Analysis
Macy's faced significant headwinds from tariffs introduced in early 2025, which weighed on both gross margins and profitability throughout fiscal 2025. For the full year, the company estimated that these duties created a 40 to 50 basis point drag on gross margins, equating to a headwind of approximately $0.25 to $0.35 in adjusted diluted EPS. The impact was particularly concentrated in the fourth quarter of 2025, where tariffs resulted in a 60 basis point hit to the gross margin rate and a $0.13 reduction in EPS. Despite these pressures, the company managed to exceed its upwardly revised annual guidance through strong execution of its turnaround strategy.
Looking ahead to fiscal 2026, management expects tariff-related pressures to persist but diminish as the year progresses. The company has guided to a full-year EPS headwind of $0.10 to $0.20 and a gross margin impact of 20 to 30 basis points. The first quarter of 2026 is projected to see the most significant impact, with a 40 to 60 basis point headwind on margins and a $0.05 to $0.10 drag on EPS, as the company works through existing inventory costed at higher rates. Management anticipates lapping the peak tariff rates in the second quarter, which is expected to support margin expansion in the second half of the year.
Macy's is actively employing several strategies to mitigate the financial impact of these trade policies. These include selective price increases and ongoing efforts to diversify its supply chain away from heavily tariffed regions, particularly China, which historically accounted for roughly 20% of its private brand sourcing. The company is also leveraging operational efficiencies from its "Bold New Chapter" transformation, such as inventory modernization and AI-driven supply chain optimizations, to protect its bottom line. Management remains cautious in its revenue outlook, citing macroeconomic and geopolitical uncertainty driven in part by the evolving tariff landscape.
Data
($M, except per share data)
| Impact Metric | FY2025 Actual | FY2026 Guidance |
|---|---|---|
| Gross Margin Headwind (bps) | 40 – 50 | 20 – 30 |
| Adjusted EPS Headwind | $0.25 – $0.35 | $0.10 – $0.20 |
| Total Estimated Cost Impact | $69 – $97 | $28 – $55 |
Source: Transcript FY-2025, Transcript 3Q-2025
Financial Impact
- Cost Impact (Historic): $69M–$97M
- Cost Impact (Forward-Looking): $28M–$55M
Sources
Results were also above our initial guidance, despite the unanticipated impact of tariffs and lower-than-expected asset sale gains.
We expect a tariff impact to gross margin of roughly 20 basis points-30 basis points. We begin to lap higher tariffs in the second quarter.
For the first quarter... we expect tariffs to negatively impact EPS by roughly $0.05-$0.10 and gross margin rate by roughly 40 basis points-60 basis points.