UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended AprilJuly 29, 2023
OR
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-13536
Macy's, Inc.
(Exact name of registrant as specified in its charter)
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Delaware | 13-3324058 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
151 West 34th Street, New York, New York 10001
(Address of Principal Executive Offices, including Zip Code)
(212) 494-1621
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value per share | M | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | x | | Accelerated Filer | o |
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Non-Accelerated Filer | o | | Smaller Reporting Company | o |
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Emerging Growth Company | o | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class | | Outstanding at May 27,July 29, 2023 |
Common Stock, $.01 par value per share | | 272,529,787273,634,211 shares |
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MACY’S, INC.
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(Unaudited)
(millions, except per share figures)
| | | 13 Weeks Ended | | | 13 Weeks Ended | | 26 Weeks Ended |
| | April 29, 2023 | | April 30, 2022 | | | July 29, 2023 | | July 30, 2022 | | July 29, 2023 | | July 30, 2022 |
Net sales | Net sales | | $ | 4,982 | | | $ | 5,348 | | | Net sales | | $ | 5,130 | | | $ | 5,600 | | | $ | 10,112 | | | $ | 10,948 | |
Other revenue | Other revenue | | 191 | | | 217 | | | Other revenue | | 150 | | | 234 | | | 341 | | | 451 | |
Total revenue | Total revenue | | 5,173 | | | 5,565 | | | Total revenue | | 5,280 | | | 5,834 | | | 10,453 | | | 11,399 | |
| Cost of sales | Cost of sales | | (2,988) | | | (3,231) | | | Cost of sales | | (3,176) | | | (3,422) | | | (6,164) | | | (6,652) | |
Selling, general and administrative expenses | Selling, general and administrative expenses | | (1,950) | | | (1,905) | | | Selling, general and administrative expenses | | (1,980) | | | (2,011) | | | (3,930) | | | (3,917) | |
Gains on sale of real estate | Gains on sale of real estate | | 11 | | | 42 | | | Gains on sale of real estate | | 4 | | | — | | | 15 | | | 42 | |
Impairment, restructuring and other costs | Impairment, restructuring and other costs | | (2) | | | (8) | | | Impairment, restructuring and other costs | | (4) | | | (2) | | | (6) | | | (10) | |
Operating income | Operating income | | 244 | | | 463 | | | Operating income | | 124 | | | 399 | | | 368 | | | 862 | |
Benefit plan income, net | Benefit plan income, net | | 4 | | | 7 | | | Benefit plan income, net | | 4 | | | 7 | | | 8 | | | 14 | |
| Settlement charges | | Settlement charges | | (122) | | | — | | | (122) | | | — | |
Interest expense, net | Interest expense, net | | (37) | | | (47) | | | Interest expense, net | | (36) | | | (42) | | | (73) | | | (89) | |
Losses on early retirement of debt | Losses on early retirement of debt | | — | | | (31) | | | Losses on early retirement of debt | | — | | | — | | | — | | | (31) | |
Income before income taxes | | 211 | | | 392 | | | |
Federal, state and local income tax expense | | (56) | | | (106) | | | |
Net income | | $ | 155 | | | $ | 286 | | | |
Basic earnings per share | | $ | 0.57 | | | $ | 1.01 | | | |
Diluted earnings per share | | $ | 0.56 | | | $ | 0.98 | | | |
Income (loss) before income taxes | | Income (loss) before income taxes | | (30) | | | 364 | | | 181 | | | 756 | |
Federal, state and local income tax benefit (expense) | | Federal, state and local income tax benefit (expense) | | 8 | | | (89) | | | (48) | | | (195) | |
Net income (loss) | | Net income (loss) | | $ | (22) | | | $ | 275 | | | $ | 133 | | | $ | 561 | |
Basic earnings (loss) per share | | Basic earnings (loss) per share | | $ | (0.08) | | | $ | 1.01 | | | $ | 0.49 | | | $ | 2.02 | |
Diluted earnings (loss) per share | | Diluted earnings (loss) per share | | $ | (0.08) | | | $ | 0.99 | | | $ | 0.48 | | | $ | 1.97 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(millions)
| | | | 13 Weeks Ended | | | | 13 Weeks Ended | | 26 Weeks Ended |
| April 29, 2023 | | April 30, 2022 | | | | July 29, 2023 | | July 30, 2022 | | July 29, 2023 | | July 30, 2022 |
Net income | | $ | 155 | | | $ | 286 | | | |
| Net income (loss) | | Net income (loss) | | $ | (22) | | | $ | 275 | | | $ | 133 | | | $ | 561 | |
Other comprehensive income (loss): | | Other comprehensive income (loss): | | | | | | | | |
Actuarial gain on post employment and postretirement benefit plans, before tax | | Actuarial gain on post employment and postretirement benefit plans, before tax | | (1) | | | — | | | (1) | | | — | |
Reclassifications to net income: | Reclassifications to net income: | | | | | | Reclassifications to net income: | | | | | | | | |
Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax | Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax | | 2 | | | 5 | | | Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax | | 1 | | | 5 | | | 3 | | | 10 | |
| Settlement charges, before tax | | Settlement charges, before tax | | 122 | | | — | | | 122 | | | — | |
Tax effect related to items of other comprehensive income | Tax effect related to items of other comprehensive income | | (1) | | | (1) | | | Tax effect related to items of other comprehensive income | | (31) | | | (1) | | | (32) | | | (3) | |
Total other comprehensive income, net of tax effect | Total other comprehensive income, net of tax effect | | 1 | | | 4 | | | Total other comprehensive income, net of tax effect | | 91 | | | 4 | | | 92 | | | 7 | |
Comprehensive income | Comprehensive income | | $ | 156 | | | $ | 290 | | | Comprehensive income | | $ | 69 | | | $ | 279 | | | $ | 225 | | | $ | 568 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(millions)
| | | | April 29, 2023 | | January 28, 2023 | | April 30, 2022 | | | July 29, 2023 | | January 28, 2023 | | July 30, 2022 |
ASSETS | ASSETS | | | | | | | ASSETS | | | | | | |
Current Assets: | Current Assets: | | Current Assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 603 | | | $ | 862 | | | $ | 672 | | Cash and cash equivalents | | $ | 438 | | | $ | 862 | | | $ | 300 | |
Receivables | Receivables | | 255 | | | 300 | | | 233 | | Receivables | | 223 | | | 300 | | | 219 | |
Merchandise inventories | Merchandise inventories | | 4,607 | | | 4,267 | | | 4,956 | | Merchandise inventories | | 4,129 | | | 4,267 | | | 4,610 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 390 | | | 424 | | | 372 | | Prepaid expenses and other current assets | | 411 | | | 424 | | | 387 | |
Income tax receivable | | Income tax receivable | | 70 | | | — | | | — | |
Total Current Assets | Total Current Assets | | 5,855 | | | 5,853 | | | 6,233 | | Total Current Assets | | 5,271 | | | 5,853 | | | 5,516 | |
Property and Equipment - net of accumulated depreciation and amortization of $4,763, $4,633 and $4,671 | | 5,864 | | | 5,913 | | | 5,601 | | |
Property and Equipment - net of accumulated depreciation and amortization of $4,905, $4,633 and $4,820 | | Property and Equipment - net of accumulated depreciation and amortization of $4,905, $4,633 and $4,820 | | 5,876 | | | 5,913 | | | 5,656 | |
Right of Use Assets | Right of Use Assets | | 2,715 | | | 2,683 | | | 2,736 | | Right of Use Assets | | 2,692 | | | 2,683 | | | 2,715 | |
Goodwill | Goodwill | | 828 | | | 828 | | | 828 | | Goodwill | | 828 | | | 828 | | | 828 | |
Other Intangible Assets – net | Other Intangible Assets – net | | 432 | | | 432 | | | 434 | | Other Intangible Assets – net | | 431 | | | 432 | | | 433 | |
Other Assets | Other Assets | | 1,174 | | | 1,157 | | | 1,140 | | Other Assets | | 1,206 | | | 1,157 | | | 1,194 | |
Total Assets | Total Assets | | $ | 16,868 | | | $ | 16,866 | | | $ | 16,972 | | Total Assets | | $ | 16,304 | | | $ | 16,866 | | | $ | 16,342 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
| Merchandise accounts payable | Merchandise accounts payable | | $ | 2,415 | | | $ | 2,053 | | | $ | 2,865 | | Merchandise accounts payable | | $ | 1,978 | | | $ | 2,053 | | | $ | 2,290 | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | | 2,233 | | | 2,750 | | | 2,456 | | Accounts payable and accrued liabilities | | 2,206 | | | 2,750 | | | 2,395 | |
Income taxes | Income taxes | | 134 | | | 58 | | | 222 | | Income taxes | | — | | | 58 | | | 23 | |
Total Current Liabilities | Total Current Liabilities | | 4,782 | | | 4,861 | | | 5,543 | | Total Current Liabilities | | 4,184 | | | 4,861 | | | 4,708 | |
Long-Term Debt | Long-Term Debt | | 2,996 | | | 2,996 | | | 2,994 | | Long-Term Debt | | 2,997 | | | 2,996 | | | 2,995 | |
Long-Term Lease Liabilities | Long-Term Lease Liabilities | | 2,996 | | | 2,963 | | | 3,030 | | Long-Term Lease Liabilities | | 2,975 | | | 2,963 | | | 3,008 | |
Deferred Income Taxes | Deferred Income Taxes | | 916 | | | 947 | | | 968 | | Deferred Income Taxes | | 933 | | | 947 | | | 948 | |
Other Liabilities | Other Liabilities | | 1,008 | | | 1,017 | | | 1,159 | | Other Liabilities | | 1,005 | | | 1,017 | | | 1,152 | |
Shareholders' Equity | Shareholders' Equity | | 4,170 | | | 4,082 | | | 3,278 | | Shareholders' Equity | | 4,210 | | | 4,082 | | | 3,531 | |
Total Liabilities and Shareholders’ Equity | Total Liabilities and Shareholders’ Equity | | $ | 16,868 | | | $ | 16,866 | | | $ | 16,972 | | Total Liabilities and Shareholders’ Equity | | $ | 16,304 | | | $ | 16,866 | | | $ | 16,342 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(millions)
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Equity | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders' Equity | | Common Stock | | Additional Paid-In Capital | | Accumulated Equity | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders' Equity |
Balance at January 28, 2023 | Balance at January 28, 2023 | $ | 3 | | | $ | 467 | | | $ | 6,268 | | | $ | (2,038) | | | $ | (618) | | | $ | 4,082 | | Balance at January 28, 2023 | $ | 3 | | | $ | 467 | | | $ | 6,268 | | | $ | (2,038) | | | $ | (618) | | | $ | 4,082 | |
Net income | Net income | | | | | | | 155 | | | | | | | | | 155 | | Net income | | | | | | | 155 | | | | | | | | | 155 | |
Other comprehensive income | Other comprehensive income | | | | | | | | | | 1 | | | 1 | | Other comprehensive income | | | | | | | | | | 1 | | | 1 | |
Common stock dividends ($0.1654 per share) | Common stock dividends ($0.1654 per share) | | | | | | | (45) | | | | | | | | | (45) | | Common stock dividends ($0.1654 per share) | | | | | | | (45) | | | | | | | | | (45) | |
Stock repurchases | Stock repurchases | | | | | | | | | | (25) | | | | | | (25) | | Stock repurchases | | | | | | | | | | (25) | | | | | | (25) | |
Stock-based compensation expense | Stock-based compensation expense | | | | 14 | | | | | | | | | | | | 14 | | Stock-based compensation expense | | | | 14 | | | | | | | | | | | | 14 | |
