The following table shows the Company's financial assets that are required to be measured at fair value on a recurring basis, by level within the hierarchy as defined by applicable accounting standards:
Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, certain short-term investments and other assets, short-term debt, merchandise accounts payable, accounts payable and accrued liabilities and long-term debt. With the exception of long-term debt, the carrying amount of these financial instruments approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are generally estimated based on quoted market prices for identical or similar instruments, and are classified as Level 2 measurements within the hierarchy as defined by applicable accounting standards.
The following table shows the estimated fair value of the Company's long-term debt:
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended October 28, 2017
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
| Net sales | $ | — |
| | $ | 2,077 |
| | $ | 5,861 |
| | $ | (2,657 | ) | | $ | 5,281 |
|
| Cost of sales | — |
| | (1,391 | ) | | (4,441 | ) | | 2,657 |
| | (3,175 | ) |
| Gross margin | — |
| | 686 |
| | 1,420 |
| | — |
| | 2,106 |
|
| Selling, general and administrative expenses | — |
| | (813 | ) | | (1,182 | ) | | — |
| | (1,995 | ) |
| Gains on sale of real estate | — |
| | 24 |
| | 41 |
| | — |
| | 65 |
|
| Restructuring and other costs | — |
| | (1 | ) | | (32 | ) | | — |
| | (33 | ) |
| Settlement charges | — |
| | (8 | ) | | (14 | ) | | — |
| | (22 | ) |
| Operating income (loss) | — |
| | (112 | ) | | 233 |
| | — |
| | 121 |
|
| Interest (expense) income, net: | | | | | | | | | |
| External | 1 |
| | (76 | ) | | 1 |
| | — |
| | (74 | ) |
| Intercompany | — |
| | (34 | ) | | 34 |
| | — |
| | — |
|
| Equity in earnings (loss) of subsidiaries | 35 |
| | (61 | ) | | — |
| | 26 |
| | — |
|
| Income (loss) before income taxes | 36 |
| | (283 | ) | | 268 |
| | 26 |
| | 47 |
|
Federal, state and local income
tax benefit (expense) | — |
| | 59 |
| | (72 | ) | | — |
| | (13 | ) |
| Net income (loss) | 36 |
| | (224 | ) | | 196 |
| | 26 |
| | 34 |
|
| Net loss attributable to noncontrolling interest | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net income (loss) attributable to
Macy's, Inc. shareholders | $ | 36 |
| | $ | (224 | ) | | $ | 198 |
| | $ | 26 |
| | $ | 36 |
|
| Comprehensive income (loss) | $ | 61 |
| | $ | (201 | ) | | $ | 212 |
| | $ | (13 | ) | | $ | 59 |
|
Comprehensive loss attributable to
noncontrolling interest | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders | $ | 61 |
| | $ | (201 | ) | | $ | 214 |
| | $ | (13 | ) | | $ | 61 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks EndedOctober 29, 2016
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
| Net sales | $ | — |
| | $ | 2,376 |
| | $ | 6,183 |
| | $ | (2,933 | ) | | $ | 5,626 |
|
| Cost of sales | — |
| | (1,577 | ) | | (4,742 | ) | | 2,933 |
| | (3,386 | ) |
| Gross margin | — |
| | 799 |
| | 1,441 |
| | — |
| | 2,240 |
|
| Selling, general and administrative expenses | (1 | ) | | (950 | ) | | (1,161 | ) | | — |
| | (2,112 | ) |
| Gains on sale of real estate | — |
| | 41 |
| | — |
| | — |
| | 41 |
|
| Settlement charges | — |
| | (24 | ) | | (38 | ) | | — |
| | (62 | ) |
| Operating income (loss) | (1 | ) | | (134 | ) | | 242 |
| | — |
| | 107 |
|
| Interest (expense) income, net: | | | | | | | | | |
| External | 1 |
| | (82 | ) | | — |
| | — |
| | (81 | ) |
| Intercompany | — |
| | (51 | ) | | 51 |
| | — |
| | — |
|
| Equity in earnings (loss) of subsidiaries | 17 |
| | (101 | ) | | — |
| | 84 |
| | — |
|
| Income (loss) before income taxes | 17 |
| | (368 | ) | | 293 |
| | 84 |
| | 26 |
|
Federal, state and local income
tax benefit (expense) | — |
| | 68 |
| | (79 | ) | | — |
| | (11 | ) |
| Net income (loss) | 17 |
| | (300 | ) | | 214 |
| | 84 |
| | 15 |
|
| Net loss attributable to noncontrolling interest | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net income (loss) attributable to
Macy's, Inc. shareholders | $ | 17 |
| | $ | (300 | ) | | $ | 216 |
| | $ | 84 |
| | $ | 17 |
|
| Comprehensive income (loss) | $ | 62 |
| | $ | (255 | ) | | $ | 241 |
| | $ | 12 |
| | $ | 60 |
|
Comprehensive loss attributable to
noncontrolling interest | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders | $ | 62 |
| | $ | (255 | ) | | $ | 243 |
| | $ | 12 |
| | $ | 62 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 39 weeks ended October 28, 2017
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
| Net sales | $ | — |
| | $ | 6,319 |
| | $ | 15,727 |
| | $ | (5,875 | ) | | $ | 16,171 |
|
| Cost of sales | — |
| | (4,126 | ) | | (11,543 | ) | | 5,875 |
| | (9,794 | ) |
| Gross margin | — |
| | 2,193 |
| | 4,184 |
| | — |
| | 6,377 |
|
| Selling, general and administrative expenses | (1 | ) | | (2,430 | ) | | (3,422 | ) | | — |
| | (5,853 | ) |
| Gains on sale of real estate | — |
| | 116 |
| | 60 |
| | — |
| | 176 |
|
| Restructuring and other costs | — |
| | (1 | ) | | (32 | ) | | — |
| | (33 | ) |
| Settlement charges | — |
| | (24 | ) | | (49 | ) | | — |
| | (73 | ) |
| Operating income (loss) | (1 | ) | | (146 | ) | | 741 |
| | — |
| | 594 |
|
| Interest (expense) income, net: | | | | | | | | | |
| External | 4 |
| | (243 | ) | | 2 |
| | — |
| | (237 | ) |
| Intercompany | — |
| | (102 | ) | | 102 |
| | — |
| | — |
|
| Net premiums on early retirement of debt | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
| Equity in earnings (loss) of subsidiaries | 220 |
| | (30 | ) | | — |
| | (190 | ) | | — |
|
| Income (loss) before income taxes | 223 |
| | (522 | ) | | 845 |
| | (190 | ) | | 356 |
|
Federal, state and local income
tax benefit (expense) | (1 | ) | | 142 |
| | (281 | ) | | — |
| | (140 | ) |
| Net income (loss) | 222 |
| | (380 | ) | | 564 |
| | (190 | ) | | 216 |
|
| Net loss attributable to noncontrolling interest | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Net income (loss) attributable to
Macy's, Inc. shareholders | $ | 222 |
| | $ | (380 | ) | | $ | 570 |
| | $ | (190 | ) | | $ | 222 |
|
| Comprehensive income (loss) | $ | 318 |
| | $ | (290 | ) | | $ | 627 |
| | $ | (343 | ) | | $ | 312 |
|
Comprehensive loss attributable to
noncontrolling interest | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders | $ | 318 |
| | $ | (290 | ) | | $ | 633 |
| | $ | (343 | ) | | $ | 318 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 39 weeks endedOctober 29, 2016
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
| Net sales | $ | — |
| | $ | 7,324 |
| | $ | 16,546 |
| | $ | (6,607 | ) | | $ | 17,263 |
|
| Cost of sales | — |
| | (4,704 | ) | | (12,273 | ) | | 6,607 |
| | (10,370 | ) |
| Gross margin | — |
| | 2,620 |
| | 4,273 |
| | — |
| | 6,893 |
|
| Selling, general and administrative expenses | (2 | ) | | (2,803 | ) | | (3,334 | ) | | — |
| | (6,139 | ) |
| Gains on sale of real estate | — |
| | 71 |
| | 5 |
| | — |
| | 76 |
|
| Impairments and other costs | — |
| | (184 | ) | | (65 | ) | | — |
| | (249 | ) |
| Settlement charges | — |
| | (29 | ) | | (52 | ) | | — |
| | (81 | ) |
| Operating income (loss) | (2 | ) | | (325 | ) | | 827 |
| | — |
| | 500 |
|
| Interest (expense) income, net: | | | | | | | | | |
| External | 2 |
| | (278 | ) | | — |
| | — |
| | (276 | ) |
| Intercompany | — |
| | (166 | ) | | 166 |
| | — |
| | — |
|
| Equity in earnings (loss) of subsidiaries | 144 |
| | (69 | ) | | — |
| | (75 | ) | | — |
|
| Income (loss) before income taxes | 144 |
| | (838 | ) | | 993 |
| | (75 | ) | | 224 |
|
Federal, state and local income
tax benefit (expense) | — |
| | 243 |
| | (328 | ) | | — |
| | (85 | ) |
| Net income (loss) | 144 |
| | (595 | ) | | 665 |
| | (75 | ) | | 139 |
|
| Net loss attributable to noncontrolling interest | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Net income (loss) attributable to
Macy's, Inc. shareholders | $ | 144 |
| | $ | (595 | ) | | $ | 670 |
| | $ | (75 | ) | | $ | 144 |
|
| Comprehensive income (loss) | $ | 164 |
| | $ | (575 | ) | | $ | 677 |
| | $ | (107 | ) | | $ | 159 |
|
Comprehensive loss attributable to
noncontrolling interest | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders | $ | 164 |
| | $ | (575 | ) | | $ | 682 |
| | $ | (107 | ) | | $ | 164 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of October 28, 2017
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
| ASSETS: | | | | | | | | | |
| Current Assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 116 |
| | $ | 89 |
| | $ | 329 |
| | $ | — |
| | $ | 534 |
|
| Receivables | — |
| | 67 |
| | 152 |
| | — |
| | 219 |
|
| Merchandise inventories | — |
| | 3,218 |
| | 3,847 |
| | — |
| | 7,065 |
|
| Income tax receivable | — |
| | 2 |
| | — |
| | (2 | ) | | — |
|
| Prepaid expenses and other current assets | — |
| | 86 |
| | 346 |
| | — |
| | 432 |
|
| Total Current Assets | 116 |
| | 3,462 |
| | 4,674 |
| | (2 | ) | | 8,250 |
|
| Property and Equipment – net | — |
| | 3,184 |
| | 3,558 |
| | — |
| | 6,742 |
|
| Goodwill | — |
| | 3,315 |
| | 582 |
| | — |
| | 3,897 |
|
| Other Intangible Assets – net | — |
| | 46 |
| | 445 |
| | — |
| | 491 |
|
| Other Assets | 1 |
| | 62 |
| | 772 |
| | — |
| | 835 |
|
| Deferred Income Taxes | 26 |
| | — |
| | — |
| | (26 | ) | | — |
|
| Intercompany Receivable | 1,436 |
| | — |
| | 1,971 |
| | (3,407 | ) | | — |
|
| Investment in Subsidiaries | 2,882 |
| | 3,644 |
| | — |
| | (6,526 | ) | | — |
|
| Total Assets | $ | 4,461 |
| | $ | 13,713 |
| | $ | 12,002 |
| | $ | (9,961 | ) | | $ | 20,215 |
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | |
| Current Liabilities: | | | | | | | | | |
| Short-term debt | $ | — |
| | $ | 6 |
| | $ | 16 |
| | $ | — |
| | $ | 22 |
|
| Merchandise accounts payable | — |
| | 1,339 |
| | 1,834 |
| | — |
| | 3,173 |
|
| Accounts payable and accrued liabilities | 139 |
| | 975 |
| | 2,048 |
| | — |
| | 3,162 |
|
| Income taxes | 20 |
| | — |
| | 16 |
| | (2 | ) | | 34 |
|
| Total Current Liabilities | 159 |
| | 2,320 |
| | 3,914 |
| | (2 | ) | | 6,391 |
|
| Long-Term Debt | — |
| | 6,280 |
| | 17 |
| | — |
| | 6,297 |
|
| Intercompany Payable | — |
| | 3,407 |
| | — |
| | (3,407 | ) | | — |
|
| Deferred Income Taxes | — |
| | 707 |
| | 872 |
| | (26 | ) | | 1,553 |
|
| Other Liabilities | 71 |
| | 476 |
| | 1,203 |
| | — |
| | 1,750 |
|
| Shareholders' Equity: | | | | | | | | | |
| Macy's, Inc. | 4,231 |
| | 523 |
| | 6,003 |
| | (6,526 | ) | | 4,231 |
|
| Noncontrolling Interest | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
| Total Shareholders' Equity | 4,231 |
| | 523 |
| | 5,996 |
| | (6,526 | ) | | 4,224 |
|
| Total Liabilities and Shareholders' Equity | $ | 4,461 |
| | $ | 13,713 |
| | $ | 12,002 |
| | $ | (9,961 | ) | | $ | 20,215 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of October 29, 2016
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
