Can Macy's Raised 2026 Outlook Offset Third-Quarter Earnings Risk?

Macy's, Inc. M entered the second half with better momentum after second-quarter comparable sales rose 2.7% and adjusted earnings, excluding the tariff-refund benefit, increased 14% year over year. Management also raised its full-year 2026 sales, margin and earnings ranges.

Still, the third quarter is set to absorb heavier investment while lapping a 3.2% comparable-sales gain from a year earlier. The annual raise improves the cushion, but it does not remove the near-term earnings risk.

Raised 2026 Guidance Strengthens the Full-Year Setup

Macy’s now expects 2026 net sales of $21.675-$21.825 billion compared with $21.5-$21.75 billion previously. Comparable sales are projected to rise 1-1.5%, up from 0.5-1.2%, while the adjusted EBITDA margin outlook increased to 7.8-8%.

Adjusted earnings are now projected at $2.15-$2.35 per share compared with $2-$2.20 earlier. The upgrade follows a second-quarter beat in which net sales increased 1.1% to $4.866 billion and adjusted EBITDA rose to $457 million from $373 million.

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Third-Quarter Earnings Risk Remains Clear

The near-term picture is softer. Macy’s expects third-quarter net sales of $4.65-$4.70 billion, comparable sales between a 0.5% decline and 0.5% growth and an adjusted EBITDA margin of 3.7-4%. Adjusted earnings are guided to a loss of 19-23 cents per share.

Management held its underlying second-half sales expectations after the second-quarter beat. Fiscal 2025 store closures also create roughly a $30 million third-quarter sales comparison headwind, while big-ticket categories remained below the prior-year level in the second quarter.

Margin Offsets Help, But Q3 Carries More Investment

Cost pressures have eased. Macy’s now expects tariffs and fuel to reduce full-year gross margin by only five-15 basis points, versus 20-30 basis points previously. Supply-chain efficiencies are also expected to support gross margin in the second half.

Those offsets are partly delayed by reinvestment. Macy’s plans to reinvest $96 million of its $116 million tariff refunds, including $82 million in the third quarter. Full-year SG&A dollars are expected to rise 1.5-2.25%, with investments more concentrated in the third quarter.

Retail Peers Show a Mixed Demand Backdrop

Kohl's Corporation KSS raised its 2026 outlook after second-quarter comparable sales declined 0.9%. That combination underscores a mixed backdrop for department-store demand and margins.

Target Corporation TGT reported 3.8% comparable-sales growth and 8.7% digital comparable-sales growth in its second quarter while increasing its full-year sales view. That performance raises the competitive bar as Macy’s works to sustain traffic and digital engagement through fall and holiday.

What Should Investors do With Macy's Stock?

The raised outlook gives Macy’s more room to absorb a soft third quarter, but it does not eliminate execution risk. Better second-quarter trends, luxury momentum and lower tariff pressure are offsets. Negative third-quarter earnings guidance, heavier investment and unchanged second-half sales assumptions keep the near-term setup balanced.

The stock currently carries a Zacks Rank #3 (Hold), with a VGM Score of A, Value Score of A, Growth Score of B and Momentum Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The favorable Style Scores support its value and momentum characteristics, but they are designed to complement the Zacks Rank. For now, the #3 Rank favors a measured stance while investors watch third-quarter execution.

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This article originally published on Zacks Investment Research (zacks.com).

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