Stock issued under stock plans | Stock issued under stock plans | | | | (108) | | | | | | 96 | | | | | | (12) | | Stock issued under stock plans | | | | (108) | | | | | | 96 | | | | | | (12) | |
Balance at April 29, 2023 | Balance at April 29, 2023 | $ | 3 | | | $ | 373 | | | $ | 6,378 | | | $ | (1,967) | | | $ | (617) | | | $ | 4,170 | | Balance at April 29, 2023 | $ | 3 | | | $ | 373 | | | $ | 6,378 | | | $ | (1,967) | | | $ | (617) | | | $ | 4,170 | |
| Net loss | | Net loss | | | | | | | (22) | | | | | | | | | (22) | |
Other comprehensive income | | Other comprehensive income | | | | | | | | | | | | | 91 | | | 91 | |
Common stock dividends ($0.1654 per share) | | Common stock dividends ($0.1654 per share) | | | | 1 | | | (46) | | | | | | | | | (45) | |
Stock-based compensation expense | | Stock-based compensation expense | | | | 16 | | | | | | | | | | | | 16 | |
Stock issued under stock plans | | Stock issued under stock plans | | | | (38) | | | | | | 38 | | | | | | — | |
Balance at July 29, 2023 | | Balance at July 29, 2023 | $ | 3 | | | $ | 352 | | | $ | 6,310 | | | $ | (1,929) | | | $ | (526) | | | $ | 4,210 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - (Continued)
(Unaudited)
(millions)
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Equity | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders' Equity | | Common Stock | | Additional Paid-In Capital | | Accumulated Equity | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders' Equity |
Balance at January 29, 2022 | Balance at January 29, 2022 | $ | 3 | | | $ | 517 | | | $ | 5,268 | | | $ | (1,545) | | | $ | (622) | | | $ | 3,621 | | Balance at January 29, 2022 | $ | 3 | | | $ | 517 | | | $ | 5,268 | | | $ | (1,545) | | | $ | (622) | | | $ | 3,621 | |
Net income | Net income | | | | | | | 286 | | | | | | | | | 286 | | Net income | | | | | | | 286 | | | | | | | | | 286 | |
Other comprehensive income | Other comprehensive income | | | | | | | | | | | | | 4 | | | 4 | | Other comprehensive income | | | | | | | | | | | | | 4 | | | 4 | |
Common stock dividends ($0.1575 per share) | Common stock dividends ($0.1575 per share) | | (45) | | | (45) | | Common stock dividends ($0.1575 per share) | | (45) | | | (45) | |
Stock repurchases | Stock repurchases | | (600) | | | (600) | | Stock repurchases | | (600) | | | (600) | |
Stock-based compensation expense | Stock-based compensation expense | | | | 13 | | | | | | | | | | | | 13 | | Stock-based compensation expense | | | | 13 | | | | | | | | | | | | 13 | |
Stock issued under stock plans | Stock issued under stock plans | | | | (54) | | | | | | 53 | | | | | | (1) | | Stock issued under stock plans | | | | (54) | | | | | | 53 | | | | | | (1) | |
Balance at April 30, 2022 | Balance at April 30, 2022 | $ | 3 | | | $ | 476 | | | $ | 5,509 | | | $ | (2,092) | | | $ | (618) | | | $ | 3,278 | | Balance at April 30, 2022 | $ | 3 | | | $ | 476 | | | $ | 5,509 | | | $ | (2,092) | | | $ | (618) | | | $ | 3,278 | |
| Net income | | Net income | | | | | | | 275 | | | | | | | | | 275 | |
Other comprehensive income | | Other comprehensive income | | | | | | | | | | | | | 3 | | | 103 | |
Common stock dividends ($0.1575 per share) | | Common stock dividends ($0.1575 per share) | | (42) | | | (42) | |
Stock-based compensation expense | | Stock-based compensation expense | | | | 17 | | | | | | | | | | | | 17 | |
Stock issued under stock plans | | Stock issued under stock plans | | | | (43) | | | | | | 43 | | | | | | — | |
Balance at July 30, 2022 | | Balance at July 30, 2022 | $ | 3 | | | $ | 450 | | | $ | 5,742 | | | $ | (2,049) | | | $ | (615) | | | $ | 3,531 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions)
| | | 13 Weeks Ended | | 26 Weeks Ended |
| | April 29, 2023 | | April 30, 2022 | | July 29, 2023 | | July 30, 2022 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income | Net income | $ | 155 | | | $ | 286 | | Net income | $ | 133 | | | $ | 561 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Impairment, restructuring and other costs | Impairment, restructuring and other costs | 2 | | | 8 | | Impairment, restructuring and other costs | 6 | | | 10 | |
| Settlement charges | | Settlement charges | 122 | | | — | |
Depreciation and amortization | Depreciation and amortization | 218 | | | 206 | | Depreciation and amortization | 433 | | | 413 | |
Stock-based compensation expense | Stock-based compensation expense | 14 | | | 13 | | Stock-based compensation expense | 30 | | | 30 | |
Gains on sale of real estate | Gains on sale of real estate | (11) | | | (42) | | Gains on sale of real estate | (15) | | | (42) | |
Benefit plans | Benefit plans | 2 | | | 5 | | Benefit plans | 3 | | | 10 | |
Amortization of financing costs and premium on acquired debt | Amortization of financing costs and premium on acquired debt | 3 | | | 2 | | Amortization of financing costs and premium on acquired debt | 5 | | | 5 | |
Deferred income taxes | Deferred income taxes | (32) | | | (17) | | Deferred income taxes | (46) | | | (38) | |
Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
Decrease in receivables | Decrease in receivables | 45 | | | 65 | | Decrease in receivables | 77 | | | 78 | |
Increase in merchandise inventories | (340) | | | (573) | | |
Decrease (increase) in merchandise inventories | | Decrease (increase) in merchandise inventories | 138 | | | (227) | |
Decrease (increase) in prepaid expenses and other current assets | Decrease (increase) in prepaid expenses and other current assets | 32 | | | (13) | | Decrease (increase) in prepaid expenses and other current assets | 10 | | | (28) | |
Increase in merchandise accounts payable | 374 | | | 639 | | |
(Decrease) increase in merchandise accounts payable | | (Decrease) increase in merchandise accounts payable | (53) | | | 100 | |
Decrease in accounts payable and accrued liabilities | Decrease in accounts payable and accrued liabilities | (415) | | | (424) | | Decrease in accounts payable and accrued liabilities | (418) | | | (455) | |
Increase in current income taxes | 82 | | | 122 | | |
Decrease in current income taxes | | Decrease in current income taxes | (121) | | | (72) | |
Change in other assets and liabilities | Change in other assets and liabilities | (24) | | | (29) | | Change in other assets and liabilities | (33) | | | (42) | |
Net cash provided by operating activities | Net cash provided by operating activities | 105 | | | 248 | | Net cash provided by operating activities | 271 | | | 303 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Purchase of property and equipment | Purchase of property and equipment | (215) | | | (171) | | Purchase of property and equipment | (390) | | | (378) | |
Capitalized software | Capitalized software | (81) | | | (90) | | Capitalized software | (174) | | | (204) | |
Disposition of property and equipment | Disposition of property and equipment | 25 | | | 73 | | Disposition of property and equipment | 32 | | | 73 | |
Other, net | Other, net | 1 | | | (6) | | Other, net | 1 | | | (6) | |
Net cash used by investing activities | Net cash used by investing activities | (270) | | | (194) | | Net cash used by investing activities | (531) | | | (515) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Debt issued | Debt issued | — | | | 850 | | Debt issued | — | | | 850 | |
Debt issuance costs | Debt issuance costs | — | | | (21) | | Debt issuance costs | — | | | (21) | |
Debt repaid | Debt repaid | (1) | | | (1,139) | | Debt repaid | (1) | | | (1,140) | |
Debt repurchase premium and expenses | Debt repurchase premium and expenses | — | | | (29) | | Debt repurchase premium and expenses | — | | | (29) | |
Dividends paid | Dividends paid | (45) | | | (45) | | Dividends paid | (90) | | | (87) | |
Decrease in outstanding checks | Decrease in outstanding checks | (13) | | | (126) | | Decrease in outstanding checks | (35) | | | (172) | |
Acquisition of treasury stock | Acquisition of treasury stock | (35) | | | (584) | | Acquisition of treasury stock | (38) | | | (601) | |
Net cash used by financing activities | Net cash used by financing activities | (94) | | | (1,094) | | Net cash used by financing activities | (164) | | | (1,200) | |
Net decrease in cash, cash equivalents and restricted cash | Net decrease in cash, cash equivalents and restricted cash | (259) | | | (1,040) | | Net decrease in cash, cash equivalents and restricted cash | (424) | | | (1,412) | |
Cash, cash equivalents and restricted cash beginning of period | Cash, cash equivalents and restricted cash beginning of period | 865 | | | 1,715 | | Cash, cash equivalents and restricted cash beginning of period | 865 | | | 1,715 | |
Cash, cash equivalents and restricted cash end of period | Cash, cash equivalents and restricted cash end of period | $ | 606 | | | $ | 675 | | Cash, cash equivalents and restricted cash end of period | $ | 441 | | | $ | 303 | |
Supplemental cash flow information: | Supplemental cash flow information: | | | | Supplemental cash flow information: | | | |
Interest paid | Interest paid | $ | 60 | | | $ | 86 | | Interest paid | $ | 82 | | | $ | 108 | |
Interest received | Interest received | 11 | | | 1 | | Interest received | 18 | | | 1 | |
Income taxes paid, net of refunds received | Income taxes paid, net of refunds received | 6 | | | 1 | | Income taxes paid, net of refunds received | 215 | | | 305 | |
Note: Restricted cash of $3 million is included within cash and cash equivalents for both the 1326 weeks ended AprilJuly 29, 2023 and AprilJuly 30, 2022.
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Summary of Significant Accounting Policies
Nature of Operations
Macy's, Inc., together with its subsidiaries (the "Company"), is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury)Bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and kids'), cosmetics, home furnishings and other consumer goods. The Company has stores in 43 states, the District of Columbia, Puerto Rico and Guam. As of AprilJuly 29, 2023, the Company's operations and operating segments were conducted through Macy's, Market by Macy’s, Macy’sMacy's, Macy's Backstage, Bloomingdale's, Bloomingdale's The Outlet, Bloomie’s,Bloomie's, and bluemercury.Bluemercury.
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.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023 (the "2022 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2022 10-K.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties which may result in actual amounts differing from reported amounts.
The Consolidated Financial Statements for the 13 and 26 weeks ended AprilJuly 29, 2023 and AprilJuly 30, 2022, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
Seasonality
Because of the seasonal nature of the retail business, the results of operations for the 13 and 26 weeks ended AprilJuly 29, 2023 and AprilJuly 30, 2022 (which do not include the Christmasholiday season) are not necessarily indicative of such results for the full fiscal year.