| ASSETS: | | | | | | | | | |
| Current Assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 60 |
| | $ | 99 |
| | $ | 298 |
| | $ | — |
| | $ | 457 |
|
| Receivables | — |
| | 74 |
| | 188 |
| | — |
| | 262 |
|
| Merchandise inventories | — |
| | 3,621 |
| | 3,966 |
| | — |
| | 7,587 |
|
| Income tax receivable | 99 |
| | — |
| | — |
| | (39 | ) | | 60 |
|
| Prepaid expenses and other current assets | — |
| | 89 |
| | 365 |
| | — |
| | 454 |
|
| Total Current Assets | 159 |
| | 3,883 |
| | 4,817 |
| | (39 | ) | | 8,820 |
|
| Property and Equipment – net | — |
| | 3,534 |
| | 3,615 |
| | — |
| | 7,149 |
|
| Goodwill | — |
| | 3,315 |
| | 582 |
| | — |
| | 3,897 |
|
| Other Intangible Assets – net | — |
| | 47 |
| | 452 |
| | — |
| | 499 |
|
| Other Assets | 1 |
| | 153 |
| | 755 |
| | — |
| | 909 |
|
| Deferred Income Taxes | 24 |
| | — |
| | — |
| | (24 | ) | | — |
|
| Intercompany Receivable | 878 |
| | — |
| | 1,876 |
| | (2,754 | ) | | — |
|
| Investment in Subsidiaries | 2,954 |
| | 3,173 |
| | — |
| | (6,127 | ) | | — |
|
| Total Assets | $ | 4,016 |
| | $ | 14,105 |
| | $ | 12,097 |
| | $ | (8,944 | ) | | $ | 21,274 |
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | |
| Current Liabilities: | | | | | | | | | |
| Short-term debt | $ | — |
| | $ | 935 |
| | $ | 3 |
| | $ | — |
| | $ | 938 |
|
| Merchandise accounts payable | — |
| | 1,481 |
| | 1,894 |
| | — |
| | 3,375 |
|
| Accounts payable and accrued liabilities | 164 |
| | 910 |
| | 1,856 |
| | — |
| | 2,930 |
|
| Income taxes | — |
| | 3 |
| | 36 |
| | (39 | ) | | — |
|
| Total Current Liabilities | 164 |
| | 3,329 |
| | 3,789 |
| | (39 | ) | | 7,243 |
|
| Long-Term Debt | — |
| | 6,545 |
| | 18 |
| | — |
| | 6,563 |
|
| Intercompany Payable | — |
| | 2,754 |
| | — |
| | (2,754 | ) | | — |
|
| Deferred Income Taxes | — |
| | 694 |
| | 878 |
| | (24 | ) | | 1,548 |
|
| Other Liabilities | 63 |
| | 565 |
| | 1,501 |
| | — |
| | 2,129 |
|
| Shareholders' Equity: | | | | | | | | | |
| Macy's, Inc. | 3,789 |
| | 218 |
| | 5,909 |
| | (6,127 | ) | | 3,789 |
|
| Noncontrolling Interest | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Total Shareholders' Equity | 3,789 |
| | 218 |
| | 5,911 |
| | (6,127 | ) | | 3,791 |
|
| Total Liabilities and Shareholders' Equity | $ | 4,016 |
| | $ | 14,105 |
| | $ | 12,097 |
| | $ | (8,944 | ) | | $ | 21,274 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of January 28, 2017
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
| ASSETS: | | | | | | | | | |
| Current Assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 938 |
| | $ | 81 |
| | $ | 278 |
| | $ | — |
| | $ | 1,297 |
|
| Receivables | — |
| | 169 |
| | 353 |
| | — |
| | 522 |
|
| Merchandise inventories | — |
| | 2,565 |
| | 2,834 |
| | — |
| | 5,399 |
|
| Prepaid expenses and other current assets | — |
| | 84 |
| | 324 |
| | — |
| | 408 |
|
| Total Current Assets | 938 |
| | 2,899 |
| | 3,789 |
| | — |
| | 7,626 |
|
| Property and Equipment – net | — |
| | 3,397 |
| | 3,620 |
| | — |
| | 7,017 |
|
| Goodwill | — |
| | 3,315 |
| | 582 |
| | — |
| | 3,897 |
|
| Other Intangible Assets – net | — |
| | 51 |
| | 447 |
| | — |
| | 498 |
|
| Other Assets | — |
| | 47 |
| | 766 |
| | — |
| | 813 |
|
| Deferred Income Taxes | 26 |
| | — |
| | — |
| | (26 | ) | | — |
|
| Intercompany Receivable | 375 |
| | — |
| | 2,428 |
| | (2,803 | ) | | — |
|
| Investment in Subsidiaries | 3,137 |
| | 3,540 |
| | — |
| | (6,677 | ) | | — |
|
| Total Assets | $ | 4,476 |
| | $ | 13,249 |
| | $ | 11,632 |
| | $ | (9,506 | ) | | $ | 19,851 |
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | |
| Current Liabilities: | | | | | | | | | |
| Short-term debt | $ | — |
| | $ | 306 |
| | $ | 3 |
| | $ | — |
| | $ | 309 |
|
| Merchandise accounts payable | — |
| | 590 |
| | 833 |
| | — |
| | 1,423 |
|
| Accounts payable and accrued liabilities | 16 |
| | 1,064 |
| | 2,483 |
| | — |
| | 3,563 |
|
| Income taxes | 71 |
| | 16 |
| | 265 |
| | — |
| | 352 |
|
| Total Current Liabilities | 87 |
| | 1,976 |
| | 3,584 |
| | — |
| | 5,647 |
|
| Long-Term Debt | — |
| | 6,544 |
| | 18 |
| | — |
| | 6,562 |
|
| Intercompany Payable | — |
| | 2,803 |
| | — |
| | (2,803 | ) | | — |
|
| Deferred Income Taxes | — |
| | 688 |
| | 781 |
| | (26 | ) | | 1,443 |
|
| Other Liabilities | 66 |
| | 500 |
| | 1,311 |
| | — |
| | 1,877 |
|
| Shareholders' Equity: | | | | | | | | | |
| Macy's, Inc. | 4,323 |
| | 738 |
| | 5,939 |
| | (6,677 | ) | | 4,323 |
|
| Noncontrolling Interest | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
| Total Shareholders' Equity | 4,323 |
| | 738 |
| | 5,938 |
| | (6,677 | ) | | 4,322 |
|
| Total Liabilities and Shareholders' Equity | $ | 4,476 |
| | $ | 13,249 |
| | $ | 11,632 |
| | $ | (9,506 | ) | | $ | 19,851 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the 39 Weeks EndedOctober 28, 2017
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
| Cash flows from operating activities: | | | | | | | | | |
| Net income (loss) | $ | 222 |
| | $ | (380 | ) | | $ | 564 |
| | $ | (190 | ) | | $ | 216 |
|
| Restructuring and other costs | — |
| | 1 |
| | 32 |
| | — |
| | 33 |
|
| Settlement charges | — |
| | 24 |
| | 49 |
| | — |
| | 73 |
|
| Equity in loss (earnings) of subsidiaries | (220 | ) | | 30 |
| | — |
| | 190 |
| | — |
|
| Dividends received from subsidiaries | 571 |
| | — |
| | — |
| | (571 | ) | | — |
|
| Depreciation and amortization | — |
| | 265 |
| | 476 |
| | — |
| | 741 |
|
| (Increase) decrease in working capital | (52 | ) | | 35 |
| | (633 | ) | | — |
| | (650 | ) |
| Other, net | 8 |
| | 2 |
| | (34 | ) | | — |
| | (24 | ) |
| Net cash provided (used) by operating activities | 529 |
| | (23 | ) | | 454 |
| | (571 | ) | | 389 |
|
| Cash flows from investing activities: | | | | | | | | | |
| Disposition (purchase) of property and equipment and capitalized software, net | — |
| | 30 |
| | (368 | ) | | — |
| | (338 | ) |
| Other, net | — |
| | 2 |
| | (10 | ) | | — |
| | (8 | ) |
| Net cash provided (used) by investing activities | — |
| | 32 |
| | (378 | ) | | — |
| | (346 | ) |
| Cash flows from financing activities: | | | | | | | | | |
| Debt repaid | — |
| | (553 | ) | | (1 | ) | | — |
| | (554 | ) |
| Dividends paid | (346 | ) | | — |
| | (571 | ) | | 571 |
| | (346 | ) |
| Issuance of common stock, net of common stock acquired | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
| Proceeds from noncontrolling interest | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
| Intercompany activity, net | (1,016 | ) | | 584 |
| | 432 |
| | — |
| | — |
|
| Other, net | 9 |
| | (32 | ) | | 102 |
| | — |
| | 79 |
|
| Net cash used by financing activities | (1,351 | ) | | (1 | ) | | (25 | ) | | 571 |
| | (806 | ) |
Net increase (decrease) in cash and
cash equivalents | (822 | ) | | 8 |
| | 51 |
| | — |
| | (763 | ) |
| Cash and cash equivalents at beginning of period | 938 |
| | 81 |
| | 278 |
| | — |
| | 1,297 |
|
| Cash and cash equivalents at end of period | $ | 116 |
| | $ | 89 |
| | $ | 329 |
| | $ | — |
| | $ | 534 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the 39 Weeks EndedOctober 29, 2016
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
| Cash flows from operating activities: | | | | | | | | | |
| Net income (loss) | $ | 144 |
| | $ | (595 | ) | | $ | 665 |
| | $ | (75 | ) | | $ | 139 |
|
| Impairments and other costs | — |
| | 184 |
| | 65 |
| | — |
| | 249 |
|
| Settlement charges | — |
| | 29 |
| | 52 |
| | — |
| | 81 |
|
| Equity in loss (earnings) of subsidiaries | (144 | ) | | 69 |
| | — |
| | 75 |
| | — |
|
| Dividends received from subsidiaries | 535 |
| | 575 |
| | — |
| | (1,110 | ) | | — |
|
| Depreciation and amortization | — |
| | 298 |
| | 489 |
| | — |
| | 787 |
|
| Increase in working capital | (59 | ) | | (572 | ) | | (328 | ) | | — |
| | (959 | ) |
| Other, net | 19 |
| | (36 | ) | | 28 |
| | — |
| | 11 |
|
| Net cash provided (used) by operating activities | 495 |
| | (48 | ) | | 971 |
| | (1,110 | ) | | 308 |
|
| Cash flows from investing activities: | | | | | | | | | |
| Purchase of property and equipment and capitalized software, net | — |
| | (23 | ) | | (520 | ) | | — |
| | (543 | ) |
| Other, net | — |
| | 47 |
| | 5 |
| | — |
| | 52 |
|
| Net cash provided (used) by investing activities | — |
| | 24 |
| | (515 | ) | | — |
| | (491 | ) |
| Cash flows from financing activities: | | | | | | | | | |
| Debt repaid, net of debt issued | — |
| | (122 | ) | | (1 | ) | | — |
| | (123 | ) |
| Dividends paid | (344 | ) | | — |
| | (1,110 | ) | | 1,110 |
| | (344 | ) |
Common stock acquired, net of
issuance of common stock | (199 | ) | | — |
| | — |
| | — |
| | (199 | ) |
| Proceeds from noncontrolling interest | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
| Intercompany activity, net | (642 | ) | | 158 |
| | 484 |
| | — |
| | — |
|
| Other, net | 9 |
| | (4 | ) | | 185 |
| | — |
| | 190 |
|
Net cash provided (used) by
financing activities | (1,176 | ) | | 32 |
| | (435 | ) | | 1,110 |
| | (469 | ) |
Net increase (decrease) in cash and
cash equivalents | (681 | ) | | 8 |
| | 21 |
| | — |
| | (652 | ) |
| Cash and cash equivalents at beginning of period | 741 |
| | 91 |
| | 277 |
| | — |
| | 1,109 |
|
| Cash and cash equivalents at end of period | $ | 60 |
| | $ | 99 |
| | $ | 298 |
| | $ | — |
| | $ | 457 |
|
Contents
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Item 2. | Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
For purposes of the following discussion, all references to "third"third quarter of 2017"2023" and "third"third quarter of 2016"2022" are to the Company's 13-week fiscal periods ended October 28, 20172023 and October 29, 2016, respectively,2022, respectively. References to "2023" and all references to "2017" and "2016""2022" are to the Company's 39-week fiscal periods ended October 28, 20172023 and October 29, 2016,2022, respectively.
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhereelsewhere in this report, as well as the financial and other information included in the 20162022 10-K. The following discussion contains forward-looking statements that reflect the Company's plans, estimates and beliefs. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed below and elsewhere in this report (particularly in "Risk Factors" and in "Forward-Looking Statements") and in the 20162022 10-K (particularly in "Risk Factors" and in "Forward-Looking Statements"). This discussion includes non-GAAPNon-GAAP financial measures. For information about these measures, see the disclosure under the caption "Important Information Regarding Non-GAAP Financial Measures".
Quarterly Overview
Certain financial highlights for the third quarter of 2023 as compared to the third quarter of 2022, unless otherwise specified, are as follows:
•Macy's, Inc. comparable sales declined 7.0% on pages 29an owned basis and declined 6.3% on an owned-plus-licensed basis.
