Urbanization And Omnichannel Upgrades Will Strengthen Retail Experience

Key Takeaways

• Urban store concentration and omnichannel enhancements position Macy’s to benefit from shifting shopping behaviors and population trends, supporting resilient revenue and sales productivity.
  
• Emphasis on private labels, experience-focused merchandise, and strategic real estate actions drive margin expansion, operational efficiency, and optionality for future growth initiatives.
  
• Persistent digital transition challenges, aging customer base, and structural retail shifts jeopardize Macy’s profitability, market relevance, and financial flexibility.

Catalysts

An omni-channel retail organization, operates stores, websites, and mobile applications in the United States.

• The concentration of stores in major metropolitan and urban areas positions Macy's to capture increasing foot traffic as urban populations grow, enhancing the value of its flagship and city-center locations and supporting a resilient brick-and-mortar revenue stream. This is expected to bolster top-line revenue and drive higher per-store sales productivity.
  
• Macy’s ongoing investments in omnichannel customer experience, including digital upgrades, store environment improvements, and integrated online/in-store journeys, directly align with consumer shifts toward blended shopping behaviors, setting the stage for sustained revenue growth and improved customer retention metrics.
  
• The focus on higher-value, experience-oriented merchandise—particularly in premium product categories and private label brands—caters to a maturing and financially stable Millennial and Gen X customer base, supporting higher average transaction values and margin expansion through increased full-price selling and lower discounting.
  
• Accelerated private label and exclusive brand expansion, along with right-sizing the store portfolio by closing underperforming locations, is expected to result in sustained improvement of gross and net margins by shifting sales mix toward higher-margin products and reducing operating expenses tied to less-productive assets.
  
• Real estate monetization and mixed-use redevelopment of underutilized flagship properties create significant optionality for future earnings growth and balance sheet strength, supplementing operating income with asset sale proceeds and providing capital to reinvest in higher-return initiatives or return to shareholders via buybacks and dividends.

Macy's Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Macy's compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Macy's's revenue will decrease by 9.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.4% today to 4.5% in 3 years time.
• The bullish analysts expect earnings to reach $764.2 million (and earnings per share of $2.88) by about July 2028, up from $558.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.5x on those 2028 earnings, up from 6.3x today. This future PE is lower than the current PE for the US Multiline Retail industry at 15.8x.
• Analysts expect the number of shares outstanding to decline by 2.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

Macy's Future Earnings Per Share Growth

Risks

• Macy's faces persistent headwinds from the sustained migration of consumer spending toward e-commerce and away from traditional department stores, as ongoing store closures and lagging investment in digital channels risk continued revenue declines and market share losses.
  
• The company’s ability to attract and retain younger shoppers remains unproven, with its core customer base aging and weak brand resonance among next-generation consumers posing a substantial long-term risk to same-store sales and the overall revenue base.
  
• Despite efforts to reduce costs via store closures, Macy’s maintains a high fixed cost structure due to its extensive real estate footprint, creating operational inflexibility that could lead to ongoing net margin deterioration if in-store sales fail to recover.
  
• Rising wage pressures, inflation, and supply chain-related cost increases throughout the broader retail sector are compressing operating margins and could further erode Macy’s profitability and earnings, especially given heightened reinvestment in customer experience and technology.
  
• Structural changes in the retail landscape—including ongoing declines in mall traffic, intensifying competition from discount and fast-fashion retailers, and a sustained shift in consumer demand toward experiences over goods—threaten to undermine Macy’s long-term revenue growth and free cash flow generation.

Valuation

• The assumed bullish price target for Macy's is $22.67, which represents two standard deviations above the consensus price target of $13.89. This valuation is based on what can be assumed as the expectations of Macy's's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $23.11, and the most bearish reporting a price target of just $6.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $17.0 billion, earnings will come to $764.2 million, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 11.6%.
• Given the current share price of $13.01, the bullish analyst price target of $22.67 is 42.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.