Reclassifications
Certain reclassifications were made to prior years' amounts to conform with the classifications of such amounts in the most recent years.
Comprehensive Income
Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income. For the Company, the only other components of total comprehensive income for the 13 and 26 weeks ended AprilJuly 29, 2023 and AprilJuly 30, 2022 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of income before income taxes in the Consolidated Statements of Income. Amortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in benefit plan income, net on the Consolidated Statements of Income. See Note 5, "Retirement Plans," for further information.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Recent Accounting Pronouncements
In September 2022, the FASBFinancial Accounting Standards Board issued ASUAccounting Standards Update ("ASU") 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations (ASU 2022-04), which requires entities to disclose the key terms of supplier finance programs they use in connection with the purchase of goods and services, along with the amount of obligations outstanding at the end of each period and an annual rollforward of such obligations. ASU 2022-04 became effective for the Company beginning in 2023. The Company adopted ASU 2022-04 in the first quarter of 2023, with the exception of the rollforward information, which will be reflected in the fourth quarter, and the adoption did not have a material impact on the consolidated financial statements. See Note 7 for disclosures related to the Company's supplier finance programs.
2. Earnings Per Share
The following tables set forth the computation of basic and diluted earnings (loss) per share:
| | | | 13 Weeks Ended |
| | | July 29, 2023 | | July 30, 2022 |
| | | Net Loss | | Shares | | Net Income | | Shares |
| | | (millions, except per share data) |
Net income (loss) and average number of shares outstanding | | Net income (loss) and average number of shares outstanding | $ | (22) | | | 272.8 | | | $ | 275 | | | 270.1 | |
Shares to be issued under deferred compensation and other plans | | Shares to be issued under deferred compensation and other plans | | 1.0 | | | 1.0 | |
| | | $ | (22) | | | 273.8 | | | $ | 275 | | | 271.1 | |
Basic earnings (loss) per share | | Basic earnings (loss) per share | | $ | (0.08) | | | $ | 1.01 | | |
Effect of dilutive securities: | | Effect of dilutive securities: | | | | | |
Stock options and restricted stock units | | Stock options and restricted stock units | | — | | | 6.3 | |
| | | $ | (22) | | | 273.8 | | | $ | 275 | | | 277.4 | |
Diluted earnings (loss) per share | | Diluted earnings (loss) per share | | $ | (0.08) | | | $ | 0.99 | | |
| | | 13 Weeks Ended | | 26 Weeks Ended |
| | April 29, 2023 | | April 30, 2022 | | July 29, 2023 | | July 30, 2022 |
| | Net Income | | Shares | | Net Income | | Shares | | Net Income | | Shares | | Net Income | | Shares |
| | (millions, except per share data) | | (millions, except per share data) |
Net income and average number of shares outstanding | Net income and average number of shares outstanding | $ | 155 | | | 272.2 | | | $ | 286 | | | 282.6 | | Net income and average number of shares outstanding | $ | 133 | | | 272.5 | | | $ | 561 | | | 276.3 | |
Shares to be issued under deferred compensation and other plans | Shares to be issued under deferred compensation and other plans | | 0.9 | | | 1.0 | | Shares to be issued under deferred compensation and other plans | | 1.0 | | | 1.0 | |
| | $ | 155 | | | 273.1 | | | $ | 286 | | | 283.6 | | | $ | 133 | | | 273.5 | | | $ | 561 | | | 277.3 | |
Basic earnings per share | Basic earnings per share | | $ | 0.57 | | | $ | 1.01 | | | Basic earnings per share | | $ | 0.49 | | | $ | 2.02 | | |
Effect of dilutive securities: | Effect of dilutive securities: | | | | | | Effect of dilutive securities: | | | | | |
Stock options and restricted stock units | Stock options and restricted stock units | | 4.7 | | | 7.3 | | Stock options and restricted stock units | | 4.3 | | | 6.8 | |
| | $ | 155 | | | 277.8 | | | $ | 286 | | | 290.9 | | | $ | 133 | | | 277.8 | | | $ | 561 | | | 284.1 | |
Diluted earnings per share | Diluted earnings per share | | $ | 0.56 | | | $ | 0.98 | | | Diluted earnings per share | | $ | 0.48 | | | $ | 1.97 | | |
| | | | | |
In addition to the stock options and restricted stock units reflected in the foregoing table, stock options to purchase 10.0 million and 12.3 million shares of common stock and restricted stock units relating to 5.4 million and 0.4 million shares of common stock were outstanding at April 29, 2023 and April 30, 2022, respectively, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In addition to the stock options and restricted stock units reflected in the foregoing table, stock options to purchase 9.9 million shares of common stock and restricted stock units relating to 1.7 million shares of common stock were outstanding as of July 29, 2023 but were not included in the computation of diluted earnings per share for the 26 weeks ended July 29, 2023 because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met. Stock options to purchase 12.2 million shares of common stock and restricted stock units relating to 2.3 million shares of common stock were outstanding as of July 30, 2022 but were not included in the computation of diluted earnings per share for the 13 and 26 weeks ended July 30, 2022 because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
For the 13 weeks ended July 29, 2023, as a result of the net loss, stock options to purchase 9.9 million shares of common stock and restricted stock units relating to 10.0 million shares of common stock were excluded from the calculation of diluted earnings per share and, therefore, there was no difference in the weighted average number of common shares for basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive.
3. Revenue
Net sales, which mainly consist of retail sales but also include merchandise returns, gift cards and loyalty programs, represented 96%97% and 96% of total revenue for the 13 and 26 weeks ended AprilJuly 29, 2023 and AprilJuly 30, 2022, respectively. Other revenue generating activities consist of credit card revenues as well as Macy's Media Network revenue.
| | | 13 Weeks Ended | | | 13 Weeks Ended | | 26 Weeks Ended |
Revenues | Revenues | April 29, 2023 | | April 30, 2022 | | Revenues | July 29, 2023 | | July 30, 2022 | | July 29, 2023 | | July 30, 2022 |
| | (millions) | | (millions) |
Women's Accessories, Shoes, Cosmetics and Fragrances | Women's Accessories, Shoes, Cosmetics and Fragrances | $ | 2,025 | | | $ | 2,090 | | | Women's Accessories, Shoes, Cosmetics and Fragrances | $ | 2,050 | | | $ | 2,099 | | | $ | 4,075 | | | $ | 4,189 | |
Women's Apparel | Women's Apparel | 1,150 | | | 1,282 | | | Women's Apparel | 1,110 | | | 1,267 | | | 2,260 | | | 2,549 | |
Men's and Kids' | Men's and Kids' | 1,018 | | | 1,086 | | | Men's and Kids' | 1,110 | | | 1,220 | | | 2,128 | | | 2,306 | |
Home/Other (a) | Home/Other (a) | 789 | | | 890 | | | Home/Other (a) | 860 | | | 1,014 | | | 1,649 | | | 1,904 | |
Total Net Sales | Total Net Sales | 4,982 | | | 5,348 | | | Total Net Sales | 5,130 | | | 5,600 | | | $ | 10,112 | | | $ | 10,948 | |
| Credit card revenues, net | Credit card revenues, net | 162 | | | 191 | | | Credit card revenues, net | $ | 120 | | | $ | 204 | | | $ | 282 | | | $ | 395 | |
Macy's Media Network revenue, net (b) | Macy's Media Network revenue, net (b) | 29 | | | 26 | | | Macy's Media Network revenue, net (b) | 30 | | | 30 | | | 59 | | | 56 | |
Other Revenue | Other Revenue | 191 | | | 217 | | | Other Revenue | 150 | | | 234 | | | 341 | | | 451 | |
| Total Revenue | Total Revenue | $ | 5,173 | | | $ | 5,565 | | | Total Revenue | $ | 5,280 | | | $ | 5,834 | | | $ | 10,453 | | | $ | 11,399 | |
(a)Other primarily includes restaurant sales, allowance for merchandise returns adjustments and breakage income from unredeemed gift cards.
(b)Macy's Media Network ("MMN") is an in-house media platform supporting both Macy's and Bloomingdale's customers through a broad variety of advertising formats running both on owned and operated platforms as well as offsite.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Macy's accounted for 85% and 86% of the Company’sCompany's net sales for the 13 and 26 weeks ended AprilJuly 29, 2023 and April86% for the 13 and 26 weeks ended July 30, 2022, respectively.2022. In addition, digital sales accounted for approximately 32% and 33%30% of the Company’sCompany's net sales for both the 13 weeks ended July 29, 2023 and July 30, 2022, and 31% and 32% of the Company's net sales for the 1326 weeks ended AprilJuly 29, 2023 and AprilJuly 30, 2022, respectively.
Retail Sales
Retail sales include merchandise sales, inclusive of delivery income, licensed department income, sales of private brand goods directly to third-party retailers and sales of excess inventory to third parties. Sales of merchandise are recorded at point of sale for in-store purchases or the time of shipment to the customer for digital purchases and are reported net of estimated merchandise returns and certain customer incentives. Commissions earned on sales generated by licensed departments are included as a component of total net sales and are recognized as revenue at the time merchandise is sold to customers. Service revenues (e.g., alteration and cosmetic services) are recorded at the time the customer receives the benefit of the service. The Company has elected to present sales taxes on a net basis and sales taxes are included in accounts payable and accrued liabilities until remitted to the taxing authorities.
Merchandise Returns
The Company estimates merchandise returns using historical data and recognizes an allowance that reduces net sales and cost of sales. The liability for merchandise returns is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $214$148 million, $236 million and $245$186 million as of AprilJuly 29, 2023, January 28, 2023 and AprilJuly 30, 2022, respectively. Included in prepaid expenses and other current assets is an asset totaling $127$94 million, $152 million and $144$112 million as of AprilJuly 29, 2023, January 28, 2023 and AprilJuly 30, 2022, respectively, for the recoverable cost of merchandise estimated to be returned by customers.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Gift Cards and Customer Loyalty Programs
The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold or issued, no revenue is recognized; rather, the Company records an accrued liability to customers. The liability is relieved, and revenue is recognized, equal to the amount redeemed at the time gift cards are redeemed for merchandise. The Company records revenue from unredeemed gift cards (breakage) in net sales on a pro-rata basis over the time period gift cards are actually redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns.
The Company maintains customer loyalty programs in which customers earn points based on their purchases. Under the Macy’s Star Rewards loyalty program, points are earned based on customers’ spending on Macy’s private label and co-branded credit cards as well as non-proprietary cards and other forms of tender. Bloomingdale’s Loyallist and bluemercuryBluemercury BlueRewards programs provide tender neutral points-based programs to their customers. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer.