◦Macy's comparable sales declined 7.6% on an owned basis and declined 6.7% on an owned-plus-licensed basis.
◦Bloomingdale's comparable sales declined 3.2% on an owned basis and declined 4.4% on an owned-plus-licensed basis.
◦Bluemercury comparable sales increased 2.5% on an owned basis.
•Digital sales decreased 7%. Digital penetration was 31% of net sales, which remained flat.
•Other revenues were $178 million, down $59 million.
•Gross margin rate was 40.3%, up 160 basis points.
•Selling, general and administrative ("SG&A") expense was $2,040 million, down $48 million. SG&A expense as a percent of total revenue was 40.5%, up 230 basis points.
•Net income was $43 million, compared to 31.net income of $108 million.
Overview•Earnings before interest, taxes, depreciation and amortization ("EBITDA") was $312 million compared to EBITDA of $392 million. On an adjusted basis, EBITDA was $334 million compared to $439 million.
•Diluted earnings per share was $0.15 compared to $0.39 and adjusted diluted earnings per share was $0.21 compared to $0.52.
•Merchandise inventories were down 6%.
During the third quarter of 2023, the Company continued to invest in its five growth vectors that represent strategic investments designed to target future long-term profitable sales growth:
•Macy's private brand reimagination - designed to drive customer loyalty, be a differentiator for the business, complement its national brands matrix and benefit gross margin. In August 2023, Macy's launched On 34th, its first new private brand under the reimagination, with a strong customer response. In September 2023, Macy's rolled out the next phase of I.N.C.'s refresh, further elevating the design strategy and fashion offering. Through 2025, the Company expects to refresh or replace all existing brands in its private brand portfolio, and plans to introduce four new private brands in total, including On 34th.
•Macy's and Bloomie's small formats - play an integral role in supporting the omnichannel ecosystem. The portfolio of small-format stores continues to generate year-over-year comparable owned plus licensed sales growth. From August 2023 through November 2023, the Company opened four additional Macy's small format locations and one additional Bloomie's location. This brings the total of Macy's small format stores to 12 and Bloomie's to three. The Company expects to open up to 30 additional Macy's small format locations through the Fall of 2025 and is an omnichannel retail organization operating stores, websitescommitted to expanding Bloomie's locations as well.
•Digital marketplace - extending Macy's and mobile applications under three brands (Macy's, Bloomingdale's category offerings with no inventory risk to deliver the best experience for customers and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods. The Company operates approximately 860 stores in 45 states, the District of Columbia, Guam and Puerto Rico.sellers. As of October 28, 2017, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage, bluemercury and Macy's China Limited. In addition, Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
The Company has begun the implementation of its North Star strategy to transform its omnichannel business and focus on key growth areas, embrace customer centricity, and optimize value in its real estate portfolio. Inspired by the North Star, there are five points to this strategy.
| |
1. | FromFamiliar to Favorite includes everything the Company does to further its brand awareness and identity to its core customers. Actions include understanding and anticipating customers’ needs, strengthening the Company's fashion authority and executing initiatives around its loyalty and pricing strategies.
|
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2. | It Must Be Macy’s encompasses delivering the products and experiences customers love and are exclusive to the Company. This includes styles and home fashion for every day and special occasions, from the Company's leading private brands, as well as exclusive national brands or assortments. It celebrates the Company's iconic events and includes strategies to appeal to more value-oriented customers.
|
| |
3. | Every Experience Matters, in-store and online. The Company's competitive advantage is the ability to combine the human touch in its physical stores with cutting-edge technology in its mobile applications and websites. Key to this point is the enhancement of a customer's experienceas they explore our stores, mobile applications and websites, find their favorite styles, sizes and colors, and receive their purchases through the shopping channels they prefer.
|
| |
4. | Funding our Future represents the decisions and actions the Company takes to identify and realize resourcesto fuel growth. This involves a focus on cost reduction and reinvestment as well as creating value from the Company's real estate portfolio.
|
| |
5. | What’s New, What’s Next explores and develops those innovations to turn consumer and technology trends to the Company's advantage and to drive growth. This includes exploring previously unmet customer needs and making smart investment decisions based on customer insights and analytics.
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The Company has taken a number of key steps over the past couple of years to position itself to successfully implement the North Star strategy. Specifically, the Company launched a new Star Rewards loyalty program in October 2017 focused on strengthening relationships with the Company's best customers, migrating existing customers to higher spending levels and attracting new or infrequent customers. The initial launch of the new program focused initially on proprietary cardholders with additional enhancements and expansion beyond proprietary cardholders planned for the future.
In August 2016, the Company announced its intention to close approximately 100 Macy’s stores, 74 of which were closed or announced to be closed by the end of the third quarter of 2017. Further,2023, the Macy's digital marketplace offered over 1,500 brands compared to 500 brands as of the end of the fourth quarter of 2022 and grew its gross merchandise value by approximately 22% on a consecutive quarter basis. The Company also launched a Bloomingdale's marketplace in January 2017,the second quarter of 2023 with 55 curated brands available at the end of the third quarter of 2023. Across both marketplaces, the Company announcedis experiencing healthy cross-shopping, resulting in higher average order value and increased units per order.
•Luxury - attracting and retaining luxury customers through differentiated products, services and experiences at Bloomingdale's, Bluemercury and beauty at Macy's. The Company views Bloomingdale’s as being strongly positioned for multi-branded, upscale retail. Bluemercury is establishing itself as a seriespremier destination for skincare with a leading assortment of actionscutting-edge dermatological products and services. The third quarter of 2023 marked Bluemercury's eleventh consecutive quarter of comparable sales growth, and active customer count on a trailing twelve-month basis increased 6%, driven primarily by new customers. Finally, Macy’s Beauty is an accessible luxury beauty destination with the power to streamlinescale elevated brands. The Company views its store portfolio, intensify cost efficiency effortspositioning and execute its real estate strategy. In addition,offerings across all three nameplates as a competitive advantage as the luxury market continues to grow.
•Personalized offers and communication - presents an opportunity to build loyalty, grow customer lifetime value and protect margins by creating tailored and intimate customer experiences. Digital and technology teams have been testing and learning throughout the year, including the recent launch of several multi-touch communications, which have shown positive signals. The Company has reorganized the field structure that supports the remaining stores and conducted a significant restructuring of the Company's central operationsanticipates to focus resources on strategic priorities and reduce expense.move from testing in 2023 to scaling in 2024.
Results of Operations
In August 2017, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter of 2023 | | Third Quarter of 2022 |
| Amount | | % to Net Sales | | % to Total Revenue | | Amount | | % to Net Sales | | % to Total Revenue |
| (dollars in millions, except per share figures) |
| Net sales | $ | 4,860 | | | | | | | $ | 5,230 | | | | | |
| Other revenue | 178 | | | 3.7 | % | | | | 237 | | | 4.5 | % | | |
| Total revenue | 5,038 | | | | | | | 5,467 | | | | | |
| Cost of sales | (2,902) | | | (59.7) | % | | | | (3,204) | | | (61.3) | % | | |
| Selling, general and administrative expenses | (2,040) | | | | | (40.5) | % | | (2,088) | | | | | (38.2) | % |
| Gains on sale of real estate | 5 | | | | | 0.1 | % | | 32 | | | | | 0.6 | % |
| Impairment, restructuring and other costs | (15) | | | | | (0.3) | % | | (15) | | | | | (0.3) | % |
| Operating income | 86 | | | | | 1.7 | % | | 192 | | | | | 3.5 | % |
| | | | | | | | | | | |
| Diluted earnings per share | $ | 0.15 | | | | | | | $ | 0.39 | | | | | |
| | | | | | | | | | | |
| Supplemental Financial Measures | | | | | | | | | | | |
| Gross margin (a) | $ | 1,958 | | | 40.3 | % | | | | $ | 2,026 | | | 38.7 | % | | |
| Digital sales as a percentage of net sales | 31 | % | | | | | | 31 | % | | | | |
| Decrease in comparable sales | (7.0) | % | | | | | | (3.1) | % | | | | |
| | | | | | | | | | | |
| Supplemental Non-GAAP Financial Measures | | | | | | | | | | | |
| Decrease in comparable sales on an owned-plus-licensed basis | (6.3) | % | | | | | | (2.7) | % | | | | |
| Adjusted diluted earnings per share | $ | 0.21 | | | | | | | $ | 0.52 | | | | | |
| EBITDA | $ | 312 | | | | | | | $ | 392 | | | | | |
| Adjusted EBITDA | $ | 334 | | | | | | | $ | 439 | | | | | |
(a)Gross margin is defined as net sales less cost of sales.
See pages 25 to 28 for reconciliations of the Company announced a restructuring which includedsupplemental non-GAAP financial measures to their most comparable GAAP financial measure and for other important information. Comparison of the consolidationThird Quarter of three functions (merchandising, planning2023 and private brands) into a single merchandising function. Duringthe Third Quarter of 2022
| | | | | | | | | | | | | | |
| | Third Quarter of 2023 | | Third Quarter of 2022 |
| Net sales | | $ | 4,860 | | | $ | 5,230 | |
| Decrease in comparable sales | | (7.0) | % | | (3.1) | % |
| Decrease in comparable sales on an owned-plus-licensed basis | | (6.3) | % | | (2.7) | % |
| Digital sales as a percent of net sales | | 31 | % | | 31 | % |
Net sales for the third quarter of 2017,2023 decreased for Macy’s and Bloomingdale’s, but grew for Bluemercury. During the Company recognized $33 million of costs primarily associated with this restructuring effortquarter, net sales were impacted by macroeconomic conditions as wellconsumer spending in discretionary categories continued to be under pressure as a restructuring withinexpected. Macy's experienced strength in categories that included beauty, particularly fragrances and prestige cosmetics, women's career sportswear, and men's tailored. Women's casual sportswear, big ticket, and handbag categories continued to underperform. Owned average unit retail ("AUR") increased 5.2% from the marketing function. Additional financial and operational impacts of such restructuring actions include future annual savings of approximately $38 million, some of which may be used for reinvestment in the business, and savings of approximately $.01 per diluted share in the fourththird quarter of 2017.2022 primarily driven by changes in product and category mix.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter of 2023 | | Third Quarter of 2022 |
| | $ | | % to Net Sales | | $ | | % to Net Sales |
| Credit card revenues, net | | $ | 142 | | | 2.9 | % | | $ | 206 | | | 3.9 | % |
| Macy's Media Network, net | | 36 | | | 0.7 | % | | 31 | | | 0.6 | % |
| Other revenue | | $ | 178 | | | 3.7 | % | | $ | 237 | | | 4.5 | % |
| | | | | | | | |
| Proprietary credit card sales penetration | | 44.2 | % | | | | 44.5 | % | | |
The Company’s real estate strategy is designed to create value through both monetizationdecrease in other revenues was primarily driven by a $64 million decrease in credit card revenues. This decrease was primarily driven by increased portfolio funding costs and redevelopment of certain assets:
In January 2016, the Company completed a $270higher estimated credit losses. Macy's Media Network grew $5 million, real estate transaction to recreate Macy's Brooklyn store. The Company continues to own and operate the first four floors and lower level of its existing nine-story retail store, which is currently being reconfigured and remodeled. The remaining portion of the store and its nearby parking facility were sold to Tishman Speyer in a single sales transaction. As the sales agreement required the Company to conduct certain redevelopment activities within the store, the Company is recognizing the gain on the transaction, approximately $250 million, under the percentage of completion method of accounting over the redevelopment period. Accordingly, $166 million has been recognized to-date, of which $117 million was recognized through fiscal 2016 and $49 million has been recognized during 2017.
In fiscal 2016, the Company had property and equipment sales, primarily related to real estate, totaling $673 million in cash proceeds and recognized real estate gains of $209 million. These proceeds include the cash receivedor 16% from the sale of the Company's 248,000 square-foot Union Square Men’s building in San Francisco for approximately $250 million in January 2017. The Company will use part of the proceeds to consolidate the Men’s store into its main Union Square store. The Company is leasing back the Men's store property as it completes the reconfiguration of the main store. The Company is expected to recognize a gain of approximately $235 million in January 2018.
In January 2017, the Company finalized the formation of a strategic alliance with Brookfield Asset Management, a leading global alternative asset manager, to create increased value in its real estate portfolio. Under the alliance, Brookfield has an exclusive right for up to 24 months to create a "pre-development plan" for each of approximately 50 Macy’s real estate assets, with an option for Macy’s to continue to identify and add assets into the alliance. The breadth of opportunity within the portfolio ranges from the additional development on a portion of an asset (such as a Company-controlled land parcel adjacent to a store) to the complete redevelopment of an existing store. Once a "pre-development plan" is created, the Company has the option to accept the "pre-development plan" and then either contribute the asset into a joint venture for the development plan to commence or sell the asset to Brookfield. If the Company chooses to contribute the asset into a joint venture, the Company may elect to participate as a funding or non-funding partner. After development, the joint venture may sell the asset and distribute proceeds accordingly. Based on the analysis conducted to date, preliminary indications point to a likelihood that Brookfield will recommend proceeding with redevelopment on roughly two thirds of the assets subject to the alliance.
In February 2017, the Company sold its downtown Minneapolis store and parking facility for $59 million of proceeds and recognized a gain of approximately $47 million in the firstthird quarter of 2017.2022.
