Macy's Q3 Net Income Plunges 61% Amid Inventory Surge

TL;DR

**Macy's is drowning in inventory and its profits are collapsing – sell before the holiday season markdowns hit hard.**

AI Summary

Macy's, Inc. reported a net income of $11 million for the 13 weeks ended November 1, 2025, a significant decrease from $28 million in the prior-year period, representing a 60.7% decline. Diluted earnings per share also fell to $0.04 from $0.10. Total revenue slightly increased by 0.2% to $4,913 million for the quarter, primarily driven by a 24.2% increase in other revenue to $200 million, while net sales saw a marginal decline of 0.6% to $4,713 million. For the 39 weeks ended November 1, 2025, net income decreased by 43.8% to $135 million from $240 million, with total revenue down 1.9% to $14,705 million. Key business changes include a shift in inventory valuation method to LIFO cost method from LIFO retail inventory method, effective February 4, 2024, aiming for improved cost accuracy. Risks include a substantial increase in merchandise inventories to $6,298 million as of November 1, 2025, up from $4,468 million at February 1, 2025, and a significant loss on extinguishment of debt of $16 million for the quarter. The strategic outlook involves evaluating new accounting pronouncements like ASU 2023-09, ASU 2024-03, ASU 2025-05, and ASU 2025-06, which will impact future financial disclosures and accounting practices.

Why It Matters

Macy's substantial 60.7% drop in quarterly net income and a 43.8% decline year-to-date signals significant operational challenges and potential margin compression, directly impacting investor confidence and stock performance. The massive 40.9% increase in merchandise inventories from February 1, 2025, to November 1, 2025, suggests potential overstocking or slowing consumer demand, which could lead to aggressive markdowns and further erode profitability, putting pressure on employees and suppliers. In a highly competitive retail landscape, this inventory build-up could weaken Macy's position against agile e-commerce players and discount retailers, affecting its ability to invest in customer experience and innovation. This performance indicates a struggle to adapt to evolving consumer preferences and economic pressures, potentially signaling broader headwinds for traditional department stores.

Risk Assessment

Risk Level: high — Macy's faces high risk due to a 60.7% decrease in net income for the 13 weeks ended November 1, 2025, falling to $11 million from $28 million in the prior year. This is compounded by a significant 40.9% increase in merchandise inventories, from $4,468 million at February 1, 2025, to $6,298 million at November 1, 2025, indicating potential overstocking and future markdown risks. Additionally, the company incurred a $16 million loss on extinguishment of debt for the quarter, highlighting financial restructuring costs.

Analyst Insight

Investors should consider reducing exposure to Macy's (M) given the sharp decline in net income and the substantial increase in inventory, which signals potential margin pressure. Monitor upcoming holiday sales performance closely for any signs of aggressive discounting that could further impact profitability and cash flow.

Financial Highlights

debt To Equity

0.56

revenue

$4,913 million

operating Margin

0.86%

total Assets

$17,064 million

total Debt

$5,244 million

net Income

$11 million

eps

$0.04

gross Margin

39.4%

cash Position

$447 million

revenue Growth

+0.2%

Revenue Breakdown

Key Numbers

• $11 million — Net income for 13 weeks ended Nov 1, 2025 (60.7% decrease from $28 million in prior year)
• $4,713 million — Net sales for 13 weeks ended Nov 1, 2025 (0.6% decrease from $4,742 million in prior year)
• $6,298 million — Merchandise inventories as of Nov 1, 2025 (40.9% increase from $4,468 million at Feb 1, 2025)
• $0.04 — Diluted earnings per share for 13 weeks ended Nov 1, 2025 (Decreased from $0.10 in prior year)
• $16 million — Loss on extinguishment of debt for 13 weeks ended Nov 1, 2025 (Increased from $1 million in prior year)
• 32% — Digital sales as percentage of net sales (Increased from 30% in prior year for 13 weeks)
• 265,883,109 — Shares outstanding (As of November 29, 2025)
• $14,125 million — Net sales for 39 weeks ended Nov 1, 2025 (2.8% decrease from $14,525 million in prior year)