The liability for unredeemed gift cards and customer loyalty programs is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $360$340 million, $399 million and $428$386 million as of AprilJuly 29, 2023, January 28, 2023 and AprilJuly 30, 2022, respectively.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Credit Card Revenues
In 2005, in connection with the sale of most of the Company's credit card accounts and related receivable balances to Citibank, the Company and Citibank entered into a long-term marketing and servicing alliance pursuant to the terms of a Credit Card Program Agreement ("Credit Card Program"). Subsequent to this initial arrangement and associated amendments, on December 13, 2021, the Company entered into the sixth amendment to the amended and restated Credit Card Program with Citibank (the "Program Agreement"). The changes to the Credit Card Program's financial structure are not materially different from its previous terms. As part of the Program Agreement, the Company receives payments for providing a combination of interrelated services and intellectual property to Citibank in support of the underlying Credit Card Program. Revenue based on the spending activity of the underlying accounts is recognized as the respective card purchases occur and the Company's profit share is recognized based on the performance of the underlying portfolio. Revenue associated with the establishment of new credit accounts and assisting in the receipt of payments for existing accounts is recognized as such activities occur. Credit card revenues include finance charges, late fees and other revenue generated by the Company’s Credit Card Program, net of fraud losses and expenses associated with establishing new accounts, credit card funding costs and bad debt reserves and are a component of other revenue on the consolidated statements of income.
The Program Agreement expires March 31, 2030, subject to an additional renewal term of three years. The Program Agreement provides for, among other things, (i) the ownership by Citibank of the accounts purchased by Citibank, (ii) the ownership by Citibank of new accounts opened by the Company’s customers, (iii) the provision of credit by Citibank to the holders of the credit cards associated with the foregoing accounts, (iv) the servicing of the foregoing accounts, and (v) the allocation between Citibank and the Company of the economic benefits and burdens associated with the foregoing and other aspects of the alliance. Pursuant to the Program Agreement, the Company continues to provide certain servicing functions related to the accounts and related receivables owned by Citibank and receives compensation from Citibank for these services. The amounts earned under the Program Agreement related to the servicing functions are deemed adequate compensation and, accordingly, no servicing asset or liability has been recorded on the Consolidated Balance Sheets.
4. Financing Activities
The Company did not borrow or repay any debt, outside of capital lease activity, during the first quarter of26 weeks ended July 29, 2023. In the first quarter of26 weeks ended July 30, 2022, the Company issued $425 million of 5.875% senior notes due 2030 and $425 million of 6.125% senior notes due 2032 in a private offering and repaid $1.1 billion aggregate principal amount of senior notes and debentures.
As of AprilJuly 29, 2023 and AprilJuly 30, 2022, the Company had $138 million and $65 million of standby letters of credit outstanding under its revolving credit facility ("ABL Credit Facility"), respectively, which reduced the available borrowing capacity to $2,862 million and $2,935 million, respectively. The Company had no outstanding borrowings under the ABL Credit Facility as of AprilJuly 29, 2023 and AprilJuly 30, 2022.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
During the 1326 weeks ended AprilJuly 29, 2023, the Company repurchased approximately 1.4 million shares of its common stock pursuant to existing stock purchase authorizations for a total of approximately $25 million. As of AprilJuly 29, 2023, the Company had $1,375 million of authorization remaining under its share repurchase program. The Company may continue or, from time to time, suspend repurchases of shares under its share repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors.
5. Retirement Plans
The Company has defined contribution plans that cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has a funded defined benefit plan ("Pension Plan") and an unfunded defined benefit supplementary retirement plan ("SERP"), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.
In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In addition, certain retired employees currently are provided with specified health care and life insurance benefits ("Postretirement Obligations"). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.
The defined contribution plan expense and actuarially determined components of the net periodic benefit cost (income) associated with the defined benefit plans are as follows:
| | | 13 Weeks Ended | | | 13 Weeks Ended | | 26 Weeks Ended |
| | April 29, 2023 | | April 30, 2022 | | | July 29, 2023 | | July 30, 2022 | | July 29, 2023 | | July 30, 2022 |
| | (millions) | | (millions) |
401(k) Qualified Defined Contribution Plan | 401(k) Qualified Defined Contribution Plan | $ | 23 | | | $ | 22 | | | 401(k) Qualified Defined Contribution Plan | $ | 21 | | | $ | 23 | | | $ | 44 | | | $ | 45 | |
Pension Plan | Pension Plan | | | | | Pension Plan | | | | | | | |
| Interest cost | Interest cost | $ | 22 | | | $ | 14 | | | Interest cost | $ | 22 | | | $ | 15 | | | 44 | | | 29 | |
Expected return on assets | Expected return on assets | (34) | | | (31) | | | Expected return on assets | (34) | | | (31) | | | (68) | | | (62) | |
Recognition of net actuarial loss | Recognition of net actuarial loss | 2 | | | 4 | | | Recognition of net actuarial loss | 1 | | | 4 | | | 3 | | | 8 | |
| | $ | (10) | | | $ | (13) | | | | $ | (11) | | | $ | (12) | | | $ | (21) | | | $ | (25) | |
Supplementary Retirement Plan | Supplementary Retirement Plan | | | | | Supplementary Retirement Plan | | | | | | | |
Interest cost | Interest cost | 5 | | | 4 | | | Interest cost | $ | 6 | | | $ | 3 | | | $ | 11 | | | $ | 7 | |
Recognition of net actuarial loss | Recognition of net actuarial loss | 2 | | | 3 | | | Recognition of net actuarial loss | 2 | | | 3 | | | 4 | | | 6 | |
| | $ | 7 | | | $ | 7 | | | | $ | 8 | | | $ | 6 | | | $ | 15 | | | $ | 13 | |
| | | | | | | | | | | | | |
Total Retirement Expense | Total Retirement Expense | $ | 20 | | | $ | 16 | | | Total Retirement Expense | $ | 18 | | | $ | 17 | | | $ | 38 | | | $ | 33 | |
| | | | | | | | | | | | | |
Postretirement Obligations | Postretirement Obligations | | | | | Postretirement Obligations | | | | | | | |
Interest cost | Interest cost | 1 | | | — | | | Interest cost | $ | 1 | | | $ | 1 | | | $ | 2 | | | $ | 1 | |
Recognition of net actuarial gain | Recognition of net actuarial gain | (2) | | | (1) | | | Recognition of net actuarial gain | (1) | | | (2) | | | (3) | | | (3) | |
| Amortization of prior service credit | | Amortization of prior service credit | (1) | | | — | | | (1) | | | — | |
| | $ | (1) | | | $ | (1) | | | | $ | (1) | | | $ | (1) | | | $ | (2) | | | $ | (2) | |
In connection with the Company's defined benefit plans, for the 13
and 26 weeks ended July 29, 2023, the Company incurred a non-cash settlement charge of $122 million. This charge relates to the pro-rata recognition of net actuarial losses associated with the Company's Pension Plan and is the result of the transfer of pension obligations for certain retirees and beneficiaries under the Pension Plan through the purchase of a group annuity contract with an insurance company.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Fair Value Measurements
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:
Level 1: Quoted prices in active markets for identical assets
Level 2: Significant observable inputs for the assets
Level 3: Significant unobservable inputs for the assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| April 29, 2023 | | April 30, 2022 |
| | | Fair Value Measurements | | | | Fair Value Measurements |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| (millions) |
Marketable equity and debt securities | $ | 36 | | | $ | 36 | | | $ | — | | | $ | — | | | $ | 35 | | | $ | 35 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| July 29, 2023 | | July 30, 2022 |
| | | Fair Value Measurements | | | | Fair Value Measurements |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| (millions) |
Marketable equity and debt securities | $ | 39 | | | $ | 39 | | | $ | — | | | $ | — | | | $ | 34 | | | $ | 34 | | | $ | — | | | $ | — | |
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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:
| | | April 29, 2023 | | April 30, 2022 | | July 29, 2023 | | July 30, 2022 |
Notional Amount | | Carrying Amount | | Fair Value | | Notional Amount | | Carrying Amount | | Fair Value | Notional Amount | | Carrying Amount | | Fair Value | | Notional Amount | | Carrying Amount | | Fair Value |
| | (millions) | | (millions) |
Long-term debt | Long-term debt | $ | 3,007 | | | $ | 2,996 | | | $ | 2,468 | | | $ | 3,007 | | | $ | 2,994 | | | $ | 2,675 | | Long-term debt | $ | 3,007 | | | $ | 2,997 | | | $ | 2,482 | | | $ | 3,007 | | | $ | 2,995 | | | $ | 2,506 | |
Nonfinancial Assets
The Company reviews the carrying amount of goodwill and intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable. For the Company's annual impairment assessment as of the end of fiscal May 2023, the Company elected to perform a qualitative impairment test on its goodwill and intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceeded the carrying values and therefore goodwill and intangible assets with indefinite lives were not impaired.
7. Supplier Finance Programs
The Company has agreements with third-party financial institutions to facilitate supply chain finance (“SCF”("SCF") programs. The programs allow qualifying suppliers to sell their receivables, on an invoice level at the selection of the supplier, from the Company to the financial institution and negotiate their outstanding receivable arrangements and associated fees directly with the financial institution. Macy's, Inc. is not party to the agreements between the supplier and the financial institution. The supplier invoices that have been confirmed as valid under the SCF programs require payment in full by the financial institution to the supplier by the original maturity date of the invoice, or discounted payment at an earlier date as agreed upon with the supplier. The Company’sCompany's obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted by a supplier’s participation in the SCF programs.
All outstanding amounts related to suppliers participating in the SCF programs are recorded upon confirmation with the third-party institutions in merchandise accounts payable in the consolidated balance sheets, and associated payments are included in operating activities in the consolidated statements of cash flows. The Company’sCompany's outstanding obligations as of AprilJuly 29, 2023, January 28, 2023 and AprilJuly 30, 2022 were $102$144 million, $63 million and $106$149 million, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
For purposes of the following discussion, all references to "firstsecond quarter of 2023" and "firstsecond quarter of 2022" are to the Company's 13-week fiscal periods ended AprilJuly 29, 2023 and AprilJuly 30, 2022, respectively. References to the "first half of 2023" or "2023" and the "first half of 2022" or "2022" are to the Company's 26-week fiscal periods ended July 29, 2023 and July 30, 2022, respectively.
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report, as well as the financial and other information included in the 2022 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 2022 10-K (particularly in "Risk Factors" and in "Forward-Looking Statements"). This discussion includes Non-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 are as follows:
•Macy's, Inc. comparable sales declined 7.9%8.2% on an owned basis;basis and declined 7.2%7.3% on an owned-plus-licensed basis compared to the firstsecond quarter of 2022.
◦Macy’sMacy's comparable sales declined 8.7%9.2% on an owned basis and declined 7.9%8.2% on an owned-plus-licensed basis compared to the firstsecond quarter of 2022.
◦Bloomingdale’sBloomingdale's comparable sales declined 3.9%2.7% on an owned basis and declined 4.3%2.6% on an owned-plus-licensed basis compared to the firstsecond quarter of 2022.
◦bluemercuryBluemercury comparable sales increased 4.3%5.8% on an owned basis compared to the firstsecond quarter of 2022.
•Digital sales decreased 8%10% versus the firstsecond quarter of 2022. Digital penetration was 32%30% of net sales for the firstsecond quarter of 2023, a 1-percentage point decline from the firstwhich remained flat compared to second quarter of 2022.
•Other revenues were $191$150 million, down $26$84 million from the firstsecond quarter of 2022.
•Gross margin rate was 40.0%38.1%, compared to 39.6%38.9% in the firstsecond quarter of 2022.