In April 2017, the Company launched a marketing effort for the upper floors of its flagship State Street Macy's store in downtown Chicago. Development | | | | | | | | | | | | | | |
| | Third Quarter of 2023 | | Third Quarter of 2022 |
| Cost of sales | | $ | (2,902) | | | (3,204) | |
| As a percent to net sales | | 59.7 | % | | 61.3 | % |
| Gross margin | | $ | 1,958 | | | $ | 2,026 | |
| As a percent to net sales | | 40.3 | % | | 38.7 | % |
Gross margin rate and merchandise margin rate increased utilization of the upper floors are expected to drive more foot traffic to the store.
In May 2017, the Company signed a contract to sell an additional two floors of the downtown Seattle Macy's store; four floors were sold in a similar transaction in fiscal 2015. This transaction closed in September 2017 for approximately $50 million of proceeds160 basis points and the Company recognized a gain of approximately $40 million110 basis points, respectively, in the third quarter of 2017.
In 2017, the Company opened new Macy’s stores in Murray, UT and Los Angeles, CA as well as a Bloomingdale’s store in Kuwait under a license agreement with Al Tayer Group, LLC. The Company expects to open new Macy's and Bloomingdale's stores in Al Maryah Central in Abu Dhabi, UAE, in fiscal 2018 under a license agreement with Al Tayer Group, LLC and two additional Bloomingdale's stores in San Jose, CA and Norwalk, CT in fiscal 2019.
Both Macy's off-price business, Macy's Backstage, and its clearance strategy, Last Act, have been successful in providing unique value opportunities to both existing and new Macy's customers. The Company has rolled out Last Act to all families of business and is currently focused on opening new Macy's Backstage stores within existing Macy's store locations. In the third quarter of 2017, the Company opened 7 new Macy’s Backstage stores within existing Macy’s stores, bringing the total locations in operation to 52 (7 freestanding and 45 inside Macy's stores) as of October 28, 2017.
The Company is focused on accelerating the growth of its luxury beauty products and spa retailer, bluemercury, by opening additional freestanding bluemercury stores in urban and suburban markets, enhancing its online capabilities and adding bluemercury products and boutiques to Macy's stores. 8 new freestanding bluemercury locations were opened in the third quarter of 2017 and 3 additional locations are expected to open later in the fiscal year. As of October 28, 2017, the Company is operating 155 bluemercury locations (135 freestanding and 20 inside Macy's stores).
Results of Operations
Comparison of the Third Quarter of 2017 and the Third Quarter of 2016
|
| | | | | | | | | | | | | | | | | |
| | | Third Quarter of 2017 | | | Third Quarter of 2016 | | |
| | | Amount | | % to Sales | | | Amount | | % to Sales | | |
| | | (dollars in millions, except per share figures) |
| Net sales | | $ | 5,281 |
| | | | | $ | 5,626 |
| | | | |
| Decrease in sales | | (6.1 | ) | % | | | (4.2 | ) | % | | |
| Decrease in comparable sales | | (4.0 | ) | % | | | (3.3 | ) | % | | |
| Cost of sales | | (3,175 | ) | | (60.1 | ) | % | (3,386 | ) | | (60.2 | ) | % |
| Gross margin | | 2,106 |
| | 39.9 |
| % | 2,240 |
| | 39.8 |
| % |
| Selling, general and administrative expenses | | (1,995 | ) | | (37.8 | ) | % | (2,112 | ) | | (37.5 | ) | % |
| Gains on sale of real estate | | 65 |
| | 1.2 |
| % | 41 |
| | 0.7 |
| % |
| Restructuring and other costs | | (33 | ) | | (0.6 | ) | % | — |
| | — |
| % |
| Settlement charges | | (22 | ) | | (0.4 | ) | % | (62 | ) | | (1.1 | ) | % |
| Operating income | | 121 |
| | 2.3 |
| % | 107 |
| | 1.9 |
| % |
| Interest expense - net | | (74 | ) | | | | | (81 | ) | | | | |
| Income before income taxes | | 47 |
| | | | | 26 |
| | | | |
| Federal, state and local income tax expense | | (13 | ) | | | | | (11 | ) | | | | |
| Net income | | 34 |
| | | | 15 |
| | | |
| Net loss attributable to noncontrolling interest | | 2 |
| | | | | 2 |
| | | | |
| Net income attributable to Macy's, Inc. shareholders | | $ | 36 |
| | 0.7 |
| % | $ | 17 |
| | 0.3 |
| % |
| | | | | | | | | | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders | | $ | .12 |
| | | | | $ | .05 |
| | | | |
| | | | | | | | | | | | |
| Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of restructuring and other costs and settlement charges | | $ | .23 |
| | | | | $ | .17 |
| | | | |
Net Sales
Net sales for the third quarter of 2017 decreased $345 million or 6.1% compared to the third quarter of 2016 due to fiscal year-end 2016 store closures and the decline in comparable sales, which were negatively impacted by hurricane activity during the quarter and warmer than expected fall weather. The decrease in comparable sales on an owned basis for the third quarter of 2017 was 4.0%2023 compared to the third quarter of 2016.2022. The decreaseincrease in comparablemerchandise margin was primarily driven by lower permanent markdowns and improved inbound freight costs. Partially offsetting these benefits were anticipated changes in category mix, inclusive of the transitional impacts of the private brand reimagination as the Company exits brands, and an increase in estimated shortage due to a higher annual shortage rate. Delivery expense as a percent of net sales on an owned plus licenseddecreased 50 basis forpoints from the third quarter of 20172022 primarily reflecting improvements in merchandise allocation resulting in reductions in packages per order and distance traveled. Finally, inventory declined 6% year-over-year and trailing twelve-month inventory turn was 3.6% compared toup 1%, driven by the third quarter of 2016. Sales during the quarter were strongest in fine jewelry, fragrances, dresses, active apparel, men's tailored clothing, and shoes, excluding boots. Sales were weakest in cold weather businesses including coats, boots and winter accessories. Sales were also soft in home related businesses. The Company’s digital businessCompany's continued its strong growth with double digit gainsinventory discipline.
| | | | | | | | | | | | | | |
| | Third Quarter of 2023 | | Third Quarter of 2022 |
| SG&A expenses | | $ | (2,040) | | | $ | (2,088) | |
| As a percent to total revenue | | 40.5 | % | | 38.2 | % |
SG&A expenses decreased 2% in the third quarter of 2017. Geographically, regional trends were relatively consistent except for hurricane impacted areas. In addition, lower international tourism sales contributed2023 compared to the decline of sales in the third quarter of 2017 compared2022 due to the third quartereffective implementation of 2016.
Cost of Sales
cost saving initiatives and ongoing expense discipline. The cost of sales rateincrease in SG&A expenses as a percent to net sales for the third quarter of 2017 decreased to 60.1% compared to 60.2% fortotal revenue in the third quarter of 2016. This decrease in the cost of sales rate as a percent to net sales2023 was due to a decline in parttotal revenue compared to lower inventory levels at the end of the quarter, including less clearance merchandise subject to liquidation. The application of the last-in,
first-out ("LIFO") retail inventory method did not result in the recognition of any LIFO charges or credits affecting cost of sales in either period.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the third quarter of 2017 decreased $1172022.
| | | | | | | | | | | | | | |
| | Third Quarter of 2023 | | Third Quarter of 2022 |
| Settlement charges | | $ | (7) | | | $ | (32) | |
The Company recognized non-cash settlement charges of $7 million or 5.5% fromand $32 million during the third quarter of 2016. The SG&A rate as a percent to net sales of 37.8% was 30 basis points higher in2023 and the third quarter of 2017, as compared to the third quarter of 2016. SG&A expenses in the third quarter of 2017 included reduced expenses due to the year-end 2016 stores closures and the impact of restructuring activities. These reductions were partially offset by continued investments in digital growth, strategic initiatives in shoes and jewelry, and the expansion of Macy's Backstage and bluemercury. Income from credit operations was $161 million in the third quarter of 2017, a decrease of $4 million compared to $165 million recognized in the third quarter of 2016 in part due to lower proprietary credit card penetration. Income from credit operations excludes costs related to new account originations and fraudulent transactions incurred on the Company’s private label credit cards.
Gains on Sale of Real Estate
The third quarter of 2017 included asset sale gains of $65 million, including approximately $40 million related to the downtown Seattle Macy's location and $22 million related to the Macy's Brooklyn transaction. This compares to $41 million of asset sale gains recognized in the third quarter of 2016, inclusive of approximately $9 million related to the Macy's Brooklyn transaction and $32 million related to various asset sales to General Growth Properties.
Restructuring and Other Costs
Restructuring and other costs were $33 million for the third quarter of 2017 and include charges associated with severance activities as well as other human resource related costs associated with organizational restructuring. No such charges were recognized in the third quarter of 2016.
Settlement Charges
The third quarters of 2017 and 2016 included $22 million and $62 million,2022, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges which relate to the pro-rata recognition of net actuarial losses associated with the Company's Pension Plan and are the result of an increase in lump sum distributions associated with store closings, a voluntary separation program and organizational restructuring, and periodicthe retiree distribution activity.elections.
Net Interest Expense | | | | | | | | | | | | | | |
| | Third Quarter of 2023 | | Third Quarter of 2022 |
| Net interest expense | | $ | (35) | | | $ | (42) | |
NetThe decrease in net interest expense forin the third quarter of 2023 compared to the third quarter of 20172022 was primarily driven by an increase in interest income as well as a decrease in interest expense due to lower borrowings under the ABL Credit Facility.
| | | | | | | | | | | | | | |
| | Third Quarter of 2023 | | Third Quarter of 2022 |
| Effective tax rate | | 6.5 | % | | 13.6 | % |
| Federal income statutory rate | | 21 | % | | 21 | % |
Income tax expense decreased $7$14 million fromin the third quarter of 2023 compared to the third quarter of 20162022 due to lower income before income taxes. Additionally, the effective tax rates for both periods reflect a reduction in the Company's debt from $7.5 billion as of the end of the third quarter of 2016 to $6.3 billion as of the end of the third quarter of 2017. This reduction of approximately $1.2 billion is due to the maturity and repurchase of certain of the Company's borrowings.
Effective Tax Rate
The Company'sdifferent effective tax rate of 27.7% foras compared to the third quarter of 2017 and 42.3% for the third quarter of 2016 differ from the federalCompany’s Federal income tax statutory rate of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including the settlement of various tax issues and tax examinations.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for the third quarter of 2017 increased $19 million compared21% primarily due to the third quarterrecognition of 2016. The third quarter of 2017 included $21 million of after tax restructuring and other costs and $14 million of after tax retirement plan settlement charges, while the third quarter of 2016 included $37 million of after tax retirement plan settlement charges. The third quarter of 2017 also included higher gainsreturn-to-provision adjustments associated with the salefilings of real estatethe Company’s 2022 and 2021 U.S. Federal income tax returns during each respective period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 39 Weeks Ended October 28, 2023 | | 39 Weeks Ended October 29, 2022 |
| Amount | | % to Net Sales | | % to Total Revenue | | Amount | | % to Net Sales | | % to Total Revenue |
| (dollars in millions, except per share figures) | | |
| Net sales | $ | 14,972 | | | | | | | $ | 16,178 | | | | | |
| Other revenue | 519 | | | 3.5 | % | | | | 688 | | | 4.3 | % | | |
| Total revenue | 15,491 | | | | | | | 16,866 | | | | | |
| Cost of sales | (9,067) | | | (60.6) | % | | | | (9,856) | | | (60.9) | % | | |
| Selling, general and administrative expenses | (5,970) | | | | | (38.5) | % | | (6,005) | | | | | (35.6) | % |
| Gains on sale of real estate | 20 | | | | | 0.1 | % | | 74 | | | | | 0.4 | % |
| Impairment, restructuring and other costs | (21) | | | | | (0.1) | % | | (25) | | | | | (0.1) | % |
| Operating income | $ | 453 | | | | | 2.9 | % | | $ | 1,054 | | | | | 6.2 | % |
| | | | | | | | | | | |
| Diluted earnings per share | $ | 0.63 | | | | | | | $ | 2.37 | | | | | |
| | | | | | | | | | | |
| Supplemental Financial Measures | | | | | | | | | | | |
| Gross margin (a) | $ | 5,905 | | | 39.4 | % | | | | $ | 6,322 | | | 39.1 | % | | |
| Digital sales as a percentage of net sales | 31 | % | | | | | | 31 | % | | | | |
| Increase (decrease) in comparable sales | (7.7) | % | | | | | | 2.3 | % | | | | |
| | | | | | | | | | | |
| Supplemental Non-GAAP Financial Measures | | | | | | | | | | | |
| Increase (decrease) in comparable sales on an owned-plus-licensed basis | (6.9) | % | | | | | | 2.3 | % | | | | |
| Adjusted diluted earnings per share | $ | 1.03 | | | | | | | $ | 2.60 | | | | | |
| EBITDA | $ | 999 | | | | | | | $ | 1,681 | | | | | |
| Adjusted EBITDA | $ | 1,149 | | | | | | | $ | 1,738 | | | | | |
(b)Gross margin is defined as well as lower SG&A, interest expense and a lower effective tax rate. These favorable results were partially offset by lower net sales inless cost of sales.