Key Players & Entities

• Macy's, Inc. (company) — registrant
• New York Stock Exchange (regulator) — exchange where M is registered
• Al Tayer Insignia (company) — license agreement partner for Bloomingdale's in Dubai and Kuwait
• Financial Accounting Standards Board (regulator) — issuer of accounting standards updates
• United States (regulator) — enacted the One Big Beautiful Bill Act
• Bloomberg (company) — publisher
• SEC (regulator) — filing authority

FAQ

Risk Factors

• Inventory Management Challenges [high — financial]: Merchandise inventories increased substantially by 40.9% to $6,298 million as of November 1, 2025, from $4,468 million at February 1, 2025. This significant build-up poses a risk of markdowns, obsolescence, and increased carrying costs, potentially impacting profitability.
• Debt Extinguishment Costs [medium — financial]: The company incurred a significant loss of $16 million on the extinguishment of debt during the 13 weeks ended November 1, 2025, a substantial increase from $1 million in the prior year. This indicates active debt management activities that are currently costly.
• Shift in Inventory Valuation Method [medium — operational]: Macy's changed its inventory valuation method to LIFO cost from LIFO retail inventory method effective February 4, 2024. While intended for improved cost accuracy, this change makes direct year-over-year comparisons of inventory-related metrics challenging.
• Declining Net Sales [high — market]: Net sales decreased by 0.6% to $4,713 million for the 13 weeks ended November 1, 2025, and by 2.8% to $14,125 million for the 39 weeks ended November 1, 2025. This indicates ongoing pressure on core retail sales.
• Decreasing Profitability [high — financial]: Net income for the 13 weeks ended November 1, 2025, fell by 60.7% to $11 million from $28 million in the prior year. Diluted EPS also dropped to $0.04 from $0.10. This sharp decline in profitability is a significant concern.
• New Accounting Pronouncements [low — regulatory]: The company is evaluating new accounting pronouncements (ASU 2023-09, ASU 2024-03, ASU 2025-05, ASU 2025-06) which will impact future financial disclosures and accounting practices. The adoption of these standards could introduce complexity and require adjustments to reporting.

Industry Context

Macy's operates in the highly competitive retail sector, facing pressure from both traditional department stores and online retailers. The industry is characterized by seasonal sales, evolving consumer preferences, and the ongoing shift towards digital commerce. Increased promotional activity and inventory management are critical for maintaining margins in this environment.

Regulatory Implications

Macy's is subject to standard retail regulations concerning sales tax collection, consumer protection, and financial reporting. The company is also navigating new accounting pronouncements from the FASB, which will require adjustments to its disclosure practices, particularly concerning income taxes and expense reporting.

What Investors Should Do

1. Monitor inventory levels and markdown strategies
2. Analyze the drivers of declining net income
3. Evaluate the impact of the inventory valuation method change
4. Assess the growth in 'Other Revenue'

Key Dates

• 2025-11-01: End of 13 and 39 week reporting periods — Provides the latest financial results, showing declining net income and increased inventory.
• 2025-02-01: End of prior fiscal year — Establishes the baseline for inventory comparison, highlighting a significant increase in merchandise inventories.
• 2024-02-04: Change in inventory valuation method to LIFO cost — Impacts comparability of inventory figures and cost of sales with prior periods.
• 2025-07-04: Enactment of the One Big Beautiful Bill Act (OBBBA) — Introduced tax provisions that may affect future tax payments and effective tax rates, though not expected to be material for fiscal 2025.
• 2024-11-01: Prior year 13 and 39 week reporting period end — Serves as the comparative period for the current quarter's financial performance, showing significant declines in net income and EPS.

Glossary

LIFO

Last-In, First-Out. An inventory costing method where the last goods purchased are assumed to be the first ones sold. (Macy's changed its inventory valuation method to LIFO cost, impacting inventory valuation and cost of sales comparability.)

