Macy's Shares Drop on Weak Q3 Outlook Despite Earnings Beat

Macy’s Inc. shares fell 4.07% to $20.29 on Thursday following the release of its second-quarter results. The decline was driven primarily by a weaker-than-expected third-quarter earnings outlook, which outweighed the company’s positive performance in the current quarter. Investors reacted to management’s guidance signaling a sharp slowdown in sales growth compared to the previous quarter.

The department store operator reported adjusted earnings of 40 cents per share, excluding a 23-cent benefit from tariff refunds. This figure exceeded the consensus estimate of 37 cents. Total sales rose 1.1% year over year to $4.866 billion, surpassing the expected $4.826 billion. When adjusting for store closures in fiscal 2025, sales growth was measured at 1.9%.

Tariff Refunds Boosted Quarterly Profitability

The company recognized $98 million in tariff refunds during the quarter, with an additional $18 million received after the period ended, totaling $116 million. These refunds directly impacted the adjusted earnings figure. Average unit retail (AUR) increased by approximately 9% in the second quarter. Management attributed this improvement to stronger brand performance, improved product assortments, and larger customer baskets.

Third-Quarter Guidance Signals Sales Slowdown

Macy’s projected a third-quarter comparable-sales comparison of 3.2%, describing it as its toughest of the year. The company guided for comparable sales to range from a 0.5% decline to a 0.5% increase. This represents a significant deceleration from the 2.7% growth reported in the second quarter. Management stated there were no unusual developments quarter-to-date that explained the cautious outlook.

The retailer expects a third-quarter adjusted loss of 19 cents to 23 cents per share. This contrasts with analyst expectations of a 6-cent loss. Sales are projected between $4.65 billion and $4.70 billion, slightly above the $4.68 billion estimate. Macy’s anticipates AUR will continue rising, albeit at a slower pace, and plans to use tariff refunds to adjust pricing in furniture and fine jewelry categories.

Store Network Strategy Remains In Focus

The company intends to conduct more store pilots in the fourth quarter, with further expansion planned for 2027. Macy’s long-term objective is to reimagine its go-forward fleet of approximately 350 stores. This strategic focus aims to optimize the physical retail footprint amidst shifting consumer behaviors and competitive pressures in the department store sector.

According to data from Benzinga Pro, the stock’s decline reflected the market's reaction to the forward-looking metrics rather than the backward-looking earnings beat. The divergence between the strong second-quarter results and the cautious third-quarter guidance created uncertainty regarding the sustainability of recent sales momentum. Investors are now watching how the retailer executes its pricing strategies and store optimization plans in the coming months.