•Selling, general and administrative ("SG&A") expense was $1,950$1,980 million, up $45down $31 million from the firstsecond quarter of 2022. SG&A expense as a percent of total revenue was 37.7%37.5%, 350300 basis points higher than the firstsecond quarter of 2022.
•Net incomeloss was $155$22 million in the firstsecond quarter of 2023, compared to $286net income of $275 million in the firstsecond quarter of 2022.
•The firstsecond quarter of 2023 had earnings before interest, taxes, depreciation and amortization ("EBITDA") of $466$221 million compared to EBITDA of $676$614 million during the firstsecond quarter of 2022. On an adjusted basis, EBITDA was $468$347 million for the firstsecond quarter of 2023, compared to $684$616 million during the firstsecond quarter of 2022.
•Diluted earningsloss per share was $(0.08) and adjusted diluted earnings per share were both $0.56 was $0.26 during the firstsecond quarter of 2023. This compares to diluted earnings per share of $0.99 and adjusted diluted earnings per share of $0.98 and $1.08$1.00 for the firstsecond quarter of 2022, respectively.2022.
•Inventory wasMerchandise inventories were down 7%10% from the firstsecond quarter of 2022.
During the firstsecond quarter of 2023, the Company continued to invest in its five primary growth vectors that represent strategic investments designed to target future long-term profitable sales growth:
•Macy's private brandsbrand reimagination - designed to drive customer loyalty, be a differentiator for the business, complement national brands matrix and benefit gross margin. During the firstsecond quarter of 2023, INC women'sMacy's launched On 34th, its first new private brand under the reimagination, with a strong customer response. Through 2026, the Company plans to refresh or replace all existing brands in its private brand portfolio, and Club Room men's, both of which have been reimagined, outperformed their respective broader apparel segments at Macy's. The Company is alsoplans to introduce four new private brands in the process of developing its newest brand, which will offer women's apparel and accessories and is expected to launch later this summer.total, including On 34th.
•Market by Macy's and Bloomies off-mallBloomie's small format store expansionformats - playsplay an integral role in supporting the omnichannel ecosystem, which theecosystem. The Company expects to unlock the full potential of these small store formats by testing and learning in 2023 and potentially accelerating openings in 2024, if stores continue to outperform. DuringShortly after the firstsecond quarter of 2023, the Company'sCompany opened its ninth Macy's small format storeslocation and in the second half of 2023, the Company expects to open at leastthree additional Macy's small format locations and one full fiscal year achieved positive comparable owned-plus-licensed sales growth.additional Bloomie's location.
•Digital marketplace - on a multi-year journey with marketplace, keeping a pulse on market dynamics and shifts to deliver the best experience for customers and sellers. DuringAs of the firstend of the second quarter of 2023, the Company addedMacy's offered approximately 4501,350 brands its gross merchandise value increased over 50% compared to 500 brands as of the end of the fourth quarter of 2022 and average ordergrew its gross merchandise value and units per order were approximately 50% above those customers not shopping at Marketplace.by over 116% from the first quarter of 2023. The Company expects to launchalso launched a Bloomingdale's Marketplacemarketplace in early fallthe second quarter of 2023.
•Luxury brands - attracting and retaining luxury customercustomers through differentiated products, services and experiences at Bloomingdale's, bluemercuryBluemercury and beauty at Macy's. Bloomingdale's is remodeling high profile stores that have relatively larger concentrations of luxury brands and products. To date, the Company has remodeled five Bloomingdale's locations. The second quarter of 2023 marked Bluemercury's tenth consecutive quarter of comparable sales growth, and active customer count on a trailing twelve-month basis increased 20%, driven primarily by new customers. At Macy's, the Company has elevatedis expanding its luxury offering with an emphasis on newness, freshness in its core market brands, and in-store animation and services, and expects to introduce six additional beauty business with a larger luxury assortment that continuedremodels, bringing the total to increase in first quarter of 2023 and is expected to grow with even more partnerships during 2023.39 locations.
•Personalized offers and communication - opportunityamplifies strategies across the business to build loyalty, growincrease customer lifetime value and product margins, creating tailored and intimate customer experience. During the first quarterloyalty by improving relevance of 2023, the Company tested personalizationevery interaction. As of offers within its typical event structure, which showed different customers various value propositions by level of discount and category of offer. This testing was in addition to loyalty lifecycle offers, such as status earn-back accelerators and targeted offers to at-risk customers. The testing suggests personalized offers have the ability to foster sales growth, margin expansion, and stronger customer engagement. The Company has accelerated its analytics-powered campaigns in the second quarter of 2023, digital and will usetechnology teams are in the learningsinitial stages of implementing multi-step and multi-channel tests designed to inform its view on opportunities at Bloomingdale'sincrease lifetime value and bluemercury.loyalty.
Results of Operations
| | | First Quarter of 2023 | | First Quarter of 2022 | | Second Quarter of 2023 | | Second Quarter of 2022 |
| | Amount | | % to Net Sales | | % to Total Revenue | | Amount | | % to Net Sales | | % to Total Revenue | | Amount | | % to Net Sales | | % to Total Revenue | | Amount | | % to Net Sales | | % to Total Revenue |
| | (dollars in millions, except per share figures) | | (dollars in millions, except per share figures) |
Net sales | Net sales | $ | 4,982 | | | $ | 5,348 | | | Net sales | $ | 5,130 | | | $ | 5,600 | | |
Other revenue | Other revenue | 191 | | | 3.8 | % | | 217 | | | 4.1 | % | | Other revenue | 150 | | | 2.9 | % | | 234 | | | 4.2 | % | |
Total revenue | Total revenue | 5,173 | | | 5,565 | | | Total revenue | 5,280 | | | 5,834 | | |
Cost of sales | Cost of sales | (2,988) | | | (60.0) | % | | (3,231) | | | (60.4) | % | | Cost of sales | (3,176) | | | (61.9) | % | | (3,422) | | | (61.1) | % | |
Selling, general and administrative expenses | Selling, general and administrative expenses | (1,950) | | | (37.7) | % | | (1,905) | | | (34.2) | % | Selling, general and administrative expenses | (1,980) | | | (37.5) | % | | (2,011) | | | (34.5) | % |
Gains on sale of real estate | Gains on sale of real estate | 11 | | | 0.2 | % | | 42 | | | 0.8 | % | Gains on sale of real estate | 4 | | | 0.1 | % | | — | | | — | % |
Impairment, restructuring and other costs | Impairment, restructuring and other costs | (2) | | | — | % | | (8) | | | (0.1) | % | Impairment, restructuring and other costs | (4) | | | (0.1) | % | | (2) | | | — | % |
Operating income | Operating income | 244 | | | 4.7 | % | | 463 | | | 8.3 | % | Operating income | 124 | | | 2.3 | % | | 399 | | | 6.8 | % |
| Diluted earnings per share | $ | 0.56 | | | $ | 0.98 | | | |
Diluted earnings (loss) per share | | Diluted earnings (loss) per share | $ | (0.08) | | | $ | 0.99 | | |
| Supplemental Financial Measures | Supplemental Financial Measures | | Supplemental Financial Measures | |
Gross margin (a) | Gross margin (a) | $ | 1,994 | | | 40.0 | % | | $ | 2,117 | | | 39.6 | % | | Gross margin (a) | $ | 1,954 | | | 38.1 | % | | $ | 2,178 | | | 38.9 | % | |
Digital sales as a percentage of net sales | Digital sales as a percentage of net sales | 32 | % | | 33 | % | | Digital sales as a percentage of net sales | 30 | % | | 30 | % | |
Increase (decrease) in comparable sales | (7.9) | % | | 12.8 | % | | |
Decrease in comparable sales | | Decrease in comparable sales | (8.2) | % | | (1.5) | % | |
| Supplemental Non-GAAP Financial Measures | Supplemental Non-GAAP Financial Measures | | Supplemental Non-GAAP Financial Measures | |
Increase (decrease) in comparable sales on an owned-plus-licensed basis | (7.2) | % | | 12.4 | % | | |
Decrease in comparable sales on an owned-plus-licensed basis | | Decrease in comparable sales on an owned-plus-licensed basis | (7.3) | % | | (1.6) | % | |
Adjusted diluted earnings per share | Adjusted diluted earnings per share | $ | 0.56 | | | $ | 1.08 | | | Adjusted diluted earnings per share | $ | 0.26 | | | $ | 1.00 | | |
EBITDA | EBITDA | $ | 466 | | | $ | 676 | | | EBITDA | $ | 221 | | | $ | 614 | | |
Adjusted EBITDA | Adjusted EBITDA | $ | 468 | | | $ | 684 | | | Adjusted EBITDA | $ | 347 | | | $ | 616 | | |
(a)Gross margin is defined as net sales less cost of sales.
See pages 2225 to 2327 for reconciliations of the supplemental non-GAAP financial measures to their most comparable GAAP financial measure and for other important information.
Comparison of the FirstSecond Quarter of 2023 and the FirstSecond Quarter of 2022
| | | First Quarter of 2023 | | First Quarter of 2022 | | Second Quarter of 2023 | | Second Quarter of 2022 |
Net sales | Net sales | | $ | 4,982 | | | $ | 5,348 | | Net sales | | $ | 5,130 | | | $ | 5,600 | |
Increase (decrease) in comparable sales | | (7.9) | % | | 12.8 | % | |
Increase (decrease) in comparable sales on an owned-plus-licensed basis | | (7.2) | % | | 12.4 | % | |
Decrease in comparable sales | | Decrease in comparable sales | | (8.2) | % | | (1.5) | % |
Decrease in comparable sales on an owned-plus-licensed basis | | Decrease in comparable sales on an owned-plus-licensed basis | | (7.3) | % | | (1.6) | % |
Digital sales as a percent of net sales | Digital sales as a percent of net sales | | 32 | % | | 33 | % | Digital sales as a percent of net sales | | 30 | % | | 30 | % |
Net sales for the firstsecond quarter of 2023 decreased for Macy’s and Bloomingdale’s, but improved for bluemercury.Bluemercury. During the quarter, net sales were impacted by macroeconomic conditions as consumer spending in discretionary categories camecontinued to be under pressure. The CompanyMacy's experienced strength in categories that are less discretionary, includingincluded beauty, particularly fragrances and prestige cosmetics, women's career sportswear, and men's tailoredtailored. Active, casual and off-price as well as trend improvement in certain soft home categories. Seasonal and social occasionsleepwear categories underperformed compared to the firstsecond quarter of 2022. Owned average unit retail ("AUR") increased 4.7% due to ticket increases and category mix.
| | | First Quarter of 2023 | | First Quarter of 2022 | | Second Quarter of 2023 | | Second Quarter of 2022 |
| | $ | | % to Net Sales | | $ | | % to Net Sales | | $ | | % to Net Sales | | $ | | % to Net Sales |
Credit card revenues, net | Credit card revenues, net | | $ | 162 | | | 3.3 | % | | $ | 191 | | | 3.6 | % | Credit card revenues, net | | $ | 120 | | | 2.3 | % | | $ | 204 | | | 3.6 | % |
Macy's Media Network, net | Macy's Media Network, net | | 29 | | | 0.6 | % | | 26 | | | 0.5 | % | Macy's Media Network, net | | 30 | | | 0.6 | % | | 30 | | | 0.5 | % |
Other revenue | Other revenue | | $ | 191 | | | 3.8 | % | | $ | 217 | | | 4.1 | % | Other revenue | | $ | 150 | | | 2.9 | % | | $ | 234 | | | 4.2 | % |
| Proprietary credit card sales penetration | Proprietary credit card sales penetration | | 43.6 | % | | 43.1 | % | | Proprietary credit card sales penetration | | 43.1 | % | | 43.1 | % | |
The decrease in other revenues was primarily driven by a $29$84 million decrease in credit card revenues. This decrease reflects the impact of higher bad debtincreases in delinquency rates within the portfolio.