LIFO retail inventory method

A method used by retailers to value inventory at cost, adjusted for the retail selling price, using the LIFO assumption. (This was Macy's previous method; the change to LIFO cost method makes direct comparisons difficult.)

Omni-channel retail organization

A retail business that integrates various sales channels (physical stores, online, mobile apps) to provide a seamless customer experience. (Describes Macy's business model, operating across multiple platforms like Macy's, Bloomingdale's, and Bluemercury.)

ASU 2023-09

Accounting Standards Update from FASB regarding improvements to income tax disclosures, enhancing transparency in rate reconciliation and income taxes paid. (Macy's is evaluating its impact, which will affect future income tax disclosures starting in fiscal year ending January 31, 2026.)

Diluted earnings per share

A measure of profitability that includes the effect of all potential common shares (like stock options and convertible securities) that could be outstanding. (Reported at $0.04 for the quarter, down from $0.10, indicating reduced profitability on a per-share basis.)

Loss on extinguishment of debt

A loss recognized when a company repays or redeems its debt before its scheduled maturity date, often due to refinancing at lower interest rates or other strategic reasons. (Macy's reported a significant $16 million loss in the current quarter, impacting net income.)

Year-Over-Year Comparison

Compared to the prior year's comparable period, Macy's reported a significant 60.7% decrease in net income to $11 million and a drop in diluted EPS to $0.04 from $0.10. While total revenue saw a slight 0.2% increase to $4,913 million, this was primarily due to a substantial 24.2% rise in 'other revenue,' as net sales marginally declined by 0.6%. A key concern is the substantial 40.9% increase in merchandise inventories to $6,298 million, alongside a notable $16 million loss on debt extinguishment.

Filing Documents

• m-20251101.htm (10-Q) — 1035KB
• m-20251101x10qxexx311.htm (EX-31.1) — 9KB
• m-20251101x10qxexx312.htm (EX-31.2) — 9KB
• m-20251101x10qxexx321.htm (EX-32.1) — 4KB
• m-20251101x10qxexx322.htm (EX-32.2) — 4KB
• m-20251101_g1.gif (GRAPHIC) — 24KB
• 0001628280-25-056323.txt ( ) — 4662KB
• m-20251101.xsd (EX-101.SCH) — 28KB
• m-20251101_cal.xml (EX-101.CAL) — 50KB
• m-20251101_def.xml (EX-101.DEF) — 99KB
• m-20251101_lab.xml (EX-101.LAB) — 413KB
• m-20251101_pre.xml (EX-101.PRE) — 260KB
• m-20251101_htm.xml (XML) — 558KB

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION Item 1.

Financial Statements (unaudited)

Financial Statements (unaudited) 3 Consolidated Statements of Income 3 Consolidated Statements of Comprehensive Income 4 Consolidated Balance Sheets 5 Consolidated Statements of Changes in Shareholders' Equity 6 Consolidated Statements of Cash Flows 8

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 9 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 31 Item 4.

Controls and Procedures

Controls and Procedures 31

– OTHER INFORMATION

PART II – OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 32 Item 1A.

Risk Factors

Risk Factors 32 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32 Item 5. Other Information 32 Item 6. Exhibits 34

