The department store operator is Estee Lauder's largest customer, representing 9% of the makeup company's net sales in fiscal 2016 and 22% of Americas sales.
"Hypothetically, if Estee Lauder's revenue to Macy's declines by an incremental 12% (10% from store closures and 2% organic deterioration), that would have a one-point impact on constant currency (CC) sales growth, assuming the company is not able to offset these lost sales in other channels," Deutsche Bank analysts Bill Schmitz and Faiza Alwy wrote in a note.
The analysts noted Estee Lauder has discussed these store closures at length and likely incorporated them broadly in guidance. Additionally, Macy's said it would open 50 new Bluemercury stores over the next two years. Expansion at Bluemercury, which is a luxury beauty retailer, is an "incremental positive" for Estee Lauder's premium high margin brands, Schmitz and Alwy added.
The company's namesake brand and Clinique are most dependent on the department store channel. Estee Lauder's largest brand, MAC, has had lackluster growth trends in recent quarter, likely in part due to a challenged department store channel, the analysts said.
"We recognize the global distribution expansion opportunity for MAC over the long term but expect the short term to remain weak in the U.S.," Schmitz and Alwy said.
Macy's shares rose 1.04% to $31.18 in Friday morning trading, while Estee Lauder gained 0.55% to $79.04.
Department stores have struggled as mall traffic has declined. This holiday season, consumers have preferred to shop online or at off-price such as Ross Stores (ROST) and fast-fashion retailers like H&M, Deutsche Bank analysts said in a separate note Friday.
Luxury retailers such as Kate Spade (KATE) , Coach (COH) and Michael Kors (KORS) fell after Macy's and Kohl's cited downbeat accessories sales as reasons for their disappointing guidance. Macy's specifically called out weakness in handbags and watches. Michael Kors generates nearly 13% of its revenue from Macy's.
PVH attempted to quell investors' fears yesterday by saying it expects fourth-quarter and full-year earnings at the high end of its prior outlook. The company, which owns Calvin Klein and Tommy Hilfiger, gets 8.4% of its revenue from Macy's.