See pages 25 to 28 for reconciliations of the third quartersupplemental non-GAAP financial measures to their most comparable GAAP financial measure and for other important information.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for the third quarter of 2017 increased $.07 compared to the third quarter of 2016, reflecting higher net income. Excluding the impact of restructuring and other costs and settlement charges, diluted earnings per share for the third quarter of 2017 increased $.06 or 35.3% compared to the third quarter of 2016.
Comparison of the 39 Weeks Ended October 28, 20172023 and October 29, 20162022
|
| | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | |
| | | Amount | | % to Sales | | | Amount | | % to Sales | | |
| | | (dollars in millions, except per share figures) |
| Net sales | | $ | 16,171 |
| | | | | $ | 17,263 |
| | | | |
| Decrease in sales | | (6.3 | ) | % | | | (5.2 | ) | % | | |
| Decrease in comparable sales | | (4.0 | ) | % | | | (4.0 | ) | % | | |
| Cost of sales | | (9,794 | ) | | (60.6 | ) | % | (10,370 | ) | | (60.1 | ) | % |
| Gross margin | | 6,377 |
| | 39.4 |
| % | 6,893 |
| | 39.9 |
| % |
| Selling, general and administrative expenses | | (5,853 | ) | | (36.1 | ) | % | (6,139 | ) | | (35.5 | ) | % |
| Gains on sale of real estate | | 176 |
| | 1.1 |
| % | 76 |
| | 0.4 |
| % |
| Impairments, restructuring and other costs | | (33 | ) | | (0.2 | ) | % | (249 | ) | | (1.4 | ) | % |
| Settlement charges | | (73 | ) | | (0.5 | ) | % | (81 | ) | | (0.5 | ) | % |
| Operating income | | 594 |
| | 3.7 |
| % | 500 |
| | 2.9 |
| % |
| Interest expense - net | | (237 | ) | | | | | (276 | ) | | | | |
| Net premiums on early retirement of debt | | (1 | ) | | | | | — |
| | | | |
| Income before income taxes | | 356 |
| | | | | 224 |
| | | | |
| Federal, state and local income tax expense | | (140 | ) | | | | | (85 | ) | | | | |
| Net income | | 216 |
| | | | 139 |
| | | |
| Net loss attributable to noncontrolling interest | | 6 |
| | | | | 5 |
| | | | |
| Net income attributable to Macy's, Inc. shareholders | | $ | 222 |
| | 1.4 |
| % | $ | 144 |
| | 0.8 |
| % |
| | | | | | | | | | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders | | $ | .73 |
| | | | | $ | .46 |
| | | | |
| | | | | | | | | | | | |
| Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of impairments, restructuring and other costs, settlement charges and net premiums on early retirement of debt | | $ | .95 |
| | | | | $ | 1.11 |
| | | | |
Net Sales | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Net sales | | $ | 14,972 | | | $ | 16,178 | |
| Increase (decrease) in comparable sales | | (7.7) | % | | 2.3 | % |
| Increase (decrease) in comparable sales on an owned-plus-licensed basis | | (6.9) | % | | 2.3 | % |
| Digital sales as a percent of net sales | | 31 | % | | 31 | % |
Net sales for 20172023 decreased $1,092 million or 6.3%for Macy’s and Bloomingdale’s but improved for Bluemercury as compared to 20162022. Net sales were impacted by macroeconomic conditions as consumer spending in discretionary categories continued to be under pressure as expected. Macy's experienced strength in categories that included beauty, particularly fragrances and prestige cosmetics, women's career sportswear, and men’s tailored. Categories such as women's casual sportswear, active, and big ticket underperformed the prior year. Owned AUR increased 4.9% compared to 2022 due to fiscal year-end 2016 store closuresticket increases and the decline in comparable sales. category mix.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| | $ | | % to Net Sales | | $ | | % to Net Sales |
| Credit card revenues, net | | $ | 424 | | | 2.8 | % | | $ | 601 | | | 3.7 | % |
| Macy's Media Network, net | | 95 | | | 0.6 | % | | 87 | | | 0.5 | % |
| Other revenue | | $ | 519 | | | 3.5 | % | | $ | 688 | | | 4.3 | % |
| | | | | | | | |
| Proprietary credit card sales penetration | | 43.6 | % | | | | 43.6 | % | | |
The decrease in comparable sales on an owned basis for 2017other revenues was 4.0%driven by a $177 million decrease in credit card revenues. This decrease was primarily driven by increased portfolio funding costs and higher estimated credit losses. Macy's Media Network grew $8 million, or 9%, compared to 2016.2022.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Cost of sales | | $ | (9,067) | | | $ | (9,856) | |
| As a percent to net sales | | 60.6 | % | | 60.9 | % |
| Gross margin | | $ | 5,905 | | | $ | 6,322 | |
| As a percent to net sales | | 39.4 | % | | 39.1 | % |
Gross margin rate increased 30 basis points and merchandise margin rate decreased approximately 20 basis points, respectively, in 2023 compared to 2022. The decrease in comparablemerchandise margin was primarily driven by planned changes in Macy’s category mix, partially offset by lower permanent markdowns. Delivery expense as a percent of net sales on an owned plus licenseddecreased 50 basis for 2017 was 3.6%points from 2022 primarily due to improved carrier rates from contract renegotiations and improvements in merchandise allocation resulting in reductions in packages per order and distance traveled. Inventory declined 6% year-over-year driven by the Company's continued inventory discipline.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| SG&A expenses | | $ | (5,970) | | | $ | (6,005) | |
| As a percent to total revenue | | 38.5 | % | | 35.6 | % |
SG&A expenses decreased less than 1% in 2023 compared to 2016. Sales during 2017 were strongest2022 due to effective implementation of cost saving initiatives and ongoing expense discipline. The increase in active apparel, fine jewelry, fragrances, furniture/mattresses and women's shoes. Sales were weaker in housewares and tabletop. The Company’s digital business continued its strong growth at both macys.com and bloomingdales.com. Geographically, the Company’s strongest business was in the Southwest region.
Cost of Sales
The cost of sales rateSG&A expenses as a percent to net sales for 2017 increasedtotal revenue in 2023 was due to 60.6%a decline in total revenue compared to 60.1% for 2016. The increase2022.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Gains on sale of real estate | | $ | 20 | | | $ | 74 | |
Asset sale gains in 2023 mainly relate to the sale of the Company's Cheshire distribution center in the costfirst quarter of sales rate as a percent to net sales was due in part to high year-end inventory levels as well as margin pressures in2023 along with the beauty business and home related businesses. The applicationsale of the LIFO retail inventory method did not result in the recognitiontwo other properties, while 2022 mainly consisted of any LIFO charges or credits affecting cost of sales in either period.
Selling, General and Administrative Expenses
SG&A expenses for 2017 decreased $286 million or 4.7% from 2016. The SG&A rate as a percent to net sales of 36.1% was 60 basis points higher in 2017 as compared to 2016. SG&A expenses in 2017 included reduced expensesgains from the year-end 2016 stores closures and the impactsale of restructuring activities, partially offset by investments in digital growth, strategic initiatives in shoes and jewelry, and initiatives at bluemercury and Macy's Backstage. Income from credit operations was $524 million in 2017, compared to $528 million in 2016. Income from credit operations excludes costs related to new account originations and fraudulent transactions incurred on the Company’s private label credit cards.
four properties.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Impairment, restructuring and other costs | | $ | (21) | | | $ | (25) | |
Gains on Sale of Real Estate
2017 included asset sale gains of $176 million, including $47 million related to the downtown Minneapolis property, $49 million related to the Macy's Brooklyn transaction, and $40 million related to the downtown Seattle Macy's location. This compares to $76 million of asset sale gains recognized in 2016, inclusive of approximately $24 million related to the Macy's Brooklyn transaction and $32 million related to various asset sales to General Growth Properties.
Impairments, Restructuring and Other Costs
Impairments,Impairment, restructuring and other costs in 2023 were primarily related to employee severance and asset impairments while in 2022, these charges were primarily related to the write-off of $33 million for 2017 and $249 million for 2016 include charges associated with store closings and severance activities as well as other human resource related costs associated with organizational restructuring.capital software assets.
Settlement Charges | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Settlement charges | | $ | (129) | | | $ | (32) | |
2017 and 2016 included $73 million and $81 million, respectively, ofDuring 2023, the Company recognized a non-cash settlement charges relating tocharge of $129 million associated primarily with the Company's defined benefit plans. These charges relate totransfer of fully funded pension obligations for certain retirees and beneficiaries through the pro-rata recognitionpurchase of net actuarial losses and area group annuity contract with an insurance company, which occurred in the resultsecond quarter of 2023. In 2022, the Company recognized a non-cash settlement charge of $32 million primarily driven by an increase in lump sum distributions associated with store closings, a voluntary separation program and organizational restructuring, and periodicretiree distribution activity.elections.
Net Interest Expense | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Net interest expense | | $ | (108) | | | $ | (131) | |
NetThe decrease in net interest expense for 2017 decreased $39 million from 2016in 2023 compared to 2022 was driven by an increase in interest income and interest savings associated with the financing activities completed in the first quarter of 2022 as well as lower ABL Credit Facility borrowings in 2023 compared to 2022.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Losses on early retirement of debt | | $ | — | | | $ | (31) | |
In 2022, losses on early retirement of debt were recognized due to a reduction in the Company's debt as discussed previously within the quarterly review.
Net Premiums on Early Retirementearly payment of Debt
The Company repurchased approximately $247 million face value of $1.1 billion senior notes and debentures in 2017. The debt repurchases were made in the open market for a total cash cost of approximately $257 million, including expenses related to the transactions. As a result of the debt repurchases, the Company recognized $1March 2022.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Effective tax rate | | 22.6 | % | | 24.2 | % |
| Federal income statutory rate | | 21 | % | | 21 | % |
Income tax expense decreased $162 million in expenses2023 compared to 2022 due to lower income before income taxes. Additionally, the effective tax rates in 2023 and fees net of premiums on acquired debt in 2017.
Effective Tax Rate
The Company's2022 were 22.6% and 24.2%, respectively, and reflect a different effective tax rate of 39.3% for 2017 and 37.9% for 2016 differ fromas compared to the federalCompany’s Federal income tax statutory rate of 35%, and on a comparative basis, principally because of21% primarily due to the effectimpact of state and local income taxes, including the settlement of various tax issues and tax examinations as well as the recognition of approximately $12 million of net tax deficiencies in 2017 associated with share-based payment awards due to the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. Historically, the Company had recognized such amounts as an offset to accumulated excess tax benefits previously recognized in additional paid-in capital.taxes.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for 2017 increased $78 million or 54.2% compared to 2016. The increase from 2017 to 2016 is primarily attributable to higher asset sale gains in 2017 as well as the fact that 2016 included $152 million of after tax impairments, restructuring and other costs compared to $21 million of after tax restructuring and other costs in 2017. These favorable changes as well as lower SG&A, retirement plan settlement charges and interest expense were partially offset by lower net sales and gross margin in 2017.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for 2017 increased $.27 or 58.7% compared to 2016, reflecting higher net income. Excluding the impact of impairments, restructuring and other costs, settlement charges, and the net premiums on the early retirement of debt, diluted earnings per share for 2017 decreased $.16 or 14.4% compared to 2016.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the ABL Credit Facility (as defined below). Material contractual obligations arising in the normal course of business primarily consist of long-term debt and related interest payments, lease obligations, merchandise purchase obligations, retirement plan benefits, and self-insurance reserves. The Company believes that, assuming no change in its current business plan, its available cash, together with expected future cash generated from operations, the amount available under the ABL Credit Facility, and credit facility described below.available in the market, will be sufficient to satisfy its anticipated needs for working capital, capital expenditures, and cash dividends for at least the next twelve months and the foreseeable future thereafter.
Operating Activities
Net cash provided by operating activities in 2017 was $389 million, compared to $308 million provided in 2016, primarily due to lower cash outflows for merchandise inventories, net ofMerchandise purchase obligations represent future merchandise payables resultingfor inventory purchased from lower inventory levels as of October 28, 2017 comparedvarious suppliers through contractual arrangements and are expected to October 29, 2016. These lowerbe funded through cash outflows offset other negative cash flow items including lower salesfrom operations.
Capital Allocation
The Company's capital allocation goals include maintaining a healthy balance sheet and higher income taxes paid in 2017.
Investing Activities
Net cash usedinvestment-grade credit metrics, followed by investing activities was $346in growth initiatives and returning capital to shareholders through predictable dividends and share repurchases with excess cash.
The Company ended the third quarter of 2023 with a cash and cash equivalents balance of $364 million, in 2017, compared to net cash used by investing activities an increase of $491 million in 2016. Investing activities for 2017 include purchases of property and equipment totaling $359 million and capitalized software of $191 million, compared to purchases of property and equipment totaling $451 million and capitalized software of $230 million in 2016. Additionally, the Company received cash of $212$38 million from $326 million at the dispositionend of property and equipment in 2017, primarily related to real estate transactions, as compared to $138 million received in 2016.
