Macy's, Inc. (M) stock intrinsic value fair value estimate & owner earnings analysis

Macy's operates 665 store locations under the Macy's, Bloomingdale's and Bluemercury names and also sells online; 243 of the locations are owned and 340 are leased. Net sales were $21.8 billion in fiscal 2025, down from $25.9 billion in fiscal 2016, a decline of about 1.9% a year that includes the 2020 shutdown. Fiscal 2025 comparable sales rose 1.5% for the company, 0.4% for the Macy's name, 7.4% for Bloomingdale's and 1.6% for Bluemercury. Management plans to close roughly 150 stores under its Bold New Chapter strategy and is investing in the remaining ones; the 125 reimagined Macy's stores had comparable sales up 1.0%. What we measure. Owner earnings are the cash the business generates after the capital spending and stock compensation needed to keep it running, with swings in inventory, receivables, payables and taxes removed. Per share they were $2.82 (fiscal 2016), $3.17, $3.00, $1.72, $(0.96) in the 2020 shutdown year, $5.35 in the 2021 reopening year, then $2.01, $2.57, $1.79 and $2.42 (fiscal 2025). Because Macy's debt is valued separately, we use the cash the business produces before paying its lenders, which adds back cash interest. That was $754 million, $872 million, $660 million and $837 million in fiscal 2022 through 2025. We take the median of those four years, about $796 million (about $2.93 per share on 271.9 million diluted shares). Those are the years after the pandemic reopening, and the diluted share count fell from 314 million in fiscal 2021 to about 281 million in fiscal 2022. Fiscal 2020 and 2021 are excluded as distorted by the shutdown and the reopening. Judgements that affect the figure: a one-time $328 million interchange-fee litigation settlement booked in fiscal 2025 is treated as not part of earnings power (it sat in receivables at year-end). Gains on real estate sales ($48 million in 2025, $144 million in 2024) are not counted. Spending on property and on capitalized software are both counted as capital spending, and because sales have been falling we treated essentially all of it as maintenance. The recurring cash drain labelled 'change in other assets and liabilities' (between about $100 million and $190 million in each year since fiscal 2017) is left in as a real cost. Some working-capital lines in earlier years were later reclassified by the company, and we used the latest figures. Growth check. Cash before lenders rose 27% in fiscal 2025 ($660 million to $837 million), partly because capital spending fell, but our middle case assumes a 2% decline in the first year, below that trailing result. The first half of fiscal 2026 gave no reason to move the level: net sales were $9.55 billion versus $9.41 billion a year earlier, and net income was $232 million versus $124 million. Operating cash flow of $586 million versus $255 million was helped by a $382 million drop in receivables (versus $92 million a year earlier), so we treat that as timing and gave it no weight. Planned fiscal 2026 capital spending is about $800 million, inside the recent range. Debt. Macy's owes about $2.43 billion of senior notes and debentures, with coupons from 4.3% to 7.9%; we judged the average close enough to the cost of money that no adjustment is made. In July 2025 it issued $500 million of 7.375% notes due 2033 and used the proceeds and cash to buy back and redeem older notes; debt was $2.78 billion in May 2025 and $2.43 billion at the end of fiscal 2025. The earliest maturities in its debt table are in 2029 and 2030. A credit facility had no borrowings outstanding at year-end and about $1.96 billion of availability after letters of credit. Cash was $1.29 billion at the end of the second quarter. We assume about $0.8 billion is needed to run the business (cash was $829 million in August 2025 and $932 million in May 2025) and count the remaining $0.5 billion against the debt. Net debt is about $1.94 billion, or $7.13 per share. Lease payments on the 340 leased stores already run through operating cash flow, so they are not subtracted again. Middle case: about $28.73 per share. Cash before lenders starts at $796 million and shrinks 2% a year indefinitely, in line with the 1.9% annual sales decline of the past nine years. The business is worth about $9.75 billion, it owes about $1.94 billion, leaving about $7.81 billion for shareholders. We credited no growth. Bloomingdale's strength, the reimagined stores and share buybacks were left out because none is yet a multi-year record of adding cash flow. Low case: about $9.00 per share. It starts from the weakest recent year ($660 million) and declines 6% a year; cash before lenders fell about 40% between the fiscal 2016 to 2018 average and the fiscal 2022 to 2025 average, which over roughly six and a half years is close to 8% a year. It also includes a downturn like 2020, when this cash flow went from $777 million to about $(41) million as sales fell 29%: we assume one year of zero in year three and half the trend level in year four. In that zero year the cash flow falls short of the interest bill; cash and the credit facility cover it. We add an allowance of about $0.12 billion for costlier refinancing of the 2029 and 2030 maturities in a downturn. The business is worth about $4.5 billion, it owes about $2.06 billion including that allowance, leaving about $2.45 billion. High case: about $38.41 per share. Cash before lenders holds flat at $872 million, the fiscal 2023 level already achieved, for ten years, then declines 2% a year. The business is worth about $12.38 billion, it owes about $1.94 billion, leaving about $10.44 billion. This needs the closures to remove weak locations without lowering the cash flow of the remaining ones; fiscal 2025 comparable sales for the stores and digital business that remain rose 1.7%, which is consistent with that but does not prove it. What would make this wrong: a faster decline is the main risk. At the middle level with a 6% annual decline and no separate downturn, the shares would be worth about $15.80. If the true level is the weak-year $660 million with a 2% decline, about $22.60. Our previous estimates (low $3.35, middle $13.29, high $26.48) were built on a different basis and are not comparable. Price judgement. We are fairly sure of the level, to within roughly 15% to 20%, because four straight years fall between $660 million and $872 million. We are much less sure of the direction. The worst plausible outcome is a recession arriving on top of the structural decline around the 2029 and 2030 maturities. The structure would survive that: there is cash, an undrawn credit facility, no listed maturities before 2029, and owned stores we have not valued. The shares would still be worth less, because fixed store costs magnify a sales drop; in 2020 the cash flow went to about zero on a 29% sales decline. The margin-of-safety price is $10.00. At that price the dividend (19.15 cents a quarter; $197 million was paid in 2025) yields about 7.7% a year during the holding period, the low case implies a loss of about a tenth, and over a five-year holding period the shares need to be worth about $21 for a 20% annual return with dividends included. The price assumes a four-to-five-year holding period, and $10.00 does not rely on the owned real estate or on any turnaround.