Macy's, Inc. - Quarter Report: 2023 April (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
FORM 10-Q
________________________________
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended April 29, 2023
OR
| 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)
________________________________
| 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:
| 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.
| Large Accelerated Filer | x | Accelerated Filer | o | |||||||||||
| Non-Accelerated Filer | o | Smaller Reporting Company | o | |||||||||||
| 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.
| Class | Outstanding at May 27, 2023 | |||||||
| Common Stock, $.01 par value per share | 272,529,787 shares | |||||||
TABLE OF CONTENTS
| Page | ||||||||
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MACY’S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(millions, except per share figures)
| 13 Weeks Ended | ||||||||||||||
| April 29, 2023 | April 30, 2022 | |||||||||||||
| Net sales | $ | 4,982 | $ | 5,348 | ||||||||||
| Other revenue | 191 | 217 | ||||||||||||
| Total revenue | 5,173 | 5,565 | ||||||||||||
| Cost of sales | (2,988) | (3,231) | ||||||||||||
| Selling, general and administrative expenses | (1,950) | (1,905) | ||||||||||||
| Gains on sale of real estate | 11 | 42 | ||||||||||||
| Impairment, restructuring and other costs | (2) | (8) | ||||||||||||
| Operating income | 244 | 463 | ||||||||||||
| Benefit plan income, net | 4 | 7 | ||||||||||||
| Interest expense, net | (37) | (47) | ||||||||||||
| 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 | ||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
3
MACY’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(millions)
| 13 Weeks Ended | ||||||||||||||
| April 29, 2023 | April 30, 2022 | |||||||||||||
| Net income | $ | 155 | $ | 286 | ||||||||||
| 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 | 2 | 5 | ||||||||||||
| Tax effect related to items of other comprehensive income | (1) | (1) | ||||||||||||
| Total other comprehensive income, net of tax effect | 1 | 4 | ||||||||||||
| Comprehensive income | $ | 156 | $ | 290 | ||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
MACY’S, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(millions)
| April 29, 2023 | January 28, 2023 | April 30, 2022 | ||||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 603 | $ | 862 | $ | 672 | ||||||||||||||
| Receivables | 255 | 300 | 233 | |||||||||||||||||
| Merchandise inventories | 4,607 | 4,267 | 4,956 | |||||||||||||||||
| Prepaid expenses and other current assets | 390 | 424 | 372 | |||||||||||||||||
| Total Current Assets | 5,855 | 5,853 | 6,233 | |||||||||||||||||
Property and Equipment - net of accumulated depreciation and amortization of $4,763, $4,633 and $4,671 | 5,864 | 5,913 | 5,601 | |||||||||||||||||
| Right of Use Assets | 2,715 | 2,683 | 2,736 | |||||||||||||||||
| Goodwill | 828 | 828 | 828 | |||||||||||||||||
| Other Intangible Assets – net | 432 | 432 | 434 | |||||||||||||||||
| Other Assets | 1,174 | 1,157 | 1,140 | |||||||||||||||||
| Total Assets | $ | 16,868 | $ | 16,866 | $ | 16,972 | ||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||
| Merchandise accounts payable | $ | 2,415 | $ | 2,053 | $ | 2,865 | ||||||||||||||
| Accounts payable and accrued liabilities | 2,233 | 2,750 | 2,456 | |||||||||||||||||
| Income taxes | 134 | 58 | 222 | |||||||||||||||||
| Total Current Liabilities | 4,782 | 4,861 | 5,543 | |||||||||||||||||
| Long-Term Debt | 2,996 | 2,996 | 2,994 | |||||||||||||||||
| Long-Term Lease Liabilities | 2,996 | 2,963 | 3,030 | |||||||||||||||||
| Deferred Income Taxes | 916 | 947 | 968 | |||||||||||||||||
| Other Liabilities | 1,008 | 1,017 | 1,159 | |||||||||||||||||
| Shareholders' Equity | 4,170 | 4,082 | 3,278 | |||||||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | 16,868 | $ | 16,866 | $ | 16,972 | ||||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
MACY’S, INC.
