Adjusted EPS was $0.41, exceeding guidance of $0.15 to $0.20, driven by sales growth, expense discipline, and tariff mitigation.
Capital expenditures decreased to $343 million from $432 million, and share repurchases totaled $151 million in the quarter, with $1.2 billion remaining authorization.
Core adjusted EBITDA was $377 million (7.5% of revenue), above guidance of 6.0% to 6.2%.
Gross margin was 39.7% of net sales, slightly below last year's 40.5%, impacted by proactive markdowns and tariffs.
Macy's Inc. reported net sales of $4.8 billion, down 2.5% year-over-year, with a 1.9% comparable sales growth, the strongest in 12 quarters.
Operating cash flow improved to $255 million year-to-date, free cash flow outflow narrowed to $13 million from $244 million last year.
SG&A expenses declined by $29 million to $1.9 billion, reflecting store closures and cost containment, partially offset by investments in growth initiatives.
Impact of U.S.-Switzerland Tariffs on Inventory and Supply Chain
Movado built a strong inventory position of Swiss-made watches in the U.S. in anticipation of a 39% tariff rate on Swiss imports implemented after the quarter.
Management expects a substantial portion of the year's inventory needs are already covered by the current stock, mitigating immediate supply disruptions.
Approximately $28 million of inventory was accumulated, with $16 million in the U.S., to offset tariff impacts and manage supply chain risks.
The company has taken proactive measures such as pricing adjustments and supplier negotiations to mitigate tariff effects, though some impacts will only be seen in future periods.
Movado plans to reduce inventory levels by the end of the year to more reasonable levels, aiming to offset the increased costs caused by tariffs.
Management remains optimistic that the U.S. and Switzerland will negotiate to lower tariff rates in the coming months, which could further ease supply chain pressures.
Impact of Burlington 2.0 Initiatives on Q2 Performance and Future Growth
Management attributes the strong Q2 sales and earnings to the successful execution of Burlington 2.0 initiatives, which include Merchandising 2.0, Stores 2.0, and new store openings.
These initiatives have enabled rapid response to external headwinds such as tariffs, demonstrating strategic agility.
Merchandising 2.0 provided enhanced visibility and tools that allowed the company to pivot assortments quickly amid tariff disruptions.
Stores 2.0 has significantly improved customer experience, operational efficiency, and associate engagement, contributing to a 5% comp store sales growth.
The company expects the impact of Burlington 2.0 to grow over time, supporting long-term performance despite external uncertainties.
Impact of Tariffs and De Minimis Removal on Margins and Pricing Strategy
Management highlighted a $240 million mitigated impact on gross margin due to tariffs and the removal of the de minimis exemption, representing approximately 220 basis points of margin decline for 2025.
The removal of the de minimis exemption is expected to have a significant impact, accounting for about 170 basis points of the tariff-related decline.
The company is implementing strategic pricing actions and supply chain initiatives to mitigate increased tariff costs, but these will take time to fully realize benefits.
For 2026, the net impact of tariffs and de minimis removal is projected to be around $320 million, affecting operating margins.
The company is actively managing inventory placement and supply chain adjustments to offset some of the tariff-related costs.
Pricing increases are being cautiously rolled out on a small portion of the assortment, with ongoing evaluation planned.
Cash and short-term investments ended at $33.5 million, down from $63.2 million a year ago, with no debt and $70.1 million available on the revolving credit facility.
Comparable store sales declined 7.1%, while direct sales fell 14.4%, with sequential monthly improvement from May (-10.4%) to July (-7%).
EBITDA fell to $4.6 million from $6.5 million last year, impacted by lower sales but partially offset by expense reductions.
Gross margin rate decreased 300 basis points to 45.2%, mainly due to a 240 basis point increase in occupancy costs and higher markdown rates.
Inventory was $78.9 million, flat year-over-year, with clearance penetration steady at 10.2%. Inventory down 28.5% compared to 2019.
Merchandise margins declined by 60 basis points, partially offset by a favorable shift from national to private brands.
Net sales for Q2 2025 were $115.5 million, down from $124.8 million in Q2 2024, driven by a 9.2% decline in comparable sales.
SG&A expenses decreased by $6.1 million year-over-year, reducing SG&A as a percentage of sales to 41.2%.
Dafinchi