SIGNATURES

SIGNATURES 35 2 Table of Contents

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements MACY'S, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (millions, except per share figures) 13 Weeks Ended 39 Weeks Ended November 1, 2025 November 2, 2024 November 1, 2025 November 2, 2024 Net sales $ 4,713 $ 4,742 $ 14,125 $ 14,525 Other revenue 200 161 580 474 Total revenue 4,913 4,903 14,705 14,999 Cost of sales ( 2,855 ) ( 2,864 ) ( 8,550 ) ( 8,749 ) Selling, general and administrative expenses ( 2,024 ) ( 2,064 ) ( 5,881 ) ( 5,948 ) Gains on sale of real estate 12 66 44 103 Impairment, restructuring and other (costs) benefits ( 4 ) 23 ( 33 ) 5 Operating income 42 64 285 410 Benefit plan income, net 4 4 12 12 Interest expense, net ( 25 ) ( 32 ) ( 77 ) ( 94 ) Loss on extinguishment of debt ( 16 ) ( 1 ) ( 33 ) ( 1 ) Income before income taxes 5 35 187 327 Federal, state and local income tax benefit (expense) 6 ( 7 ) ( 52 ) ( 87 ) Net income $ 11 $ 28 $ 135 $ 240 Basic earnings per share $ 0.04 $ 0.10 $ 0.50 $ 0.86 Diluted earnings per share $ 0.04 $ 0.10 $ 0.48 $ 0.85 The accompanying notes are an integral part of these Consolidated Financial Statements. 3 Table of Contents MACY'S, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (millions) 13 Weeks Ended 39 Weeks Ended November 1, 2025 November 2, 2024 November 1, 2025 November 2, 2024 Net income $ 11 $ 28 $ 135 $ 240 Reclassifications to net income: Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax 1 — 2 — Tax effect related to items of other comprehensive income — — ( 1 ) — Total other comprehensive income, net of tax effect 1 — 1 — Comprehensive income $ 12 $ 28 $ 136 $ 240 The accompanying notes are an integral part of these Consolidated Financial Statements. 4 Table of Contents MACY'S, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (millions) November 1, 2025 February 1, 2025 November 2, 2024 ASSETS Curre

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Organization and Summary of Significant Accounting Policies Nature of Operations Macy's, Inc., together with its subsidiaries (the "Company"), is an omni-channel retail organization operating stores, websites and mobile applications under three nameplates (Macy's, Bloomingdale's and Bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and kids'), cosmetics, home furnishings and other consumer goods. The Company has stores in 43 states, the District of Columbia, Puerto Rico and Guam. As of November 1, 2025, the Company's operations and operating segments were conducted through Macy's, Macy's Backstage, Macy's small format, Bloomingdale's, Bloomingdale's The Outlet, Bloomie's, and Bluemercury. Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC. A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2025 (the "2024 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2024 10-K. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties which may result in actual amounts differing from reported amounts. The Consolidated Financial Statements for the 13 and 39 weeks ended November 1, 2025 and November

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Comprehensive Income Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income. For the Company, the only other components of total comprehensive income for the 13 and 39 weeks ended November 1, 2025 and November 2, 2024 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of income before income taxes in the Consolidated Statements of Income. Amortization reclassifications out of accumulated other comprehensive income (loss) are included in the computation of net periodic benefit cost (income) and are included in benefit plan income, net on the Consolidated Statements of Income. See Note 5, "Retirement Plans," for further information. Income Taxes On July 4, 2025, the United States enacted the One Big Beautiful Bill Act (the "OBBBA"). Included in this legislation are provisions that allow for the option to claim 100% accelerated depreciation deductions on qualified property, with retroactive application beginning January 20, 2025, and immediate expensing of domestic research and development costs, with retroactive application beginning January 1, 2025. The Company does not expect the provisions of the OBBBA to have a material impact to its estimated fiscal 2025 effective tax rate and expects the provisions to ultimately decrease its fiscal 2025 cash tax payments. Recent Accounting Pronouncements In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"). The amendments in this update enhance the transparency and decision usefulness of income tax disclosures, primarily through improvements to the rate reconciliation and income taxes paid information, specifically requiring (1) co