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 | ||||||||||||||||||||||||||||||
| Balance at January 28, 2023 | $ | 3 | $ | 467 | $ | 6,268 | $ | (2,038) | $ | (618) | $ | 4,082 | |||||||||||||||||||||||
| Net income | 155 | 155 | |||||||||||||||||||||||||||||||||
| Other comprehensive income | 1 | 1 | |||||||||||||||||||||||||||||||||
Common stock dividends ($0.1654 per share) | (45) | (45) | |||||||||||||||||||||||||||||||||
| Stock repurchases | (25) | (25) | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 14 | 14 | |||||||||||||||||||||||||||||||||
| Stock issued under stock plans | (108) | 96 | (12) | ||||||||||||||||||||||||||||||||
| Balance at April 29, 2023 | $ | 3 | $ | 373 | $ | 6,378 | $ | (1,967) | $ | (617) | $ | 4,170 | |||||||||||||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
6
MACY’S, INC.
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 | ||||||||||||||||||||||||||||||
| Balance at January 29, 2022 | $ | 3 | $ | 517 | $ | 5,268 | $ | (1,545) | $ | (622) | $ | 3,621 | |||||||||||||||||||||||
| Net income | 286 | 286 | |||||||||||||||||||||||||||||||||
| Other comprehensive income | 4 | 4 | |||||||||||||||||||||||||||||||||
Common stock dividends ($0.1575 per share) | (45) | (45) | |||||||||||||||||||||||||||||||||
| Stock repurchases | (600) | (600) | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 13 | 13 | |||||||||||||||||||||||||||||||||
| Stock issued under stock plans | (54) | 53 | (1) | ||||||||||||||||||||||||||||||||
| Balance at April 30, 2022 | $ | 3 | $ | 476 | $ | 5,509 | $ | (2,092) | $ | (618) | $ | 3,278 | |||||||||||||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
7
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions)
| 13 Weeks Ended | |||||||||||
| April 29, 2023 | April 30, 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 155 | $ | 286 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Impairment, restructuring and other costs | 2 | 8 | |||||||||
| Depreciation and amortization | 218 | 206 | |||||||||
| Stock-based compensation expense | 14 | 13 | |||||||||
| Gains on sale of real estate | (11) | (42) | |||||||||
| Benefit plans | 2 | 5 | |||||||||
| Amortization of financing costs and premium on acquired debt | 3 | 2 | |||||||||
| Deferred income taxes | (32) | (17) | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Decrease in receivables | 45 | 65 | |||||||||
| Increase in merchandise inventories | (340) | (573) | |||||||||
| Decrease (increase) in prepaid expenses and other current assets | 32 | (13) | |||||||||
| Increase in merchandise accounts payable | 374 | 639 | |||||||||
| Decrease in accounts payable and accrued liabilities | (415) | (424) | |||||||||
| Increase in current income taxes | 82 | 122 | |||||||||
| Change in other assets and liabilities | (24) | (29) | |||||||||
| Net cash provided by operating activities | 105 | 248 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | (215) | (171) | |||||||||
| Capitalized software | (81) | (90) | |||||||||
| Disposition of property and equipment | 25 | 73 | |||||||||
| Other, net | 1 | (6) | |||||||||
| Net cash used by investing activities | (270) | (194) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Debt issued | — | 850 | |||||||||
| Debt issuance costs | — | (21) | |||||||||
| Debt repaid | (1) | (1,139) | |||||||||
| Debt repurchase premium and expenses | — | (29) | |||||||||
| Dividends paid | (45) | (45) | |||||||||
| Decrease in outstanding checks | (13) | (126) | |||||||||
| Acquisition of treasury stock | (35) | (584) | |||||||||
| Net cash used by financing activities | (94) | (1,094) | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | (259) | (1,040) | |||||||||
| Cash, cash equivalents and restricted cash beginning of period | 865 | 1,715 | |||||||||
| Cash, cash equivalents and restricted cash end of period | $ | 606 | $ | 675 | |||||||
| Supplemental cash flow information: | |||||||||||
| Interest paid | $ | 60 | $ | 86 | |||||||
| Interest received | 11 | 1 | |||||||||
| Income taxes paid, net of refunds received | 6 | 1 | |||||||||
Note: Restricted cash of $3 million is included within cash and cash equivalents for both the 13 weeks ended April 29, 2023 and April 30, 2022.