Financing Activities
Net cash used by the Company for financing activities was $806 million for 2017, including debt payments of $554 million and payment of $346 million of cash dividends. These cash outflows were partially offset by an increase in outstanding checks of $80 million. For 2017, the Company repurchased approximately $247 million face value of senior notes and debentures. During the secondthird quarter of 2017, the Company repaid at maturity $300 million of 7.45% senior debentures due July 2017.
Net cash used by the Company for financing activities was $469 million for 2016, including payment of $344 million of cash dividends, $230 million for the acquisition of the Company's common stock, primarily under its share repurchase program, and repayment of $174 million of debt. These outflows were partially offset by $31 million from the issuance of common stock, primarily related to the exercise of stock options.
On November 27, 2017, the Company commenced a cash tender offer ("tender offer") to purchase up to $400 million in aggregate principal amount of certain senior unsecured notes and debentures, with stated interest rates ranging from 6.375% to 10.25% and maturities ranging from fiscal years 2021 to 2037. The tender offer expires on December 22, 2017, with an early tender date on December 8, 2017. The Company expects to record the redemption premium and other costs related to these repurchases as net premiums on early retirement of debt on the Consolidated Statements of Income during the fourth quarter of 2017.
2022. The Company is party to a credit agreementthe ABL Credit Facility with certain financial institutions providing for revolvinga $3,000 million asset-based credit borrowingsfacility.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Net cash provided by operating activities | | $ | 158 | | | $ | 488 | |
| Net cash used by investing activities | | (716) | | | (869) | |
| Net cash provided (used) by financing activities | | 60 | | | (1,005) | |
Operating Activities
The decrease in net cash provided by operating activities was primarily driven by lower earnings before depreciation and lettersamortization.
Investing Activities
The Company's capital expenditures were $749 million in 2023 compared to $983 million in 2022. Capital expenditures in the current year are primarily focused on digital and technology investments, data and analytics, supply chain modernization and omni-channel capabilities. The Company's proceeds from asset dispositions were also $86 million lower in 2023 compared to 2022.
Financing Activities
Dividends
The Company paid dividends totaling $135 million and $130 million in 2023 and 2022, respectively. The Board of credit in an aggregate amount notDirectors declared regular quarterly dividends of 16.54 cents per share on the Company's common stock, which were paid on April 3, 2023, July 3, 2023 and October 2, 2023, respectively to exceed $1,500 million (which may be increased to $1,750 millionMacy's shareholders of record at the optionclose of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing) outstanding at any particular time. The agreement is set to expire May 6, 2021. As of October 28, 2017, the Company did not have any borrowings or letters of credit outstanding under its credit facility.
The Company is party to a $1,500 million unsecured commercial paper program. The Company may issuebusiness on March 15, 2023, June 15, 2023 and sell commercial paper in an aggregate amount outstanding at any particular time not to exceed its then-current combined borrowing availability under its bank credit agreement. As of October 28, 2017, the Company did not have any borrowings outstanding under its commercial paper program.
As of October 28, 2017 the Company was required to maintain a specified interest coverage ratio for the latest four quarters of no less than 3.25 and a specified leverage ratio as of and for the latest four quarters of no more than 3.75 under the credit agreement. The Company's interest coverage ratio for the third quarter of 2017 was 7.92 and its leverage ratio at October 28, 2017 was 2.36, in each case as calculated in accordance with the credit agreement.September 15, 2023, respectively.
On October 27, 2017,2023, the Company announced that theits Board of Directors declared a regular quarterly dividend of 37.7516.54 cents per share on its common stock, payablewhich will be paid on January 2, 2018,2024, to Macy's shareholders of record at the close of business on December 15, 2017.2023. Subsequent dividends will be subject to approval of the Board of Directors, which will depend on market and other conditions.
Stock Repurchases
On February 22, 2022, the Board of Directors authorized a new $2,000 million share repurchase program, which does not have an expiration date. During the first quarter of 2023, the Company repurchased approximately 1.4 million shares of its common stock at an average cost of $17.57 per share on the open market under its share repurchase program. As of October 28, 2023, $1,375 million remained available under the authorization. The Company did not repurchase any shares of its common stock during the second and third quarters of 2023. Repurchases may be made from time to time in the open market or through privately negotiated transactions in accordance with applicable securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, on terms determined by the Company. During the first quarter of 2023, the Company also withheld approximately $12 million of shares for tax purposes associated with the issuance of certain stock awards.
Debt Transactions
As of October 28, 2023 and October 29, 2022, the Company had $138 million and $65 million of standby letters of credit outstanding under its ABL Credit Facility, respectively, which reduced the available borrowing capacity to $2,862 million and $2,935 million respectively. The Company had $160 million and $183 million of outstanding borrowings under the ABL Credit Facility as of October 28, 2023 and October 29, 2022, respectively.
Contractual Obligations
As of October 28, 2023, other than the financing transactions discussed in Note 4 to the accompanying Consolidated Financial Statements, there were no material changes to the Company's contractual obligations and commitments outside the ordinary course of business since January 28, 2023, as reported in the Company's 2022 Form 10-K.
Guarantor Summarized Financial Information
Capital Resources
Management believesThe Company had $3,007 million aggregate principal amount of senior unsecured notes and senior unsecured debentures (collectively the "Unsecured Notes") outstanding as of both October 28, 2023 and January 28, 2023 with maturities ranging from 2025 to 2043. The Unsecured Notes constitute debt obligations of Macy's Retail Holdings, LLC ("MRH" or "Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent" and together with the "Subsidiary Issuer," the "Obligor Group"), and are fully and unconditionally guaranteed on a senior unsecured basis by Parent. The Unsecured Notes rank equally in right of payment with all of the Company's existing and future senior unsecured obligations, senior to any of the Company's future subordinated indebtedness, and are structurally subordinated to all existing and future obligations of each of the Company's subsidiaries that with respectdo not guarantee the Unsecured Notes. Holders of the Company's secured indebtedness, including any borrowings under the ABL Credit Facility, will have a priority claim on the assets that secure such secured indebtedness; therefore, the Unsecured Notes and the related guarantees are effectively subordinated to all of the Subsidiary Issuer's and Parent and their subsidiaries’ existing and future secured indebtedness to the Company's current operations, cash on handextent of the value of the collateral securing such indebtedness.
The following tables include combined financial information of the Obligor Group. Investments in subsidiaries of $8,462 million and funds$9,146 million as of October 28, 2023 and January 28, 2023, respectively, have been excluded from operations, together with its credit facilitythe Summarized Balance Sheets. Equity in earnings of non-Guarantor subsidiaries of $472 million and other capital resources, will be sufficient to cover the Company's reasonably foreseeable working capital, capital expenditure and debt service requirements and other cash requirements in both the near term and over the longer term. The Company's ability to generate funds from operations may be affected by numerous factors, including general economic conditions and levels of consumer confidence and demand; however, the Company expects to be able to manage its working capital levels and capital expenditure amounts so as to maintain sufficient levels of liquidity. To the extent that the Company's cash balances from time to time exceed amounts that are needed to fund its immediate liquidity requirements, the Company will consider alternative uses of some or all of such excess cash. Such alternative uses may include, among others, the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations. Depending upon its actual and anticipated sources and uses of liquidity, conditions in the capital markets and other factors, the Company will from time to time consider the issuance of debt or other securities, or other possible capital markets transactions,$1,180 million for the purpose13 and 39 weeks ended October 28, 2023, have been excluded from the Summarized Statement of raising capital which could be used to refinance current indebtedness or for other corporate purposes, including the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations.
Operations. The Company intends from time to time to consider additional acquisitions of, and investments in, retail businesses and other complementary assets and companies. Acquisition transactions, if any, are expected to be financed from one or morecombined financial information of the following sources: cashObligor Group is presented on hand, casha combined basis with intercompany balances and transactions within the Obligor Group eliminated.
Summarized Balance Sheets
| | | | | | | | | | | |
| October 28, 2023 | | January 28, 2023 |
| (in millions) |
| ASSETS |
| Current Assets | $ | 1,098 | | | $ | 1,154 | |
| Noncurrent Assets | 7,402 | | | 8,261 | |
| LIABILITIES |
| Current Liabilities | $ | 1,794 | | | $ | 1,958 | |
| Noncurrent Liabilities (a) | 11,019 | | | 12,517 | |
(a)Includes net amounts due to non-Guarantor subsidiaries of $5,753 million and $6,784 million as of October 28, 2023 and January 28, 2023, respectively.
Summarized Statement of Operations
| | | | | | | | | | | |
| 13 Weeks Ended
October 28, 2023 | | 39 Weeks Ended
October 28, 2023 |
| (in millions) |
| Net sales | $ | 183 | | | $ | 626 | |
| Consignment commission income (a) | 771 | | | 2,361 | |
| Other revenue | 37 | | | 96 | |
| Cost of sales | (87) | | | (299) | |
| Operating loss | (380) | | | (936) | |
| Loss before income taxes (b) | (320) | | | (530) | |
| Net loss | (299) | | | (305) | |
(a)Income pertains to transactions with ABL Borrower, a non-Guarantor subsidiary.
(b)Includes $130 million and $700 million of dividend income from operations, borrowings under existing or new credit facilitiesnon-Guarantor subsidiaries for the 13 and the issuance39 weeks ended October 28, 2023, respectively.
Outlook and Recent Developments
The Company's operations are impacted by competitive pressures from department stores, off-price stores, specialty stores, mass merchandisers, online retailers and all other retail channels. The Company's operations are also impacted by general consumer spending levels, including the impact of general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods and the effects of weather or natural disasters and other factors over whichOn November 16, 2023, the Company has little or no control.updated its annual 2023 guidance as follows:
In recent years, consumer spending levels have been affected to varying degrees by a number of factors, including modest economic growth, uncertainty regarding governmental spending and tax policies, unemployment levels, tightened consumer credit, an improving housing market and a fluctuating stock market. In addition, consumer spending levels of international customers are impacted by the strength of the U.S. dollar relative to foreign currencies. These factors have affected, to varying degrees, the amount of funds that consumers are willing and able to spend for discretionary purchases, including purchases of some of the merchandise offered by the Company.
All economic conditions ultimately affect the Company's overall operations. However, the effects of economic conditions can be experienced differently and at different times, in the various geographic regions in which the Company operates, in relation to the different types of merchandise that the Company offers for sale, or in relation to each of the Company's branded operations.
On November 9, 2017, the Company issued a press release to report its preliminary earnings for the third quarter of 2017 and reaffirmed its previously provided guidance for fiscal 2017. In summary, the Company expects comparable sales on an owned basis to decline between 2.2 percent and 3.3 percent, with comparable sales on an owned plus licensed basis to decline between 2.0 percent and 3.0 percent. Total•Net sales are expected to be down between 3.2 percent$22.9 billion and 4.3 percent in fiscal 2017. Total$23.2 billion;
•Comparable sales for fiscal 2017 reflect a 53rd week, whereas comparable sales are on a 52-week basis. As previously announced in August 2017, the Company expects a 1 cent increase in adjusted earnings per diluted share due to the restructuring of the merchandising operations. The Company now expects adjusted earnings per diluted share of between $3.38 and $3.63 in fiscal 2017, excluding the impact of the anticipated settlement charges, restructuring and other costs and net premiums and fees associated with debt repurchases. Excluding the impact of the anticipated fourth quarter gain on the sale of the Union Square Men’s building in San Francisco and the anticipated settlement charges, restructuring and other costs and net premiums and fees associated with debt repurchases, adjusted earnings per diluted share of $2.91 to $3.16owned-plus-licensed basis are expected in fiscal 2017.to be down approximately 7% to 6% as compared to 2022;
•Other revenues are expected to be approximately 3.2% of net sales and credit card revenues are expected to account for approximately 81% of other revenue;
•Gross margin rate is expected to be between 38.4% and 38.5%;
•SG&A expense as a percent of total revenue and as a percent of net sales is expected to be approximately 35.2% to 35.5% and 36.4% to 36.6%, respectively;
•Asset sale gains are expected to be approximately $45 million;
•Benefit plan income is expected to be approximately $11 million;
MACY'S, INC.
•Depreciation and amortization is expected to be approximately $895 million;
•Adjusted EBITDA as a percent of total revenue and as a percent of net sales is expected to be approximately 8.9% to 9.1% and 9.1% to 9.4%, respectively;
•Interest expense is expected to be approximately $140 million;
•Diluted shares outstanding is expected to be approximately 278 million; and,
•Adjusted diluted EPS is expected to be between $2.88 and $3.13.