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 2. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: 13 Weeks Ended November 1, 2025 November 2, 2024 Net Income Shares Net Income Shares (millions, except per share data) Net income and average number of shares outstanding $ 11 266.8 $ 28 277.4 Shares to be issued under deferred compensation and other plans 0.9 1.0 $ 11 267.7 $ 28 278.4 Basic earnings per share $ 0.04 $ 0.10 Effect of dilutive securities: Restricted stock units 6.9 3.1 $ 11 274.6 $ 28 281.5 Diluted earnings per share $ 0.04 $ 0.10 39 Weeks Ended November 1, 2025 November 2, 2024 Net Income Shares Net Income Shares (millions, except per share data) Net income and average number of shares outstanding $ 135 271.5 $ 240 276.5 Shares to be issued under deferred compensation and other plans 0.9 0.9 $ 135 272.4 $ 240 277.4 Basic earnings per share $ 0.50 $ 0.86 Effect of dilutive securities: Restricted stock units 4.7 3.9 $ 135 277.1 $ 240 281.3 Diluted earnings per share $ 0.48 $ 0.85 In addition to the restricted stock units reflected in the foregoing table, stock options to purchase 5.9 million and 7.9 million shares of common stock and restricted stock units relating to 0.4 million and 0.2 million shares of common stock were outstanding at November 1, 2025 and November 2, 2024, respectively, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met. 11 Table of Contents MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 3. Revenue Net sales, which mainly consist of retail sales but also include merchandise returns, gift cards and loyalty programs, represented 96 % of total revenue for both the 13 and 39 weeks ended November 1, 2025 and 97 % of total revenue for both the 13 and 39 weeks ended November 2, 2024. Other revenue generating activities consist of credit card revenues and Macy's Media Network revenue. 13 Weeks Ended 39 Weeks Ended Revenues November 1, 2025 November 2, 2024 November 1, 2025 November 2, 2024 (millions) Women's Accessories, Shoes, Cosmetics and Fragrances $ 1,948 $ 1,971 $ 5,845 $ 6,031 Women's Apparel 1,104 1,077 3,295 3,342 Men's and Kids' 1,023 1,034 3,002 3,071 Home/Other (a) 638 660 1,983 2,081 Total Net Sales $ 4,713 $ 4,742 $ 14,125 $ 14,525 Credit card revenues, net $ 158 $ 120 $ 464 $ 362 Macy's Media Network revenue, net (b) 42 41 116 112 Other Revenue 200 161 580 474 Total Revenue $ 4,913 $ 4,903 $ 14,705 $ 14,999 (a) Other primarily includes restaurant sales, allowance for merchandise returns adjustments and breakage income from unredeemed gift cards. (b) Macy's Media Network is an in-house media platform supporting both Macy's and Bloomingdale's customers through a broad variety of advertising formats running both on owned and operated platforms as well as offsite. Macy's accounted for 83 % of the Company's net sales for both the 13 and 39 weeks ended November 1, 2025, and 84 % of the Company's net sales for both the 13 and 39 weeks ended November 2, 2024. In addition, digital sales accounted for 32 % of the Company's net sales fo r both the 13 and 39 weeks ended November 1, 2025 and 30 % of the Company's net sales for both the 13 and 39 weeks ended November 2, 2024. Retail Sales Retail sales include merchandise sales, inclusive of delivery income, licensed department income, Marketplace income, sales of private brand goods directly to third party retailers

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Gift Cards and Customer Loyalty Programs The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold or issued, no revenue is recognized; rather, the Company records an accrued liability to customers. The liability is relieved, and revenue is recognized, equal to the amount redeemed for merchandise. The Company records revenue from unredeemed gift cards (breakage) in net sales on a pro-rata basis over the time period gift cards are actually redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns. The Company maintains customer loyalty programs in which customers earn points based on their purchases. Under the Macy's Star Rewards loyalty program, points are earned based on customers' spending on Macy's private label and co-branded credit cards as well as non-proprietary cards and other forms of tender. The Company's Bloomingdale's Loyallist and Bluemercury BlueRewards programs provide tender neutral points-based programs to their customers. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer. The liability for unredeemed gift cards and customer loyalty programs is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $ 312 million, $ 353 million and $ 331 million as of November 1, 2025, February 1, 2025 and November 2, 2024, respectively. Credit Card Revenues In 2005, in connection with the sale of most of the Company's credit card accounts and related receivable balances to Citibank, the Company and Citibank entered into a long-term marketing and servicing alliance pursuant to the terms of a Credit Card Program Agreement ("Credit Card Program"). Subsequent to

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