Macy's turnaround progress boosts annual forecasts, shares jump

By Neil J Kanatt

Sept 3 (Reuters) - Macy's M.N shares surged 20% on Wednesday after the department store operator offered fresh evidence that its turnaround plan was working, with raised annual sales and profit forecasts despite tariff uncertainty.

Shedding some underperforming banners and leaning into its pricier labels, which serve higher-income shoppers, have helped Macy's offset the hit from pressured consumer spending amid macroeconomic uncertainty.

CEO Tony Spring introduced the turnaround plan last year February, which included closing 150 Macy's stores by 2026, reinvesting in high-potential locations and improving product offerings and loyalty programs.

Even though holiday spending in the U.S. is expected to see its steepest drop since the pandemic as shoppers pull back amid economic uncertainty, according to a PwC survey, Macy's is confident of a recovery in sales.

"I like the early read of August and what the customer is buying because that is not mark down related. It's newness related, it is back-to-school related, it's early fall product and winter categories. So all of that is very positive," Macy's CEO Spring said on a post-earnings call.

But at the same time, the company forecast a bigger tariff-related hit of 40 to 60 basis points to its full-year gross margins, compared with 20 to 40 basis points it had projected earlier.

"We're going to have pricing increases. We've had some price increases. We're also negotiating, you know, with the marketplace. It's not a one size fits all," CFO Thomas Edwards said.

"We are taking a surgical approach."

The company had warned earlier this year that it would increase prices selectively to soften the tariff hit from its reliance on manufacturing in China.

Macy's now expects annual adjusted profit per share between $1.70 and $2.05, compared with its prior target of $1.60 to $2.00.

It also forecast annual net sales to be between $21.15 billion and $21.45 billion, up from $21 billion to $21.4 billion.

EMarketer analyst Suzy Davidkhanian said Macy's raising its forecasts was a "bold move" as "an overcrowded retail landscape and tighter budgets intensify competition."

The company reported $4.81 billion in net sales for the second quarter ended August 2, above analysts' average estimate of $4.76 billion, according to data compiled by LSEG.

Its adjusted profit of 41 cents per share also beat analysts' estimates of 18 cents.