| | | | | | | | | | | | | | |
| | First Quarter of 2023 | | First Quarter of 2022 |
Cost of sales | | $ | (2,988) | | | (3,231) | |
As a percent to net sales | | 60.0 | % | | 60.4 | % |
Gross margin | | $ | 1,994 | | | $ | 2,117 | |
As a percent to net sales | | 40.0 | % | | 39.6 | % |
Thecredit card portfolio leading to an increase in the grossestimated bad debt.
| | | | | | | | | | | | | | |
| | Second Quarter of 2023 | | Second Quarter of 2022 |
Cost of sales | | $ | (3,176) | | | (3,422) | |
As a percent to net sales | | 61.9 | % | | 61.1 | % |
Gross margin | | $ | 1,954 | | | $ | 2,178 | |
As a percent to net sales | | 38.1 | % | | 38.9 | % |
Gross margin of 40rate and merchandise margin rate decreased 80 basis points and 130 basis points, respectively, in the second quarter of 2023 compared to the second quarter of 2022. The decrease in merchandise margin was primarily driven by increased markdowns, unfavorable category mix shifts and the impact of higher inventory shortage, offset by lower inbound freight costs driven by the Company's cost saving efforts. Delivery expense as a 40percent of net sales decreased 50 basis point improvement in delivery expense due to improvements in contracted rates and 100 basis point decline in digital penetration. Merchandise margin remained flat topoints from the firstsecond quarter of 2022 primarily due to improved carrier rates from contract renegotiations as well as lower clearance markdownsfuel costs and lean beginning-of-year inventories, offset by increased promotional markdowns in seasonal categories and impacts from category mix. Inventorylower vendor direct volume. Finally, inventory declined 7%10% year-over-year, which is consistent with the decrease in net sales and driven by the Company's continued inventory discipline.
| | | First Quarter of 2023 | | First Quarter of 2022 | | Second Quarter of 2023 | | Second Quarter of 2022 |
SG&A expenses | SG&A expenses | | $ | (1,950) | | | $ | (1,905) | | SG&A expenses | | $ | (1,980) | | | $ | (2,011) | |
As a percent to total revenue | As a percent to total revenue | | 37.7 | % | | 34.2 | % | As a percent to total revenue | | 37.5 | % | | 34.5 | % |
SG&A expenses increaseddecreased in the firstsecond quarter of 2023 both in dollarscompared to the second quarter of 2022 due to effective implementation of cost saving initiatives and as a percent to total revenue.ongoing expense discipline. The increase in SG&A expense dollars andexpenses as a percent to total revenue corresponds with the increase in the Company’s minimum wage to $15/hour beginning May 1, 2022 as well as other continued investments in its colleagues. The increase was also driven by increases in depreciation and amortization expense as a result of the Company's capital investments.
| | | | | | | | | | | | | | |
| | First Quarter of 2023 | | First Quarter of 2022 |
Gains on sale of real estate | | $ | 11 | | | $ | 42 | |
The gains on sale of real estate in the firstsecond quarter of 2023 were driven bywas due to a decline in total revenue compared to the sale of the Company's Cheshire distribution center while gains on the sale of real estate in the firstsecond quarter of 2022 were driven by the sale of four properties.
| | | | | | | | | | | | | | |
| | First Quarter of 2023 | | First Quarter of 2022 |
Net interest expense | | $ | (37) | | | $ | (47) | |
The decrease in net interest expense, excluding losses on early retirement of debt, was primarily driven by interest savings associated with financing activities completed during the first quarter of 2022.
| | | | | | | | | | | | | | |
| | FirstSecond Quarter of 2023 | | FirstSecond Quarter of 2022 |
Losses on early retirement of debtSettlement charges | | $ | (122) | | | $ | — | | | $ | (31) | |
In 2022, losses on early retirementDuring the second quarter of debt were2023, the Company recognized duea non-cash settlement charge of $122 million associated with the transfer of fully funded pension obligations for certain retirees and beneficiaries through the purchase of a group annuity contract with an insurance company.
| | | | | | | | | | | | | | |
| | Second Quarter of 2023 | | Second Quarter of 2022 |
Net interest expense | | $ | (36) | | | $ | (42) | |
The decrease in net interest expense in the second quarter of 2023 compared to the early payment of $1.1 billion aggregate principal amount of senior notes and debentures in the firstsecond quarter of 2022.
| | | First Quarter of 2023 | | First Quarter of 2022 | | Second Quarter of 2023 | | Second Quarter of 2022 |
Effective tax rate | Effective tax rate | | 26.5 | % | | 27.0 | % | Effective tax rate | | 26.7 | % | | 24.5 | % |
Federal income statutory rate | Federal income statutory rate | | 21 | % | | 21 | % | Federal income statutory rate | | 21 | % | | 21 | % |
The Company’sCompany's effective tax rate varies from the federal income tax statutory rate of 21% in both periods, primarily driven by the effect of state and local taxestaxes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
| Amount | | % to Net Sales | | % to Total Revenue | | Amount | | % to Net Sales | | % to Total Revenue |
| (dollars in millions, except per share figures) | | |
Net sales | $ | 10,112 | | | | | | | $ | 10,948 | | | | | |
Other revenue | 341 | | | 3.4 | % | | | | 451 | | | 4.1 | % | | |
Total revenue | 10,453 | | | | | | | 11,399 | | | | | |
Cost of sales | (6,164) | | | (61.0) | % | | | | (6,652) | | | (60.8) | % | | |
Selling, general and administrative expenses | (3,930) | | | | | (37.6) | % | | (3,917) | | | | | (34.4) | % |
Gains on sale of real estate | 15 | | | | | 0.1 | % | | 42 | | | | | 0.4 | % |
Impairment, restructuring and other costs | (6) | | | | | (0.1) | % | | (10) | | | | | (0.1) | % |
Operating income | $ | 368 | | | | | 3.5 | % | | $ | 862 | | | | | 7.6 | % |
| | | | | | | | | | | |
Diluted earnings per share | $ | 0.48 | | | | | | | $ | 1.97 | | | | | |
| | | | | | | | | | | |
Supplemental Financial Measures | | | | | | | | | | | |
Gross margin (a) | $ | 3,948 | | | 39.0 | % | | | | $ | 4,296 | | | 39.2 | % | | |
Digital sales as a percentage of net sales | 31 | % | | | | | | 32 | % | | | | |
Increase (decrease) in comparable sales | (8) | % | | | | | | 5.1 | % | | | | |
| | | | | | | | | | | |
Supplemental Non-GAAP Financial Measures | | | | | | | | | | | |
Increase (decrease) in comparable sales on an owned-plus-licensed basis | (7.2) | % | | | | | | 4.9 | % | | | | |
Adjusted diluted earnings per share | $ | 0.82 | | | | | | | $ | 2.08 | | | | | |
EBITDA | $ | 687 | | | | | | | $ | 1,289 | | | | | |
Adjusted EBITDA | $ | 815 | | | | | | | $ | 1,299 | | | | | |
(b)Gross margin is defined as net sales less cost of sales.
See pages 25 to 27 for reconciliations of the supplemental non-GAAP financial measures to their most comparable GAAP financial measure and for other important information.
Comparison of the vesting26 Weeks Ended July 29, 2023 and cancellationsJuly 30, 2022
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
Net sales | | $ | 10,112 | | | $ | 10,948 | |
Increase (decrease) in comparable sales | | (8.1) | % | | 5.1 | % |
Increase (decrease) in comparable sales on an owned-plus-licensed basis | | (7.2) | % | | 4.9 | % |
Digital sales as a percent of net sales | | 31 | % | | 32 | % |
Net sales for the first half of 2023 decreased for Macy’s and Bloomingdale’s but improved for Bluemercury as compared to the first half of 2022. Net sales were impacted by macroeconomic conditions as consumer spending in discretionary categories continued to be under pressure. Macy's experienced strength in categories that included fragrances, cosmetics, women's career sportswear, and men’s tailored. Categories such as casual, activewear,and sleepwear underperformed the prior year, and digital sales decreased 1% compared to the first half of 2022 as a result of the shift in consumer behavior. Owned AUR increased 4.7% from the first half of 2022 compared to the first half of 2023 due to ticket increases and category mix.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| | $ | | % to Net Sales | | $ | | % to Net Sales |
Credit card revenues, net | | $ | 282 | | | 2.8 | % | | $ | 395 | | | 3.6 | % |
Macy's Media Network, net | | 59 | | | 0.6 | % | | 56 | | | 0.5 | % |
Other revenue | | $ | 341 | | | 3.4 | % | | $ | 451 | | | 4.1 | % |
| | | | | | | | |
Proprietary credit card sales penetration | | 43.4 | % | | | | 43.1 | % | | |
The decrease in other revenues was driven by a $113 million decrease in credit card revenues. This decrease reflects the impact of lower credit card sales as well as increases in delinquency rates within the credit card portfolio leading to an increase in estimated bad debt.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
Cost of sales | | $ | (6,164) | | | $ | (6,652) | |
As a percent to net sales | | 61.0 | % | | 60.8 | % |
Gross margin | | $ | 3,948 | | | $ | 4,296 | |
As a percent to net sales | | 39.0 | % | | 39.2 | % |
Gross margin rate and merchandise margin rate decreased 20 basis points and 100 basis points, respectively, during the first half of 2023 compared to the first half of 2022. The decrease in merchandise margin was driven by increased markdowns and shortage as well as an unfavorable product mix, offset by inbound freight costs savings. Delivery expense as a percent of net sales decreased 50 basis points from the first half of 2022 primarily due to improved carrier rates from contract renegotiations as well as lower fuel costs and lower vendor direct volume. Inventory declined 10% year-over-year driven by the Company's continued inventory discipline.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
SG&A expenses | | $ | (3,930) | | | $ | (3,917) | |
As a percent to total revenue | | 37.6 | % | | 34.4 | % |
SG&A expenses increased in the first half of 2023 both in dollars and as a percent to net sales. The increase in SG&A expense dollars corresponds with the Company’s investments in its colleagues, including increasing the Company’s minimum wage to $15/hour starting May 1, 2022, partially offset by effective implementation of cost saving initiatives. The increase in SG&A expenses as a percent to total revenue was due to a decline in total revenue year-over-year.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
Gains on sale of real estate | | $ | 15 | | | $ | 42 | |
Asset sale gains in the first half of 2023 mainly related to the sale of the Company's Cheshire distribution center while the first half of 2022 mainly consisted of gains from the sale of four properties.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
Impairment, restructuring and other costs | | $ | (6) | | | $ | (10) | |
Impairment, restructuring and other costs in the first half of 2023 and 2022 were primarily related to employee severance and write-off of investment assets, respectively.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
Settlement charges | | $ | (122) | | | $ | — | |
During the first half of 2023, the Company recognized a non-cash settlement charge of $122 million associated with the transfer of fully funded pension obligations for certain stock-based compensation awards.retirees and beneficiaries through the purchase of a group annuity contract with an insurance company.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
Net interest expense | | $ | (73) | | | $ | (89) | |
The decrease in net interest expense for the first half of 2023 compared to the first half of 2022 was driven by an increase in interest income and interest savings associated with the financing activities completed in the first quarter of 2022.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
Losses on early retirement of debt | | $ | — | | | $ | (31) | |
In 2022, losses on early retirement of debt were recognized due to the early payment of $1.1 billion senior notes and debentures in March 2022.
