"Small and Beautiful" strategy cannot hide concerns over tariffs and war, Macy's (M.US ) joins the cautious camp: Q4 earnings exceeded expectations but guidance for the new fiscal year remains weak.

Wutong Finance APP has learned that Macy’s (M.US) announced its fourth-quarter financial results. For the three months ending January 31, including store closures, Macy’s fourth-quarter sales were $7.6 billion, down 1.7% from the same period last year, but $130 million above expectations. Same-store sales increased by 1.8%, including proprietary, authorized products, and third-party marketplaces.

In the fourth quarter, Macy’s net profit rose to $507 million, or $1.84 per share, compared to $342 million, or $1.21 per share, in the same period last year. Excluding one-time items such as impairments and restructuring costs, adjusted earnings per share were $1.67, versus the expected $1.53.

Macy’s reported quarterly net sales, same-store sales, and profits that all exceeded Wall Street expectations, driven by Bloomingdale’s nearly 10% same-store sales growth during the same period.

Additionally, same-store sales of Macy’s flagship brand increased by 0.4%. If only counting stores that Macy’s plans to keep open, same-store sales grew by 0.6%.

Furthermore, as competitors like luxury retailer Saks Global Enterprises are deeply mired in bankruptcy, customers are seeking more high-end shopping alternatives, benefiting Macy’s upscale department stores. Additionally, Macy’s affluent consumers have stronger purchasing power than the mass-market shoppers. Macy’s cosmetics chain Bluemercury saw a 1.3% increase in same-store sales.

“Bloomingdale’s outstanding performance highlights its ability to enhance customer experience and capture market demand,” said CEO Tony Spring in a statement.

Macy’s results indicate its strategy is working. Its three major brands achieved growth in this fiscal year and during the holiday season. This marks Macy’s fourth consecutive quarter of sales exceeding Wall Street estimates. Moreover, Macy’s returned to positive growth for the first time in three years, with full-year same-store sales up 1.5%.

Since taking the helm two years ago, Spring has been working to transform Macy’s into a smaller, more profitable company. He closed 150 underperforming Macy’s stores and increased investment in remaining stores’ displays, staff, and merchandise. He is also selling some real estate assets. Spring’s focus is on expanding the number of luxury brands offered at Bloomingdale’s and opening smaller stores.

In the fourth quarter, Macy’s earned $3 million from real estate sales, down from $41 million in the previous year. The company stated in its release: “The company remains committed to closing underperforming stores,” and is “adopting a cautious approach to transactions.”

As part of its plan, Macy’s announced that by early 2027, it will close about 150 (more than a quarter) of its namesake stores. Among the 125 stores where investments have increased, sales performance has been better, with same-store sales up 0.9%. The company said in a press release that it will extend this strategy to another 75 stores, bringing the total number of “transformed” stores to 200.

However, for this year, Macy’s has joined retailers like Walmart in facing new uncertainties, making future performance harder to predict, and has adopted a “cautious” outlook.

The company stated in a release that due to “macro-economic and geopolitical factors that could impact consumer discretionary spending,” its outlook for this fiscal year is “cautious.” As the largest department store chain in the U.S., Macy’s performance is closely watched as an indicator of consumer willingness to spend on apparel, accessories, home goods, and other non-essential items. The company also added that rising tariffs will lead to higher costs in the first half of the year compared to the second half.

Looking ahead, Macy’s full-year same-store sales and profit guidance are below analyst expectations, reflecting a cautious stance on how consumers will respond to the Iran war and tariffs. The company expects adjusted diluted EPS between $1.90 and $2.10, below the average analyst forecast; expects same-store sales (measuring stores open at least a year and online sales) to grow up to 0.5%, also below expectations; and projects total sales between $214 billion and $216.5 billion, with the midpoint slightly above expectations.

Both profit and revenue guidance are lower than the results reported for the fiscal year ending January 31. These figures declined from the previous fiscal year, when Macy’s revenue totaled $21.8 billion, and adjusted EPS was $2.15. The guidance excludes real estate sale gains, which the company adjusted last month, and it is unclear whether all analysts have updated their forecasts to reflect this change.

While most analysts and many investors praise Spring’s efforts to reverse years of declining or sluggish sales (a common challenge among many U.S. department stores), they remain uncertain if it will be enough.

Telsey Advisory Group analyst Dana Telsey wrote in a recent report:
“Reasonable store size adjustments should improve long-term profitability. In the short term, we believe that under macroeconomic pressures, transportation and tariff headwinds, and a highly promotional retail environment, sales and earnings growth will remain ‘somewhat limited.’”