The accompanying notes are an integral part of these Consolidated Financial Statements.
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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) 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 April 29, 2023, the Company's operations and operating segments were conducted through Macy's, Market by Macy’s, Macy’s Backstage, Bloomingdale's, Bloomingdale's The Outlet, Bloomie’s, and 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 weeks ended April 29, 2023 and April 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 weeks ended April 29, 2023 and April 30, 2022 (which do not include the Christmas 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 weeks ended April 29, 2023 and April 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.
9
Recent Accounting Pronouncements
In September 2022, the FASB issued 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 per share:
| 13 Weeks Ended | |||||||||||||||||||||||||||||||||||
| April 29, 2023 | April 30, 2022 | ||||||||||||||||||||||||||||||||||
| Net Income | Shares | Net Income | Shares | ||||||||||||||||||||||||||||||||
| (millions, except per share data) | |||||||||||||||||||||||||||||||||||
Net income and average number of shares outstanding | $ | 155 | 272.2 | $ | 286 | 282.6 | |||||||||||||||||||||||||||||
Shares to be issued under deferred compensation and other plans | 0.9 | 1.0 | |||||||||||||||||||||||||||||||||
| $ | 155 | 273.1 | $ | 286 | 283.6 | ||||||||||||||||||||||||||||||
| Basic earnings per share | $ | 0.57 | $ | 1.01 | |||||||||||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||||||||||||||
Stock options and restricted stock units | 4.7 | 7.3 | |||||||||||||||||||||||||||||||||
| $ | 155 | 277.8 | $ | 286 | 290.9 | ||||||||||||||||||||||||||||||
| Diluted earnings per share | $ | 0.56 | $ | 0.98 | |||||||||||||||||||||||||||||||
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.
10
3. Revenue
Net sales, which mainly consist of retail sales but also include merchandise returns, gift cards and loyalty programs, represented 96% and 96% of total revenue for the 13 weeks ended April 29, 2023 and April 30, 2022, respectively. Other revenue generating activities consist of credit card revenues as well as Macy's Media Network revenue.
| 13 Weeks Ended | |||||||||||
| Revenues | April 29, 2023 | April 30, 2022 | |||||||||
| (millions) | |||||||||||
| Women's Accessories, Shoes, Cosmetics and Fragrances | $ | 2,025 | $ | 2,090 | |||||||
| Women's Apparel | 1,150 | 1,282 | |||||||||
| Men's and Kids' | 1,018 | 1,086 | |||||||||
| Home/Other (a) | 789 | 890 | |||||||||
| Total Net Sales | 4,982 | 5,348 | |||||||||
| Credit card revenues, net | 162 | 191 | |||||||||
| Macy's Media Network revenue, net (b) | 29 | 26 | |||||||||
| Other Revenue | 191 | 217 | |||||||||
| Total Revenue | $ | 5,173 | $ | 5,565 | |||||||
(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 accounted for 85% and 86% of the Company’s net sales for the 13 weeks ended April 29, 2023 and April 30, 2022, respectively. In addition, digital sales accounted for approximately 32% and 33% of the Company’s net sales for the 13 weeks ended April 29, 2023 and April 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 million, $236 million and $245 million as of April 29, 2023, January 28, 2023 and April 30, 2022, respectively. Included in prepaid expenses and other current assets is an asset totaling $127 million, $152 million and $144 million as of April 29, 2023, January 28, 2023 and April 30, 2022, respectively, for the recoverable cost of merchandise estimated to be returned by customers.
11
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 bluemercury 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 million, $399 million and $428 million as of April 29, 2023, January 28, 2023 and April 30, 2022, respectively.
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 of 2023. In the first quarter of 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 April 29, 2023 and April 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 April 29, 2023 and April 30, 2022.
12
During the 13 weeks ended April 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 April 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.