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
Effective tax rate | | 26.5 | % | | 25.8 | % |
Federal income statutory rate | | 21 | % | | 21 | % |
The Company's effective tax rate varies from the federal income tax statutory rate of 21% in both periods, primarily driven by the impact of state and local taxes.
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 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.
Merchandise purchase obligations represent future merchandise payables for inventory purchased from various suppliers through contractual arrangements and are expected to be funded through cash from operations.
Capital Allocation
The Company’sCompany's capital allocation goals include maintaining a healthy balance sheet and investment-grade credit metrics, followed by investing in growth initiatives and returning capital to shareholders through predictable dividends and share repurchases with excess cash.
The Company ended the firstsecond quarter of 2023 with a cash and cash equivalents balance of $603$438 million, a decreasean increase of $69$138 million from $672$300 million at the end of the firstsecond quarter of 2022. The Company is party to the ABL Credit Facility with certain financial institutions providing for a $3,000 million asset-based credit facility.
| | | First Quarter of 2023 | | First Quarter of 2022 | | 2023 | | 2022 |
Net cash provided by operating activities | Net cash provided by operating activities | | $ | 105 | | | $ | 248 | | Net cash provided by operating activities | | $ | 271 | | | $ | 303 | |
Net cash used by investing activities | Net cash used by investing activities | | (270) | | | (194) | | Net cash used by investing activities | | (531) | | | (515) | |
Net cash used by financing activities | Net cash used by financing activities | | (94) | | | (1,094) | | Net cash used by financing activities | | (164) | | | (1,200) | |
Operating Activities
The decrease in net cash provided by operating activities was primarily driven by lower net income. The increasesEBITDA. This was offset by a cash flow benefit associated with decreases in both merchandise inventory and merchandise accounts payable as of the first quarter of 2023 from year end 2022 were also lower than what waspayables related to inventory efficiencies realized during the same period in the prior year, ultimately resulting in a reduced cash inflow.first half of 2023.
Investing Activities
The Company’sCompany's capital expenditures were $296$564 million throughin the first quarterhalf of 2023 compared to $261$582 million throughin the first quartersecond half of 2022.2022. 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 asset disposition activity was also lower in the first quarterhalf of 2023 compared to the first quarterhalf of 2022.
Financing Activities
Dividends
The Company paid dividends totaling $45$90 million and $87 million in both the first quarterhalf of 2023 and 2022. On February 24, 2023, the2022, respectively. The Board of Directors declared regular quarterly dividends of 16.54 cents per share on the Company’sCompany's common stock, which waswere paid on April 3, 2023 and July 3, 2023, to Macy’sMacy's shareholders of record at the close of business on March 15, 2023.2023 and June 15, 2023, respectively.
On May 31,August 25, 2023, the Company's Board of Directors declared a regular quarterly dividend of 16.54 cents per share on its common stock, payable July 3,which will be paid on October 2, 2023, to Macy's shareholders of record at the close of business on JuneSeptember 15, 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 Company’sCompany announced that its 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 and asprogram. As of AprilJuly 29, 2023, $1,375 million remained available under the authorization. The Company did not repurchase any shares of its common stock during the second quarter 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 AprilJuly 29, 2023 and AprilJuly 30, 2022, the Company had $138 million and $65 million of standby letters of credit outstanding under its revolving credit facility (“ABL Credit Facility”),Facility, respectively, which reduced the available borrowing capacity to $2,862 million and $2,935 million respectively. The Company had no outstanding borrowings under the ABL Credit Facility as of AprilJuly 29, 2023 and AprilJuly 30, 2022.
Contractual Obligations
As of AprilJuly 29, 2023, other than the financing transactions discussed above and in Note 4 to the accompanying Consolidated Financial Statements, there were no material changes to ourthe Company's contractual obligations and commitments outside the ordinary course of business since January 28, 2023, as reported in the Company’sCompany's 2022 Form 10-K.
Guarantor Summarized Financial Information
The Company had $3,007 million aggregate principal amount of senior unsecured notes and senior unsecured debentures (collectively the “Unsecured Notes”"Unsecured Notes") outstanding as of both AprilJuly 29, 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’sCompany's existing and future senior unsecured obligations, senior to any of the Company’sCompany's future subordinated indebtedness, and are structurally subordinated to all existing and future obligations of each of the Company’sCompany's subsidiaries that do not guarantee the Unsecured Notes. Holders of the Company’sCompany'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 guaranteeguarantees are effectively subordinated to all of the Subsidiary Issuer’sIssuer's and Parent and their subsidiaries’ existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness.
The following tables include combined financial information of the Obligor Group. Investments in subsidiaries of $7,933 million and $9,146 million as of AprilJuly 29, 2023 and January 28, 2023, respectively, have been excluded from the Summarized Balance Sheets. Equity in earnings of non-Guarantor subsidiaries of $401$307 million and $708 million for the 13 and 26 weeks ended AprilJuly 29, 2023, have been excluded from the Summarized Statement of Operations. The combined financial information of the Obligor Group is presented on a combined basis with intercompany balances and transactions within the Obligor Group eliminated.
Summarized Balance Sheets
| | | | | | | | | | | |
| April 29, 2023 | | January 28, 2023 |
| (in millions) |
ASSETS |
Current Assets | $ | 899 | | | $ | 1,154 | |
Noncurrent Assets | 8,223 | | | 8,261 | |
LIABILITIES |
Current Liabilities | $ | 2,234 | | | $ | 1,958 | |
Noncurrent Liabilities (a) | 10,647 | | | 12,517 | |
(a)Includes net amounts due to non-Guarantor subsidiaries of $4,537 million and $6,784 million as of April 29, 2023 and January 28, 2023, respectively.
Summarized Balance Sheets
| | | | | | | | | | | |
| July 29, 2023 | | January 28, 2023 |
| (in millions) |
ASSETS |
Current Assets | $ | 945 | | | $ | 1,154 | |
Noncurrent Assets | 7,449 | | | 8,261 | |
LIABILITIES |
Current Liabilities | $ | 1,633 | | | $ | 1,958 | |
Noncurrent Liabilities (a) | 10,682 | | | 12,517 | |
(a)Includes net amounts due to non-Guarantor subsidiaries of $4,038 million and $6,784 million as of July 29, 2023 and January 28, 2023, respectively.
Summarized Statement of Operations
| | | | | | | |
| 13 Weeks Ended April 29, 2023 | | |
(in millions) |
Net sales | $ | 216 | | | |
Consignment commission income (a) | 769 | | | |
Other revenue | 29 | | | |
Cost of sales | (109) | | | |
Operating loss | (270) | | | |
Income before income taxes (b) | 106 | | | |
Net income | 196 | | | |
| | | | | | | | | | | |
| 13 Weeks Ended July 29, 2023 | | 26 Weeks Ended July 29, 2023 |
(in millions) |
Net sales | $ | 227 | | | $ | 443 | |
Consignment commission income (a) | 821 | | | 1,590 | |
Other revenue | 30 | | | 59 | |
Cost of sales | (103) | | | (212) | |
Operating loss | (286) | | | (556) | |
Loss before income taxes (b) | (316) | | | (210) | |
Net loss | (202) | | | (6) | |
(a)Income pertains to transactions with ABL Borrower, a non-Guarantor subsidiary.
(b)Includes $442$128 million and $570 million of dividend income from non-Guarantor subsidiaries for the 13 and 26 weeks ended AprilJuly 29, 2023.2023, respectively.
Outlook and Recent Developments
On June 1,August 22, 2023, the Company updated its annual 2023 guidance as follows:
•Net sales are now expected to be between $22.8 billion and $23.2 billion,
•Comparable sales on a 52-week owned-plus-licensed basis are now expected to be down approximately 7.5% to 6% as compared to 2022,
•Digital sales are now expected to be one-third of net sales,
•Other revenue is now expected to be approximately 3.6%3.2% of net sales, with credit card revenues accounting for approximately 82%80% to 83%81% of other revenue,revenue;
•Gross margin rate is now expected to be between 38.0%38.3% and 38.5%,38.6%;
•SG&A expense as a percent of total revenue and as a percent to net sales is now expected to be approximately 34.5%35.2% to 35.5%35.6% and 36.7%36.4% to 36.8%36.7%, respectively,respectively;
•Benefit plan income isAsset sale gains are now expected to be approximately $13 million,
•Depreciation and amortization is now expected to be approximately $900$50 million,
•Adjusted EBITDA as a percent of total revenue and as a percent of net sales is now expected to be approximately 8.8%8.7% to 9.4% and 9.1%9.0% to 9.7%, respectively,respectively;
•Adjusted diluted EPSInterest expense is now expected to be between $2.70 and $3.20,approximately $160 million; and,
•Capital expenditures areDiluted shares outstanding is now expected to be approximately $950 million279 million.
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-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 (loss) 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 that are not associated with the Company’sCompany's core operations and that may vary substantially in frequency and magnitude from period-to-period from 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 Company does not provide reconciliations of the forward-looking non-GAAP measures of comparable owned plus licensed sales change, adjusted EBITDA as a percent of total revenue and as a percent to net sales and adjusted diluted earnings per share to the most directly comparable forward-looking GAAP measures because the timing and amount of excluded items 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.
