New Partnerships And Fulfillment Upgrades Will Drive Improved Margins And Retail Performance

Key Takeaways

• Omni-channel investments and store optimization are improving customer satisfaction, operating efficiency, and net margins through enhanced service and streamlined portfolios.
  
• Expanding luxury, off-price, and private label offerings is broadening the customer base, supporting revenue growth, and increasing gross margin via product curation and partnerships.
  
• Macy's faces threats from e-commerce rivals, margin pressures, and reliance on discretionary spending, with store closures and lagging digital progress risking future growth and profitability.

Catalysts

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

• Investments in enhancing the omni-channel shopping experience-including improvements in digital, BOPIS, and store service-are leading to rising customer satisfaction and sustained sales growth, which should directly benefit revenue and potentially expand net margins over time through stronger customer loyalty and higher average order values.
  
• The ongoing store optimization and "Reimagine 125" initiatives, together with the closure of underperforming locations, are streamlining the store portfolio, raising returns per square foot, and supporting productivity-improving operating efficiency and boosting net margin as fixed costs are reduced and resources are reinvested in higher-performing assets.
  
• Growing market share in both luxury (Bloomingdale's, Bluemercury) and off-price concepts is leveraging Macy's unique position to attract a broader, multigenerational customer base in major metros, which supports future topline revenue growth and diversification amid urbanization and increased demand for accessible retail experiences.
  
• Successes in deepening vendor and brand partnerships-progress in attracting new and exclusive labels, revitalizing private brands, and enhancing product curation-are addressing evolving consumer preferences; higher penetration of private label also has the potential to raise gross margin due to its higher profitability profile.
  
• Ongoing modernization efforts, including end-to-end operational automation and technology upgrades, are expected to drive continued SG&A savings and supply chain efficiencies, supporting stronger adjusted EBITDA and longer-term margin expansion as the company capitalizes on the need for seamless, tech-enabled retail experiences.

Macy's Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Macy's's revenue will decrease by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.2% today to 3.6% in 3 years time.
• Analysts expect earnings to reach $663.0 million (and earnings per share of $2.52) by about September 2028, up from $494.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.1x on those 2028 earnings, down from 8.9x today. This future PE is lower than the current PE for the US Multiline Retail industry at 20.9x.
• Analysts expect the number of shares outstanding to decline by 2.01% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Macy's Future Earnings Per Share Growth

Risks

• Persistent consumer shift from physical retail to e-commerce threatens Macy's store-centric sales, especially as unit demand was noted as soft and ongoing store closures risk further top-line pressure, potentially eroding overall revenue growth.
  
• Margin pressures from increased tariffs, with guidance reflecting a 40–60 bps headwind to gross margin (versus prior expectations of 20–40 bps), combined with selective but widespread price increases, risk negative impacts on traffic, unit sales, and competitiveness-ultimately compressing net margins and earnings.
  
• Macy's continues to invest heavily in store remodels and customer experience, but relies on disciplined SG&A reduction and mitigation actions; failure to deliver sustained comp growth or unlock expected efficiencies may limit margin expansion and earnings leverage over time.
  
• Despite digital investments and private brand initiatives, Macy's admits private brand penetration remains below historical highs, and the company risks lagging behind pure-play e-commerce and DTC competitors in capturing younger, digitally-native consumers-potentially stalling longer-term customer acquisition and revenue diversification.
  
• Heavy dependence on discretionary consumer spending, particularly among upper-income cohorts, exposes Macy's to macroeconomic volatility; if inflation, wage pressures, or weakening consumer sentiment persist, it could dampen category demand and undermine expected improvement in revenue and overall earnings growth.

Valuation

• The analysts have a consensus price target of $14.773 for Macy's based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $23.0, and the most bearish reporting a price target of just $6.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $18.5 billion, earnings will come to $663.0 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $16.28, the analyst price target of $14.77 is 10.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.