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 | |||||||||||
| April 29, 2023 | April 30, 2022 | ||||||||||
| (millions) | |||||||||||
| 401(k) Qualified Defined Contribution Plan | $ | 23 | $ | 22 | |||||||
| Pension Plan | |||||||||||
| Interest cost | $ | 22 | $ | 14 | |||||||
| Expected return on assets | (34) | (31) | |||||||||
| Recognition of net actuarial loss | 2 | 4 | |||||||||
| $ | (10) | $ | (13) | ||||||||
| Supplementary Retirement Plan | |||||||||||
| Interest cost | 5 | 4 | |||||||||
| Recognition of net actuarial loss | 2 | 3 | |||||||||
| $ | 7 | $ | 7 | ||||||||
| Total Retirement Expense | $ | 20 | $ | 16 | |||||||
| Postretirement Obligations | |||||||||||
| Interest cost | 1 | — | |||||||||
| Recognition of net actuarial gain | (2) | (1) | |||||||||
| $ | (1) | $ | (1) | ||||||||
13
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 | $ | — | $ | — | |||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||
| Notional Amount | Carrying Amount | Fair Value | Notional Amount | Carrying Amount | Fair Value | ||||||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||||||||
| Long-term debt | $ | 3,007 | $ | 2,996 | $ | 2,468 | $ | 3,007 | $ | 2,994 | $ | 2,675 | |||||||||||||||||||||||
7. Supplier Finance Programs
The Company has agreements with third-party financial institutions to facilitate supply chain finance (“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’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 in the consolidated balance sheets, and associated payments are included in operating activities in the consolidated statements of cash flows. The Company’s outstanding obligations as of April 29, 2023, January 28, 2023 and April 30, 2022 were $102 million, $63 million and $106 million, respectively.
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MACY'S, INC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
For purposes of the following discussion, all references to "first quarter of 2023" and "first quarter of 2022" are to the Company's 13-week fiscal periods ended April 29, 2023 and April 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% on an owned basis; and declined 7.2% on an owned-plus-licensed basis compared to the first quarter of 2022.
◦Macy’s comparable sales declined 8.7% on an owned basis and declined 7.9% on an owned-plus-licensed basis compared to the first quarter of 2022.
◦Bloomingdale’s comparable sales declined 3.9% on an owned basis and declined 4.3% on an owned-plus-licensed basis compared to the first quarter of 2022.
◦bluemercury comparable sales increased 4.3% on an owned basis compared to the first quarter of 2022.
•Digital sales decreased 8% versus the first quarter of 2022. Digital penetration was 32% of net sales for the first quarter of 2023, a 1-percentage point decline from the first quarter of 2022.
•Other revenues were $191 million, down $26 million from the first quarter of 2022.
•Gross margin was 40.0%, compared to 39.6% in the first quarter of 2022.
•Selling, general and administrative ("SG&A") expense was $1,950 million, up $45 million from the first quarter of 2022. SG&A expense as a percent of total revenue was 37.7%, 350 basis points higher than the first quarter of 2022.
•Net income was $155 million in the first quarter of 2023, compared to $286 million in the first quarter of 2022.
•The first quarter of 2023 had earnings before interest, taxes, depreciation and amortization ("EBITDA") of $466 million compared to EBITDA of $676 million during the first quarter of 2022. On an adjusted basis, EBITDA was $468 million for the first quarter of 2023, compared to $684 million during the first quarter of 2022.
•Diluted earnings per share and adjusted diluted earnings per share were both $0.56 during the first quarter of 2023. This compares to diluted earnings per share and adjusted diluted earnings per share of $0.98 and $1.08 for the first quarter of 2022, respectively.
•Inventory was down 7% from the first quarter of 2022.
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MACY'S, INC.
During the first 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 brands reimagination - designed to drive customer loyalty, be a differentiator for the business, complement national brands matrix and benefit gross margin. During the first quarter of 2023, INC women's and Club Room men's, both of which have been reimagined, outperformed their respective broader apparel segments at Macy's. The Company is also in the process of developing its newest brand, which will offer women's apparel and accessories and is expected to launch later this summer.
•Market by Macy's and Bloomies off-mall small format store expansion - plays an integral role in supporting the omnichannel ecosystem, which the Company expects to unlock the full potential by testing and learning in 2023 and potentially accelerating openings in 2024 if stores continue to outperform. During the first quarter of 2023, the Company's small format stores open at least one full fiscal year achieved positive comparable owned-plus-licensed sales growth.
