Macy's turnaround shows promise as earnings beat estimates, outlook improves

Macy's ( M ) turnaround efforts continued to gain momentum in the second quarter, giving the department store chain leeway to raise its cautious guidance again.

In the second quarter, Macy's same-store sales rose 2.7%, marking the fifth straight quarter of growth and widely surpassing Wall Street's expectations for 0.8% comparable sales growth, according to S&P Global Market Intelligence data.

Macy's luxury store, Bloomingdale's, shone yet again with 11.3% sales growth in the quarter, while beauty chain Bluemercury's sales grew 6.2%. Macy's flagship brand posted 1.1% sales growth, with newly revamped stores reporting a modestly stronger 1.9% growth.

The company is in the third year of its "Bold New Chapter" transformation strategy, pegged on closing 150 underperforming stores and reinvesting in the remaining 350 locations. It's also hoping that editing out redundant merchandise and adding fashionable brands, such as Theory and Free People, will appeal to Macy's middle- to upper-income consumers, who have shown greater resilience amid rising consumer pressures.

"The investments we're making are driving results across our portfolio, from the continued outperformance of our Reimagine 200 Macy's stores, to meaningful double-digit growth at Bloomingdale's and another solid quarter at Bluemercury," Macy's CEO Tony Spring said in the earnings release. "As we enter the second half of the year, we remain focused on scaling what is resonating most with customers — exciting brands and assortments and compelling events and experiences."

Macy's stock fell in premarket trading on Thursday. Heading into the results, Wall Street had remained cautious on the stock, which has risen less than 2% year to date, compared with a 12% gain for the S&P 500 ( ^GSPC ).

Macy's beat analyst estimates on the top and bottom lines as well. Adjusted earnings of $0.63 per share doubled compared to the same quarter a year ago and beat the Street's estimate of $0.37 per share, helped in part by a $0.23 per share boost from tariff refunds. Net sales of $4.87 billion also beat expectations of $4.8 billion.

Macy's said it received all of the expected refunds from the IEEPA tariffs that the Supreme Court struck down in February. Since the beginning of the second quarter, Macy's collected $116 million in tariff refunds. The company plans to direct $20 million of those proceeds to profits and reinvest the remaining $96 million in the company.

The results come as consumer sentiment remains dampened , with high gas prices and macroeconomic uncertainty taking their toll. Throughout the second quarter earnings season, businesses have highlighted that the retail landscape has become highly promotional as consumers continue to spend but have become choosier about what to splurge on.