Changes in Comparable Sales
The following is a tabular reconciliation of the non-GAAP financial measure of changes in comparable sales on an owned-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.
| | | | | | | | | | | | | | | | | |
| Comparable Sales vs. 13 Weeks Ended April 30, 2022 |
| Macy's, Inc. | | Macy's | | Bloomingdale's |
Increase (decrease) in comparable sales on an owned basis (Note 1) | (7.9 | %) | | (8.7 | %) | | (3.9 | %) |
Impact of departments licensed to third parties (Note 2) | 0.7 | % | | 0.8 | % | | (0.4 | %) |
Increase (decrease) in comparable sales on an owned-plus-licensed basis | (7.2 | %) | | (7.9 | %) | | (4.3 | %) |
| | | | | | | | | | | | | | | | | |
| 13 Weeks Ended July 29, 2023 vs. 13 Weeks Ended July 30, 2022 |
| Macy's, Inc. | | Macy's | | Bloomingdale's |
Decrease in comparable sales on an owned basis (Note 1) | (8.2 | %) | | (9.2 | %) | | (2.7 | %) |
Impact of departments licensed to third parties (Note 2) | 0.9 | % | | 1.0 | % | | 0.1 | % |
Decrease in comparable sales on an owned-plus-licensed basis | (7.3 | %) | | (8.2 | %) | | (2.6 | %) |
| | | | | | | | | | | | | | | | | |
| 26 Weeks Ended July 29, 2023 vs. 26 Weeks Ended July 30, 2022 |
| Macy's, Inc. | | Macy's | | Bloomingdale's |
Decrease in comparable sales on an owned basis (Note 1) | (8.1 | %) | | (8.9 | %) | | (3.3 | %) |
Impact of departments licensed to third parties (Note 2) | 0.9 | % | | 0.8 | % | | (0.1 | %) |
Decrease in comparable sales on an owned-plus-licensed basis | (7.2 | %) | | (8.1 | %) | | (3.4 | %) |
| | | | | | | | | | | |
| Macy's, Inc. |
| 13 Weeks Ended July 30, 2022 vs. 13 Weeks Ended July 31, 2021 | | 26 Weeks Ended July 30, 2022 vs. 26 Weeks Ended July 31, 2021 |
Decrease in comparable sales on an owned basis (Note 1) | (1.5 | %) | | 5.1 | % |
Impact of departments licensed to third parties (Note 2) | (0.1 | %) | | (0.2 | %) |
Decrease in comparable sales on an owned-plus-licensed basis | (1.6 | %) | | 4.9 | % |
Notes:
(1)Represents the period-to-period percentage change in net sales from stores in operation for both the entire 13 and 26 weeks ended AprilJuly 29, 2023 and AprilJuly 30, 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 in the calculation of comparable sales. Macy’sMacy's and Bloomingdale’sBloomingdale's license third parties to operate certain departments in their stores and online and receive commissions from these third parties based on a percentage of their net sales, while Bluemercury does not participate in licensed 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) in its net sales. The Company does not, however, include any amounts in respect of 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 amounts of commissions earned on sales of departments licensed to third parties are not material to its net sales for the periods presented.
EBITDA and Adjusted EBITDA
The following is a tabular reconciliation of the non-GAAP financial measure EBITDA and Adjusted EBITDA to GAAP net income, which the Company believes to be the most directly comparable GAAP measure.
| | | 13 Weeks Ended April 29, 2023 | | 13 Weeks Ended April 30, 2022 | | 13 Weeks Ended July 29, 2023 | | 13 Weeks Ended July 30, 2022 | | 26 Weeks Ended July 29, 2023 | | 26 Weeks Ended July 30, 2022 |
| | (millions) | | (millions) |
| Net income | $ | 155 | | | $ | 286 | | |
Net income (loss) | | Net income (loss) | $ | (22) | | | $ | 275 | | | $ | 133 | | | $ | 561 | |
Interest expense - net | Interest expense - net | 37 | | | 47 | | Interest expense - net | 36 | | | 42 | | | 73 | | | 89 | |
Losses on early retirement of debt | Losses on early retirement of debt | — | | | 31 | | Losses on early retirement of debt | — | | | — | | | — | | | 31 | |
Federal, state and local income tax expense | 56 | | | 106 | | |
Federal, state and local income tax (benefit) expense | | Federal, state and local income tax (benefit) expense | (8) | | | 89 | | | 48 | | | 195 | |
Depreciation and amortization | Depreciation and amortization | 218 | | | 206 | | Depreciation and amortization | 215 | | | 208 | | | 433 | | | 413 | |
EBITDA | EBITDA | $ | 466 | | | $ | 676 | | EBITDA | $ | 221 | | | $ | 614 | | | $ | 687 | | | $ | 1,289 | |
Impairment, restructuring and other costs | Impairment, restructuring and other costs | 2 | | | 8 | | Impairment, restructuring and other costs | 4 | | | 2 | | | 6 | | | 10 | |
| Settlement charges | | Settlement charges | 122 | | | — | | | 122 | | | — | |
Adjusted EBITDA | Adjusted EBITDA | $ | 468 | | | $ | 684 | | Adjusted EBITDA | $ | 347 | | | $ | 616 | | | $ | 815 | | | $ | 1,299 | |
|
Adjusted Net Income and Adjusted Diluted Earnings Per Share
The following is a tabular reconciliation of the non-GAAP financial measures adjusted net income to GAAP net income and adjusted diluted earnings per share to GAAP diluted earnings per share, which the Company believes to be the most directly comparable GAAP measures.
| | | First Quarter of 2023 | | First Quarter of 2022 | | Second Quarter of 2023 | | Second Quarter of 2022 |
| | Net Income | | Diluted Earnings Per Share | | Net Income | | Diluted Earnings Per Share | | Net Income (Loss) | | Diluted Earnings (Loss) Per Share | | Net Income | | Diluted Earnings Per Share |
| | (millions, except per share figures) | | (millions, except per share figures) |
As reported | As reported | $ | 155 | | | $ | 0.56 | | | $ | 286 | | | $ | 0.98 | | As reported | $ | (22) | | | $ | (0.08) | | | $ | 275 | | | $ | 0.99 | |
Impairment, restructuring and other costs | Impairment, restructuring and other costs | 2 | | | — | | | 8 | | | 0.03 | | Impairment, restructuring and other costs | 4 | | | 0.01 | | | 2 | | | 0.01 | |
Settlement charges | | Settlement charges | 122 | | | 0.44 | | | — | | | — | |
| Income tax impact of certain items noted above | | Income tax impact of certain items noted above | (33) | | | (0.11) | | | — | | | — | |
As adjusted to exclude certain items above | | As adjusted to exclude certain items above | $ | 71 | | | $ | 0.26 | | | $ | 277 | | | $ | 1.00 | |
| | | | 2023 | | 2022 |
| | | Net Income | | Diluted Earnings Per Share | | Net Income | | Diluted Earnings Per Share |
| | | (millions, except per share figures) |
As reported | | As reported | $ | 133 | | | $ | 0.48 | | | $ | 561 | | | $ | 1.97 | |
Impairment, restructuring and other costs | | Impairment, restructuring and other costs | 6 | | | 0.01 | | | 10 | | | 0.04 | |
Settlement charges | | Settlement charges | 122 | | | 0.44 | | | — | | | — | |
Losses on early retirement of debt | Losses on early retirement of debt | — | | | — | | | 31 | | | 0.11 | | Losses on early retirement of debt | — | | | — | | | 31 | | | 0.11 | |
Income tax impact of certain items noted above | Income tax impact of certain items noted above | — | | | — | | | (10) | | | (0.04) | | Income tax impact of certain items noted above | (33) | | | (0.11) | | | (10) | | | (0.04) | |
As adjusted to exclude certain items above | As adjusted to exclude certain items above | $ | 157 | | | $ | 0.56 | | | $ | 315 | | | $ | 1.08 | | As adjusted to exclude certain items above | $ | 228 | | | $ | 0.82 | | | $ | 592 | | | $ | 2.08 | |
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 2022 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 2022 10-K.
Item 4. Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer have carried out, as of AprilJuly 29, 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 of 1934 (the "Exchange Act"). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of AprilJuly 29, 2023, the Company's disclosure controls and procedures were 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.
From 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
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 the Company’s financial position or results of operations.
Retail Hazardous Waste Matter. As previously reported, the District Attorneys for ten counties in California and the City of Los Angeles were investigating alleged non-compliance with laws and regulations enacted or adopted regulating the storage, transportation and disposal of hazardous waste in California at Macy’s stores and distribution centers. The offices and agencies involved were focused on disposal and return of cosmetic products. In August 2023, the Company entered into a Stipulation for Entry of Final Judgment and Injunction with the District Attorneys resolving the matter. The final judgment requires the Company to pay $1,925,000 (consisting of a civil penalty, reimbursement of attorney fees and investigative costs, and investment in compliance assurance program), enjoins the Company from violating California environmental laws, and requires employment of a designated California compliance employee, training of relevant employees, and periodic hazardous waste inspections, trash compactor/dumpster audits and status reporting. The consent judgment is in effect for five years, after which the Company may apply to have it terminated, and automatically terminates after seven years. The reserve for the loss is included within accounts payable and accrued liabilities on the Consolidated Balance Sheet as of July 29, 2023.
Item 1A. Risk Factors.
There have been no material changes to the Risk Factors described in Part I, Item 1A."Risk Factors" in the Company's 2022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information regarding the Company’s purchase of Common Stock during the first quarter of 2023.
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share ($) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a) | | Maximum Dollar Value of Shares that may yet be Purchased Under the Plans or Programs (a) ($) |
| (thousands) | | | | (thousands) | | (millions) |
January 29, 2023 - February 25, 2023 | — | | | $ | — | | | — | | | $ | 1,400 | |
February 26, 2023 - April 1, 2023 | 766 | | 17.18 | | | 72 | | 1,399 |
April 2, 2023 - April 29, 2023 | 1,351 | | 17.58 | | | 1,351 | | 1,375 |
| 2,117 | | $ | 17.57 | | | 1,423 | | |
(a) On February 22, 2022, the Company announced that its Board of Directors authorized a new $2.0 billion share repurchase program, which does not have an expiration date. As of April 29, 2023, $1,375 million of shares remained available for repurchase pursuant to this authorization. The Company may continue, discontinue or resume purchases of common stock under this authorization 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.
Item 5. Other Information.
Forward-Looking Statements
This report and other reports, statements and information previously or subsequently filed by the Company with the Securities 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”"may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "think," "estimate" or “continue”"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;
•the Company's ability to successfully execute against its five growth vectors, including the ability to realize the anticipated benefits associated with the strategy;
•the success of the Company’sCompany's operational decisions, including product sourcing, merchandise mix and pricing, and marketing and strategic initiatives, such as growing its digital channels, expanding the Company's off-mall store presence and modernizing its technology and supply chain infrastructures;
•general consumer shopping behaviors and 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 goods;
•competitive pressures from department stores, specialty stores, general merchandise stores, manufacturers’manufacturers' outlets and websites, off-price and discount stores, and all other retail channels, including digitally-native retailers, social media and catalogs;
•the Company’sCompany's ability to remain competitive and relevant as consumers’consumers' shopping behaviors continue to migrate to digital shopping channels and other shopping channels and to maintain its brand image and reputation;
•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;
•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’sCompany'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’sCompany'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;
•the possible inability of the Company’sCompany's manufacturers or transporters to deliver products in a timely manner or meet the Company’sCompany's quality standards;
•the Company’sCompany'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”"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 July 29, 2023.
Item 6. Exhibits.
| | | | | | | | |
10.1 | | |
10.2+ | | |
10.3 | | |
22 | | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
32.2 | | |
| | |
101 | | The following financial statements from Macy's, Inc.'s Quarterly Report on Form 10-Q for the quarter ended AprilJuly 29, 2023, filed on June 6,August 25, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Income,Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements. |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| | |
+ | | Portions of the exhibit have been omitted because it is both not material and is of the type the registrant treats as confidential. |
* | | Constitutes a compensatory contract or arrangement. |
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.
| | | | | | | | |
| MACY’S,MACY'S, INC. |
| | |
| By: | /s/ ELISA D. GARCIA |
| | Elisa D. Garcia Executive Vice President, Chief Legal Officer and Secretary |
| | |
| By: | /s/ PAUL GRISCOM |
| | Paul Griscom Senior Vice President and Controller |
| | |
Date: June 6,August 25, 2023 | | |