•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. During the first quarter of 2023, the Company added approximately 450 brands, its gross merchandise value increased over 50% compared to the fourth quarter of 2022 and average order value and units per order were approximately 50% above those customers not shopping at Marketplace. The Company expects to launch a Bloomingdale's Marketplace in early fall 2023.
•Luxury brands - attracting and retaining luxury customer through differentiated products, services and experiences at Bloomingdale's, bluemercury and beauty at Macy's. At Macy's the Company has elevated its beauty business with a larger luxury assortment that continued to increase in first quarter of 2023 and is expected to grow with even more partnerships during 2023.
•Personalized offers and communication - opportunity to build loyalty, grow customer lifetime value and product margins, creating tailored and intimate customer experience. During the first quarter of 2023, the Company tested personalization 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 and will use the learnings to inform its view on opportunities at Bloomingdale's and bluemercury.
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MACY'S, INC.
Results of Operations
| First Quarter of 2023 | First Quarter of 2022 | ||||||||||||||||||||||||||||||||||
| Amount | % to Net Sales | % to Total Revenue | Amount | % to Net Sales | % to Total Revenue | ||||||||||||||||||||||||||||||
| (dollars in millions, except per share figures) | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 4,982 | $ | 5,348 | |||||||||||||||||||||||||||||||
| Other revenue | 191 | 3.8 | % | 217 | 4.1 | % | |||||||||||||||||||||||||||||
| Total revenue | 5,173 | 5,565 | |||||||||||||||||||||||||||||||||
| Cost of sales | (2,988) | (60.0) | % | (3,231) | (60.4) | % | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | (1,950) | (37.7) | % | (1,905) | (34.2) | % | |||||||||||||||||||||||||||||
| Gains on sale of real estate | 11 | 0.2 | % | 42 | 0.8 | % | |||||||||||||||||||||||||||||
| Impairment, restructuring and other costs | (2) | — | % | (8) | (0.1) | % | |||||||||||||||||||||||||||||
| Operating income | 244 | 4.7 | % | 463 | 8.3 | % | |||||||||||||||||||||||||||||
| Diluted earnings per share | $ | 0.56 | $ | 0.98 | |||||||||||||||||||||||||||||||
| Supplemental Financial Measures | |||||||||||||||||||||||||||||||||||
| Gross margin (a) | $ | 1,994 | 40.0 | % | $ | 2,117 | 39.6 | % | |||||||||||||||||||||||||||
| Digital sales as a percentage of net sales | 32 | % | 33 | % | |||||||||||||||||||||||||||||||
| Increase (decrease) in comparable sales | (7.9) | % | 12.8 | % | |||||||||||||||||||||||||||||||
| Supplemental Non-GAAP Financial Measures | |||||||||||||||||||||||||||||||||||
| Increase (decrease) in comparable sales on an owned-plus-licensed basis | (7.2) | % | 12.4 | % | |||||||||||||||||||||||||||||||
| Adjusted diluted earnings per share | $ | 0.56 | $ | 1.08 | |||||||||||||||||||||||||||||||
| EBITDA | $ | 466 | $ | 676 | |||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 468 | $ | 684 | |||||||||||||||||||||||||||||||
(a)Gross margin is defined as net sales less cost of sales.
See pages 22 to 23 for reconciliations of the supplemental non-GAAP financial measures to their most comparable GAAP financial measure and for other important information.
Comparison of the First Quarter of 2023 and the First Quarter of 2022
| First Quarter of 2023 | First Quarter of 2022 | |||||||||||||
| Net sales | $ | 4,982 | $ | 5,348 | ||||||||||
| Increase (decrease) in comparable sales | (7.9) | % | 12.8 | % | ||||||||||
| Increase (decrease) in comparable sales on an owned-plus-licensed basis | (7.2) | % | 12.4 | % | ||||||||||
| Digital sales as a percent of net sales | 32 | % | 33 | % | ||||||||||
Net sales for the first quarter of 2023 decreased for Macy’s and Bloomingdale’s, but improved for bluemercury. During the quarter, net sales were impacted by macroeconomic conditions as consumer spending in discretionary categories came under pressure. The Company experienced strength in categories that are less discretionary, including beauty, women's career sportswear, men's tailored and off-price as well as trend improvement in certain soft home categories. Seasonal and social occasion categories underperformed compared to the first quarter of 2022.