Important Information Regarding Non-GAAP Financial Measures
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP financial measures provide users of the Company's financial information with additional useful information in evaluating operating performance. Management believes that providing supplemental changes in comparable sales on an owned plus licensedowned-plus-licensed basis, which includes the impact of growth in comparable sales of departments licensed to third parties, assists in evaluating the Company's ability to generate sales growth, whether through owned businesses or departments licensed to third parties, on a comparable basis, and in evaluating the impact of changes in the manner in which certain departments are operated. Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP financial measure which the Company believes provides meaningful information about its operational efficiency by excluding the impact of changes in tax law and structure, debt levels and capital investment. In addition, management believes that excluding certain items from diluted earnings per share attributable to Macy's, Inc. shareholders that are no longernot associated with the Company’sCompany's core operations and that may vary substantially in frequency and magnitude from period-to-period providesfrom net income, diluted earnings per share attributable to Macy's, Inc. shareholders and EBITDA provide useful supplemental measures that assist in evaluating the Company's ability to generate earnings and leverage sales, respectively, and to more readily compare these metrics between past and future periods. Management also believes that EBITDA and Adjusted EBITDA are frequently used by investors and securities analysts in their evaluations of companies, and that such supplemental measures facilitate comparisons between companies that have different capital and financing structures and/or tax rates. The Company uses certain non-GAAP financial measures as performance measures for components of executive compensation.
The reconciliationCompany does not provide reconciliations of the forward-looking non-GAAP financial measuremeasures of changes in comparable sales on an owned plus licensed basissales change, adjusted EBITDA as a percent of total revenue and as a percent to GAAP comparablenet sales (i.e., on an owned basis) is in the same manner as illustrated below, where the impact of growth in comparable sales of departments licensedand adjusted diluted earnings per share to third parties is the only reconciling item. In addition, the Company does not provide the most directly comparable forward-looking GAAP measure of diluted earnings per share attributable to Macy’s, Inc. shareholders excluding certain itemsmeasures because the timing and amount of excluded items (e.g., impairments, restructuring and other costs, retirement plan settlement charges and net premiums on the early retirement of debt) are unreasonably difficult to fully and accurately estimate. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could be material to future results.
Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the Company's financial results prepared in accordance with GAAP. Certain of the items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the Company's financial position, results of operations or cash flows and should therefore be considered in assessing the Company's actual and future financial condition and performance. Additionally, the amounts received by the Company on account of sales of departments licensed to third parties are limited to commissions received on such sales. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.
ChangeChanges in Comparable Sales
The following is a tabular reconciliation of the non-GAAP financial measure of changes in comparable sales on an owned plus licensedowned-plus-licensed basis, to GAAP comparable sales (i.e., on an owned basis), which the Company believes to be the most directly comparable GAAP financial measure.
| | | | | | | | | | | | | | | | | |
| 13 Weeks Ended October 28, 2023 vs. 13 Weeks Ended October 29, 2022 |
| Macy's, Inc. | | Macy's | | Bloomingdale's |
| Decrease in comparable sales on an owned basis (Note 1) | (7.0 | %) | | (7.6 | %) | | (3.2 | %) |
| Impact of departments licensed to third parties (Note 2) | 0.7 | % | | 0.9 | % | | (1.2 | %) |
| Decrease in comparable sales on an owned-plus-licensed basis | (6.3 | %) | | (6.7 | %) | | (4.4 | %) |
|
| | | | | | |
| | | Third Quarter of 2017 | | Third Quarter of 2016 |
| | | | | |
| Decrease in comparable sales on an owned basis (note 1) | | (4.0 | )% | | (3.3 | )% |
| Impact of growth in comparable sales of departments licensed to third parties (note 2) | | 0.4 | % | | 0.6 | % |
| Decrease in comparable sales on an owned plus licensed basis | | (3.6 | )% | | (2.7 | )% |
| | | | | | | | | | | | | | | | | |
| 39 Weeks Ended October 28, 2023 vs. 39 Weeks Ended October 29, 2022 |
| Macy's, Inc. | | Macy's | | Bloomingdale's |
| Decrease in comparable sales on an owned basis (Note 1) | (7.7 | %) | | (8.5 | %) | | (3.3 | %) |
| Impact of departments licensed to third parties (Note 2) | 0.8 | % | | 0.9 | % | | (0.5 | %) |
| Decrease in comparable sales on an owned-plus-licensed basis | (6.9 | %) | | (7.6 | %) | | (3.8 | %) |
|
| | | | | | |
| | | 2017 | | 2016 |
| | | | | |
| Decrease in comparable sales on an owned basis (note 1) | | (4.0 | )% | | (4.0 | )% |
| Impact of growth in comparable sales of departments licensed to third parties (note 2) | | 0.4 | % | | 0.5 | % |
| Decrease in comparable sales on an owned plus licensed basis | | (3.6 | )% | | (3.5 | )% |
| | | | | | | | | | | |
| Macy's, Inc. |
| 13 Weeks Ended October 29, 2022 vs. 13 Weeks Ended October 30, 2021 | | 39 Weeks Ended October 29, 2022 vs. 39 Weeks Ended October 30, 2021 |
| Decrease in comparable sales on an owned basis (Note 1) | (3.1 | %) | | 2.3 | % |
| Impact of departments licensed to third parties (Note 2) | 0.4 | % | | (0.2 | %) |
| Decrease in comparable sales on an owned-plus-licensed basis | (2.7 | %) | | 2.3 | % |
Notes:
| |
(1) | Represents the period-to-period percentage change in net sales from stores in operation throughout the year presented and the immediately preceding year and all online sales, excluding commissions from departments licensed to third parties. Stores undergoing remodeling, expansion or relocation remain in the comparable sales calculation unless the store is closed for a significant period of time. Definitions and calculations of comparable sales differ among companies in the retail industry. |
| |
(2) | Represents the impact of including the sales of departments licensed to third parties occurring in stores in operation throughout the year presented and the immediately preceding year and all online sales in the calculation of comparable sales. The Company licenses third parties to operate certain departments in its stores and online and receives commissions from these third parties based on a percentage of their net sales. In its financial statements prepared in conformity with GAAP, the Company includes these commissions (rather than the sales of the departments licensed to third parties) in its net sales. The Company does not, however, include any amounts with respect to licensed department sales (or any commissions earned on such sales) in its comparable sales in accordance with GAAP (i.e., on an owned basis). The Company believes that the amounts of commissions earned on sales of departments licensed to third parties are not material to its results of operations for the periods presented. |
(1)Represents the period-to-period percentage change in net sales from stores in operation for one full fiscal year for the 13 and 39 weeks ended October 28, 2023 and October 29, 2022. Such calculation includes all digital sales and excludes commissions from departments licensed to third parties. Stores impacted by a natural disaster or undergoing significant expansion or shrinkage remain in the comparable sales calculation unless the store, or material portion of the store, is closed for a significant period of time. Definitions and calculations of comparable sales may differ among companies in the retail industry.
(2)Represents the impact of including the sales of departments licensed to third parties occurring in stores in operation throughout the year presented and the immediately preceding year and all online sales, including Marketplace sales, in the calculation of comparable sales. Macy’s and Bloomingdale’s license third parties to operate certain departments in their stores and online, including Macy’s and Bloomingdale’s digital Marketplace, and receive commissions from these third parties based on a percentage of their net sales, while Bluemercury does not participate in licensed or Marketplace businesses. In its financial statements prepared in conformity with GAAP, the company includes these commissions (rather than sales of the departments licensed to third parties and Marketplace) in its net sales. The company does not, however, include any amounts in respect of licensed department or Marketplace sales (or any commissions earned on such sales) in its comparable sales in accordance with GAAP (i.e., on an owned basis). The amounts of commissions earned on sales of departments licensed to third parties and from the digital Marketplace are not material to its net sales for the periods presented.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders, Excluding Certain ItemsEBITDA and Adjusted EBITDA
The following is a tabular reconciliation of the non-GAAP financial measure of diluted earnings per share attributable to Macy's, Inc. shareholders, excluding certain items,EBITDA and Adjusted EBITDA to GAAP diluted earnings per share attributable to Macy's, Inc., shareholders,net income, which the Company believes to be the most directly comparable GAAP measure.
|
| | | | | | | | |
| | | Third Quarter of 2017 | | Third Quarter of 2016 |
| | | | | |
| Diluted earnings per share attributable to Macy's, Inc. shareholders | | $ | .12 |
| | $ | .05 |
|
| Add back the pre-tax impact of restructuring and other costs | | .11 |
| | — |
|
| Add back the pre-tax impact of settlement charges | | .07 |
| | .20 |
|
| Deduct the income tax impact of certain items identified above | | (.07 | ) | | (.08 | ) |
Diluted earnings per share attributable to Macy's, Inc. shareholders,
excluding certain items | | $ | .23 |
| | $ | .17 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended
October 28, 2023 | | 13 Weeks Ended
October 29, 2022 | | 39 Weeks Ended October 28, 2023 | | 39 Weeks Ended October 29, 2022 |
| (millions) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income | $ | 43 | | | $ | 108 | | | $ | 175 | | | $ | 668 | |
| Interest expense - net | 35 | | | 42 | | | 108 | | | 131 | |
| Losses on early retirement of debt | — | | | — | | | — | | | 31 | |
| Federal, state and local income tax expense | 3 | | | 17 | | | 51 | | | 213 | |
| Depreciation and amortization | 231 | | | 225 | | | 665 | | | 638 | |
| EBITDA | $ | 312 | | | $ | 392 | | | $ | 999 | | | $ | 1,681 | |
| Impairment, restructuring and other costs | 15 | | | 15 | | | 21 | | | 25 | |
| Settlement charges | 7 | | | 32 | | | 129 | | | 32 | |
| Adjusted EBITDA | $ | 334 | | | $ | 439 | | | $ | 1,149 | | | $ | 1,738 | |
| | | | | | | |
|
| | | | | | | | |
| | | 2017 | | 2016 |
| | | | | |
| Diluted earnings per share attributable to Macy's, Inc. shareholders | | $ | .73 |
| | $ | .46 |
|
| Add back the pre-tax impact of impairments, restructuring and other costs | | .11 |
| | .80 |
|
| Add back the pre-tax impact of settlement charges | | .24 |
| | .26 |
|
| Add back the pre-tax impact of net premiums on the early retirement of debt (note 1) | | — |
| | — |
|
| Deduct the income tax impact of certain items identified above | | (.13 | ) | | (.41 | ) |
Diluted earnings per share attributable to Macy's, Inc. shareholders,
excluding certain items | | $ | .95 |
| | $ | 1.11 |
|
Note:
| |
(1) | The impact during the 39 weeks ended October 28, 2017 represents a value less than $.01 per diluted share attributable to Macy’s, Inc. shareholders. |
Adjusted Net Income and Adjusted Diluted Earnings Per Share
New Pronouncements
In May 2014,The following is a tabular reconciliation of the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers,non-GAAP financial measures adjusted net income to GAAP net income and adjusted diluted earnings per share to GAAP diluted earnings per share, which establishes principles to report useful information to financial statements users about the nature, timing and uncertainty of revenue from contracts with customers. ASU No. 2014-09 along with various related amendments comprise ASC Topic 606, Revenue from Contracts with Customers, and provide guidance that is applicable to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. The new standard and its related updates are effective for the Company beginning on February 4, 2018. On the effective date, the Company will apply the new guidance retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The Company is currently evaluating the methods of adoption and has not yet decided on the methodbelieves to be applied when the new revenue guidance is effective.most directly comparable GAAP measures.
The Company currently estimates the material impacts to its consolidated financial statements to include gross presentation of its estimates for future sales returns | | | | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended October 28, 2023 | | 13 Weeks Ended October 29, 2022 |
| Net Income | | Diluted
Earnings
Per Share | | Net Income | | Diluted
Earnings
Per Share |
| (millions, except per share figures) |
| As reported | $ | 43 | | | $ | 0.15 | | | $ | 108 | | | $ | 0.39 | |
| Impairment, restructuring and other costs | 15 | | | 0.05 | | | 15 | | | 0.05 | |
| Settlement charges | 7 | | | 0.03 | | | 32 | | | 0.12 | |
| | | | | | | |
| Income tax impact of certain items noted above | (6) | | | (0.02) | | | (12) | | | (0.04) | |
| As adjusted to exclude certain items above | $ | 59 | | | $ | 0.21 | | | $ | 143 | | | $ | 0.52 | |
| | | | | | | |
| 39 Weeks Ended October 28, 2023 | | 39 Weeks Ended October 29, 2022 |
| Net Income | | Diluted
Earnings
Per Share | | Net Income | | Diluted
Earnings
Per Share |
| (millions, except per share figures) |
| As reported | $ | 175 | | | $ | 0.63 | | | $ | 668 | | | $ | 2.37 | |
| Impairment, restructuring and other costs | 21 | | | 0.07 | | | 25 | | | 0.09 | |
| Settlement charges | 129 | | | 0.46 | | | 32 | | | 0.11 | |
| Losses on early retirement of debt | — | | | — | | | 31 | | | 0.11 | |
| Income tax impact of certain items noted above | (38) | | | (0.13) | | | (22) | | | (0.08) | |
| As adjusted to exclude certain items above | $ | 287 | | | $ | 1.03 | | | $ | 734 | | | $ | 2.60 | |
Critical Accounting Estimates
Goodwill and related recoverable assets, presenting income from credit operations as a separate component of revenue and recognizing revenue for online transactions upon shipment rather than delivery. In addition, the gains for certain real estate transactions will generally be recognized earlier than under current guidance due to consideration of the guidance in ASU No. 2017-05, Other Income - Gains and Losses from the Derecognition of NonfinancialIntangible Assets (Subtopic 610-20) and the new lease standard discussed below.
