of updated merchandise assortments, improved in-store presentation and storytelling, increased staffing and better customer service, and recent additions of local empowerment that let store leaders tailor offerings to their markets. Marketing spend as a percentage of sales remains consistent, with the brand focused on balancing top-of-funnel brand storytelling and bottom-of-funnel conversion, and leaning into milestone events including the 100th parade and 50th fireworks to drive customer engagement. All cohorts of reimagined stores are delivering growth, and the investments are generating strong returns. Reimagined locations will continue to be rolled out as fast as possible after the success of the current 200-store base.

• Q: What is driving the sharp acceleration in average unit retail (AUR) growth, and why was gross margin flat year-over-year excluding tariffs despite this AUR improvement? /

  A: AUR growth reflects a strategic shift toward more full-price selling, with less aged/clearance inventory than a year ago, and a shift in assortment mix toward more higher-priced fabrication (linen vs cotton, leather vs vegan leather) and a larger share of merchandise in the 'best' price tier. AUR growth is 5.5% at Macy's and ~9-10% at Bloomingdale's, blending to the overall 8.3% enterprise rate. The flat gross margin (excluding tariffs) was in line with management expectations, driven by channel and product mix shifts. Management still expects gross margin to expand progressively through the back half of 2026, driven by improved regular price sell-through, better inventory management, and the scaling of the reimagined store program.

• Q: How is cross-functional collaboration between Macy's and Bloomingdale's impacting results, and what are the drivers of Q1 gross margin performance versus plan? /

  A: Collaboration includes sharing talent, aligning performance reporting, and identifying overlapping brand opportunities, while preserving the unique brand identity of both banners to avoid homogenization. The collaboration has helped Macy's add more fashionable brands that perform well at Bloomingdale's, while letting Bloomingdale's leverage Macy's enterprise infrastructure. For gross margin, the Q1 result was in line with prior guidance calling for a Q1 decline followed by year-over-year expansion through the rest of the year. Drivers of future expansion include scaling the reimagined store program, improved daily inventory management leveraging new AI forecasting tools, and better regular price sell-through.

• Q: What are the lagging categories for Macy's, and can you elaborate on the performance drivers for Macy's Media Network and credit revenue? /

  A: The primary lagging categories are big-ticket home (especially furniture), which is facing pressure from higher tariffs and consumer weakness linked to high mortgage/interest rates, and the plus-size apparel business, where the company is working to improve assortment quality. Macy's Media Network was down 5% year-over-year in Q1 due to ad spend timing, but management expects full-year growth, supported by the existing Amazon Ad partnership. Credit card revenue grew 12% in Q1 driven by a healthy portfolio and lower net credit losses; for the full year, credit growth is expected to align with overall business growth. The combined full-year other revenue target of $920 million remains unchanged and reflects year-over-year growth.