By Jinjoo Lee
Berkshire Hathaway's Warren Buffett and the late Vice Chairman Charlie Munger famously regretted their decision to buy a department store. So what is Macy's doing in its portfolio?
Macy's shares have jumped about 18% since May 15, when Berkshire Hathaway disclosed its stake in the company. The department-store giant's shares rose slightly on Wednesday, even in a down market, following strong earnings. Its Macy's stake is tiny compared with the two splashy deals Berkshire Hathaway's new chief executive, Greg Abel, announced recently. But the $55 million purchase -- based on Macy's share price on the filing date -- represented about 1% of Macy's diminished market value.
A shrinking pool of competitors, and confident new leadership focused on the store experience, appear to be what Berkshire is betting on.
Berkshire's record in the retail industry has been mixed. Buffett himself has often highlighted mistakes in his retail investments, calling a 1966 deal to buy a Baltimore department store one of his biggest mistakes. But the conglomerate hasn't shied away from the broader sector. It is the top shareholder of Kroger, with an 8% stake, according to FactSet. Its private-company holdings include See's Candies, home-furnishings retailers and jewelry-store chains.
Macy's checks several Berkshire boxes. It is a cheap stock in a challenged sector that is being "attacked on all sides," from off-price retailers, fast fashion and specialty retailers such as Aritzia, according to Oliver Cowen, equity analyst at TD Cowen. Once-iconic chains such as Sears and J.C. Penney have been wiped out or diminished. Saks Global was the latest casualty.
Within that shrinking universe, Macy's is by far the biggest player, with more than $20 billion in annual revenue. Its shares were roughly equal to book value when Berkshire disclosed its stake. After the rally, they remain cheap at 1.2 times book value and 10 times forward earnings. In fact, its earnings multiple is similar to that of Kohl's, a lower-end department-store chain that has seen 17 straight quarters of falling year-over-year comparable-store sales.
Even though the overall top line isn't growing at high speed, its free cash flow has grown by a double-digit percentage in each of the past two years and is expected to grow an additional 11% this year, according to analysts polled by Visible Alpha. The dividend yield looks attractive at 3.4%.
Macy's real-estate holdings provide something of a floor under its share price. The company either fully owns or has a ground lease -- meaning it owns the building but not the land -- on nearly half of its locations. CoStar previously estimated that Macy's real estate is worth $7.9 billion to $10.5 billion, well above its current market value of $5.7 billion. The caveat is that those holdings aren't easy to monetize; many activist investors have tried and failed. Macy's does expect to get some cash by selling less-profitable stores. So far, it has made $400 million through such sales and expects to get up to $300 million more through 2028.
More important, Macy's has a leader with a keen sense of what customers want. Tony Spring, who became the chief executive officer in 2024, has improved merchandising and added more staffing near shoe, handbag and fitting-room areas. He has also introduced more events, including a prom-themed one earlier this year.
Spring "is very focused on the store experience," said Blake Anderson, equity analyst at Jefferies. "He really wants to bring back the traditional department-store model of customer service."
The investments seem to be working. Macy's posted its fourth consecutive quarter of companywide comparable-store sales growth, a sign that the business has stabilized. High-end Bloomingdale's has been an especially bright spot, with comparable-store sales rising 10% in each of the past two quarters, even as the broader luxury industry has languished. It is well positioned to grab market share from Saks, which is closing 30% of its Saks Fifth Avenue and Neiman Marcus stores. Among department stores, Bloomingdale's has the biggest geographical overlap with Saks Fifth Avenue and Neiman Marcus stores, according to a report from Jefferies.
Macy's ultimate moat might be the physical shopping experience, which is making a comeback. Malls and physical stores have been popular among Gen Z consumers that spent their formative years locked down during the pandemic.
The physical shopping experience has gotten worse at many retailers. Many have reduced the number of workers, and worse still, allocated more of their hours toward filling online orders. After a big dip during the pandemic, the number of retail employees remains below 2019 levels, according to data from the Labor Department. Macy's has gone the other way: Its employee count per store has increased 14% since Spring took over.
Buffett once praised Costco, one of Munger's favorite companies, for its ability to "surprise and delight" its customers. Macy's new leadership has shown that it is still possible to do that in department stores.
Write to Jinjoo Lee at jinjoo.lee@wsj.com
(END) Dow Jones Newswires
Oliver Chen is an equity analyst at TD Cowen. "Why Berkshire Hathaway Went Window-Shopping at Macy's -- Heard on the Street," at 5:30 a.m. ET, incorrectly identified him as Oliver Cowen.
(END) Dow Jones Newswires
June 04, 2026 11:26 ET (15:26 GMT)
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