The Company does not expectreviews the new guidance to materially impact the revenue recognition associated with gift card breakage as well as the accounting forcarrying value of its warranty arrangements, loyalty programsgoodwill and other customer incentive arrangements. The Company is continuing to evaluate the impactintangible assets with indefinite lives at least annually, as of the new standardsend of fiscal May, or more frequently if an event occurs or circumstances change, for possible impairment in accordance with ASC Topic 350, Intangibles - Goodwill and the final determinationsOther. For impairment testing, goodwill has been assigned to reporting units which consist of the impactCompany's retail operating divisions. Macy's and Bluemercury are the only reporting units with goodwill as of October 28, 2023, and 97% of the new guidance may differ from these initial estimates.
In February 2016,Company's goodwill is allocated to the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize substantially all leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The new standard is effective for the Company on February 3, 2019, with early adoption permitted. The new standard is to be adopted utilizing a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. The Company has not yet decided whether it will early adopt the new standard but the Company currently plans to elect the majority of the standard's available practical expedients on adoption.Macy's reporting unit.
The Company expectsmay elect to evaluate qualitative factors to determine if it is more likely than not that the new lease standard will havefair value of a material impact onreporting unit or fair value of indefinite lived intangible assets is less than its carrying value. If the Company's consolidated financial statements. Whilequalitative evaluation indicates that it is more likely than not that the fair value of a reporting unit or indefinite lived intangible asset is less than its carrying amount, a quantitative impairment test is required. Alternatively, the Company is continuing to assessmay bypass the effects of adoption,qualitative assessment for a reporting unit or indefinite lived intangible asset and directly perform the Company currently believes the most significant changes relate to the recognition of new ROU assetsquantitative assessment. This determination can be made on an individual reporting unit or asset basis, and lease liabilities on the consolidated balance sheets for real property and personal property operating leases as well as changes to the timing of recognition of certain real estate asset sale gains in the consolidated statements of income due to applicationperformance of the new sale-leaseback guidancequalitative assessment may resume in a subsequent period.
The quantitative impairment test involves estimating the fair value of each reporting unit and ASU No. 2017-05 as discussed above. The Company expects that substantially allindefinite lived intangible asset and comparing these estimated fair values with the respective reporting unit or indefinite lived intangible asset carrying value. If the carrying value of a reporting unit exceeds its operating lease commitments will be subject to the new guidance andfair value, an impairment loss will be recognized as operating lease liabilities and ROU assets upon adoption. A significant change in leasing activity betweenan amount equal to such excess, limited to the datetotal amount of this report and adoptiongoodwill allocated to the reporting unit. If the carrying value of an individual indefinite lived intangible asset exceeds its fair value, such individual indefinite lived intangible asset is not expected.written down by an amount equal to such excess.
In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715), which requires employers to disaggregate the service cost component from other components
The Company does not anticipate that the adoption of any other recent accounting pronouncements will have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Contents
Estimating the fair values of reporting units and indefinite lived intangible assets involves the use of significant assumptions, estimates and judgments with respect to a variety of factors, including projected sales, gross margin and SG&A expense rates, capital expenditures, cash flows and the selection and use of an appropriate discount rate and market values and multiples of earnings and revenues of similar public companies. Projected sales, gross margin and SG&A expense rate assumptions and capital expenditures are based on the Company's annual business plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the reporting unit or indefinite lived intangible asset.
The use of different assumptions, estimates or judgments in the goodwill impairment testing process, including with respect to the estimated future cash flows of the Company's reporting units, the discount rate used to discount such estimated cash flows to their net present value, and the reasonableness of the resultant implied control premium relative to the Company's market capitalization, could materially increase or decrease the fair value of the reporting unit and/or its net assets and, accordingly, could materially increase or decrease any related impairment charge.
For its annual goodwill impairment test as of the end of fiscal May 2023, the Company elected to perform a qualitative impairment test on its reporting units and intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceed the carrying values and the reporting units and intangible assets with indefinite lives are not impaired.
During the third quarter of fiscal 2023, the Company observed a general decline in the market valuation of the Company’s common shares and performed an interim qualitative impairment test on its reporting units. As a result of this test, the Company concluded that it is more likely than not that the fair values of its reporting units exceeded the carrying values and goodwill is not impaired. However, the Company continues to monitor the key inputs to fair value of its reporting units. A sustained decline in market capitalization or future declines in macroeconomic factors or business conditions could result in an impairment charge in future periods.
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Item 3. | Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
There have been no material changes to the Company’sCompany's market risk as described in the Company's 20162022 10-K. For a discussion of the Company’sCompany's exposure to market risk, refer to the Company’sCompany's market risk disclosures set forth in Part II, Item 7A, “Quantitative"Quantitative and Qualitative Disclosures About Market Risk”Risk" of the 20162022 10-K.
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Item 4. | Controls and Procedures. |
Item 4. Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer have carried out, as of October 28, 2017,2023, with the participation of the Company's management, an evaluation of the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act.Act of 1934 (the "Exchange Act"). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of October 28, 20172023, the Company's disclosure controls and procedures arewere effective to provide reasonable assurance that information required to be disclosed by the Company in reports the Company files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (the "SEC") rules and forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
ThereFrom time to time adoption of new accounting pronouncements, major organizational restructuring and realignment occurs for which the Company reviews its internal control over financial reporting. As a result of this review, there were no changes in the Company's internal control over financial reporting that occurred during the Company's most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
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Item 1. | Legal Proceedings. |
Item 1. Legal Proceedings.
The Company and its subsidiaries are involved in various proceedings that are incidental to the normal course of their businesses. As of the date of this report, the Company does not expect that any of such proceedings will have a material adverse effect on thethe Company’s financial position or results of operations.
Item 1A. Risk Factors.
There have been no material changes to the Risk Factors described in Part I, "ItemItem 1A."Risk Factors" in the Company's 20162022 Form 10-K.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
The following table provides information regarding the Company's purchases of Common Stock during the third quarter of 2017.
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| | | | | | | | | | | |
| Total
Number
of Shares
Purchased
| | Average
Price Paid
per Share ($)
| | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Maximum Dollar Value of Shares that may yet be Purchased Under the Plans or Programs (1)($) |
| (thousands) | | | | (thousands) | | (millions) |
July 30, 2017 – August 26, 2017 | — |
| | — |
| | — |
| | 1,716 |
|
August 27, 2017 – September 30, 2017 | — |
| | — |
| | — |
| | 1,716 |
|
October 1, 2017 – October 28, 2017 | — |
| | — |
| | — |
| | 1,716 |
|
| — |
| | — |
| | — |
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___________________
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(1) | Commencing in January 2000, the Company's Board of Directors has from time to time approved authorizations to purchase, in the aggregate, up to $18 billion of Common Stock as of October 28, 2017. All authorizations are cumulative and do not have an expiration date. As of October 28, 2017, $1,716 million of authorization remained unused. The Company may continue, discontinue or resume purchases of Common Stock under these or possible future authorizations in the open market, in privately negotiated transactions or otherwise at any time and from time to time without prior notice.
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Item 5. | Other Information. |
Item 5. Other Information.
Forward-Looking Statements
This report and other reports, statements and information previously or subsequently filed by the Company with the SECSecurities and Exchange Commission contain or may contain forward-looking statements. Such statements are based upon the beliefs and assumptions of, and on information available to, the management of the Company at the time such statements are made. The following are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (i) statements preceded by, followed by or that include the words "may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "think," "estimate" or "continue" or the negative or other variations thereof and (ii) statements regarding matters that are not historical facts. Such forward-looking statements are subject to various risks and uncertainties, including risks and uncertainties relating to:
•the possible invalidity of the underlying beliefs and assumptions;
competitive pressures from department and specialty stores, general merchandise stores, manufacturers' outlets, off-price and discount stores, and all other retail channels, including the Internet, catalogs and television;
•the Company's ability to remain competitivesuccessfully execute against its five growth vectors, including the ability to realize the anticipated benefits associated with the strategy;
•the success of the Company's operational decisions, including product sourcing, merchandise mix and relevantpricing, and marketing and strategic initiatives, such as consumers'growing its digital channels, expanding the Company's off-mall store presence and modernizing its technology and supply chain infrastructures;
•general consumer shopping behaviors migrate to other shopping channels;
general consumer-spendingand spending levels, including the shift of consumer spending to digital channels, the impact of changes in general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, and the costs of basic necessities and other goodsgoods;
•competitive pressures from department stores, specialty stores, general merchandise stores, manufacturers' outlets and the effects of the weather or natural disasters;websites, off-price and discount stores, and all other retail channels, including digitally-native retailers, social media and catalogs;
conditions to, or changes in the timing of, proposed transactions, including planned store closings, and changes in expected synergies, cost savings and non-recurring charges;
the success of •the Company's operational decisions (e.g., product curation, marketing programs)ability to remain competitive and strategic initiatives;
the cost of employee benefitsrelevant as well as attracting and retaining quality employees;
transactions involving our real estate portfolio;
the seasonal nature of the Company's business;
possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions;
possible actions taken or omittedconsumers' shopping behaviors continue to be taken by third parties, including customers, suppliers, business partners, competitors and legislative, regulatory, judicialmigrate to digital shopping channels and other governmental authoritiesshopping channels and officials;to maintain its brand image and reputation;
changes in relationships with vendors and other product and service providers;
currency, interest and exchange rates and other capital market, economic and geo-political conditions;
unstable political conditions, civil unrest, terrorist activities and armed conflicts;
the possible inability of the Company's manufacturers or transporters to deliver products in a timely manner or meet the Company's quality standards;
the Company's reliance on foreign sources of production, including risks related to the disruption of imports by labor disputes, regional health pandemics, and regional political and economic conditions;
duties, taxes, other charges and quotas on imports; and
•possible systems failures and/or security breaches or other types of cybercrimes or cybersecurity attacks, including any security breach that results in the theft, transfer or unauthorized disclosure of customer, employee or company information, or the failure to comply with various laws applicable to the Company in the event of such a breach.breach;
•the cost of colleague benefits as well as attracting and retaining quality colleagues;
•transactions and strategy involving the Company's real estate portfolio;
•the seasonal nature of the Company's business;
•declines in the Company's credit card revenues;
•the effects of weather and natural disasters, including the impact of climate change, and health pandemics, including the COVID-19 pandemic, on the Company's business, including the ability to open stores, customer demand and its supply chain, as well as our consolidated results of operations, financial position and cash flows;
•conditions to, or changes in the timing of, proposed transactions and changes in expected synergies, cost savings and non-recurring charges;
•the potential for the incurrence of charges in connection with the impairment of tangible and intangible assets, including goodwill;
•possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions, including supply chain disruptions, inventory shortage, labor shortages, wage pressures and rising inflation, and their related impact on costs;
•possible actions taken or omitted to be taken by third parties, including customers, suppliers, business partners, competitors, banks and other financial institutions, and legislative, regulatory, judicial and other governmental authorities and officials;
•changes in relationships with vendors and other product and service providers;
•our level of indebtedness;
•currency, interest and exchange rates and other capital market, economic and geo-political conditions;
•unstable political conditions, civil unrest, terrorist activities and armed conflicts, including the ongoing conflict between Russia and Ukraine and the Israel-Hamas war;
•the possible inability of the Company's manufacturers or transporters to deliver products in a timely manner or meet the Company's quality standards;
•the Company's reliance on foreign sources of production, including risks related to the disruption of imports by labor disputes, regional and global health pandemics, and regional political and economic conditions;
•duties, taxes, other charges and quotas on imports;
•labor shortages
•the amount and timing of future dividends and share repurchases; and
•the Company's ability to execute on its strategies or achieve expectations related to environmental, social, and governance matters.
In addition to any risks and uncertainties specifically identified in the text surrounding such forward-looking statements, the statements in the immediately preceding sentence and the statements under captions such as "Risk Factors" in reports, statements and information filed by the Company with the SEC from time to time constitute cautionary statements identifying important factors that could cause actual amounts, results, events and circumstances to differ materially from those expressed in or implied by such forward-looking statements.
Trading Arrangements
None of the Company's directors or "officers" (as defined in Rule 16a-1(f) promulgated under the Exchange Act) adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K, during the Company's fiscal quarter ended October 28, 2023.
Item 6. Exhibits.
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31.122 | | |
| 31.1 | | |
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| 31.2 | | |
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| 32.1 | | |
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| 32.2 | | |
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| 101 | | The following financial statements from Macy's, Inc.'s Quarterly Report on Form 10-Q for the quarter ended October 28, 2017,2023, filed on December 4, 2017,November 27, 2023, formatted in XBRL:iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (v)(vi) the Notes to Consolidated Financial Statements. |
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| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| MACY'S, INC. |
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| MACY’S, INC.By: | /s/ WENDY A. BEADLES |
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| By: | /s/ ELISA D. GARCIA
|
| | Elisa D. GarciaWendy A. Beadles
Vice President, Interim Chief Legal Officer and Secretary |
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| By: | /s/ FELICIA WILLIAMSPAUL GRISCOM |
| | Felicia WilliamsPaul Griscom
ExecutiveSenior Vice President Controller and Enterprise RiskController
(Principal Accounting Officer)
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| Date: November 27, 2023 | | |
Date: December 4, 2017