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MACY'S, INC.
| First Quarter of 2023 | First Quarter of 2022 | |||||||||||||||||||||||||
| $ | % to Net Sales | $ | % to Net Sales | |||||||||||||||||||||||
| Credit card revenues, net | $ | 162 | 3.3 | % | $ | 191 | 3.6 | % | ||||||||||||||||||
| Macy's Media Network, net | 29 | 0.6 | % | 26 | 0.5 | % | ||||||||||||||||||||
| Other revenue | $ | 191 | 3.8 | % | $ | 217 | 4.1 | % | ||||||||||||||||||
| Proprietary credit card sales penetration | 43.6 | % | 43.1 | % | ||||||||||||||||||||||
The decrease in other revenues was primarily driven by a $29 million decrease in credit card revenues. This decrease reflects the impact of higher bad debt 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 | % | ||||||||||
The increase in the gross margin of 40 basis points was primarily driven by a 40 basis point improvement in delivery expense due to improvements in contracted rates and 100 basis point decline in digital penetration. Merchandise margin remained flat to the first quarter of 2022 due lower clearance markdowns and lean beginning-of-year inventories, offset by increased promotional markdowns in seasonal categories and impacts from category mix. Inventory declined 7% 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 | |||||||||||||
| SG&A expenses | $ | (1,950) | $ | (1,905) | ||||||||||
| As a percent to total revenue | 37.7 | % | 34.2 | % | ||||||||||
SG&A expenses increased in the first quarter of 2023 both in dollars and as a percent to total revenue. The increase in SG&A expense dollars and 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 first quarter of 2023 were driven by the sale of the Company's Cheshire distribution center while gains on the sale of real estate in the first 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.
| First Quarter of 2023 | First Quarter of 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 aggregate principal amount of senior notes and debentures in the first quarter of 2022.
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MACY'S, INC.
| First Quarter of 2023 | First Quarter of 2022 | |||||||||||||
| Effective tax rate | 26.5 | % | 27.0 | % | ||||||||||
| 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 effect of state and local taxes and the vesting and cancellations of certain stock-based compensation awards.
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.
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’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 first quarter of 2023 with a cash and cash equivalents balance of $603 million, a decrease of $69 million from $672 million at the end of the first 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 | |||||||||||||
| Net cash provided by operating activities | $ | 105 | $ | 248 | ||||||||||
| Net cash used by investing activities | (270) | (194) | ||||||||||||
| Net cash used by financing activities | (94) | (1,094) | ||||||||||||
Operating Activities
The decrease in net cash provided by operating activities was primarily driven by lower net income. The increases in both merchandise inventory and merchandise accounts payable as of the first quarter of 2023 from year end 2022 were also lower than what was realized during the same period in the prior year, ultimately resulting in a reduced cash inflow.
Investing Activities
The Company’s capital expenditures were $296 million through the first quarter of 2023 compared to $261 million through the first quarter of 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 quarter of 2023 compared to the first quarter of 2022.
Financing Activities
Dividends
The Company paid dividends totaling $45 million in both the first quarter of 2023 and 2022. On February 24, 2023, the Board of Directors declared regular quarterly dividends of 16.54 cents per share on the Company’s common stock, which was paid on April 3, 2023, to Macy’s shareholders of record at the close of business on March 15, 2023.
On May 31, 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, 2023, to shareholders of record at the close of business on June 15, 2023. Subsequent dividends will be subject to approval of the Board of Directors, which will depend on market and other conditions.
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MACY'S, INC.
Stock Repurchases
On February 22, 2022, the Company’s 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 as of April 29, 2023, $1,375 million remained available under the authorization. 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 April 29, 2023 and April 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 April 29, 2023 and April 30, 2022.
Contractual Obligations
As of April 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 our contractual obligations and commitments outside the ordinary course of business since January 28, 2023, as reported in the Company’s 2022 Form 10-K.
Guarantor Summarized Financial Information
The Company had $3,007 million aggregate principal amount of senior unsecured notes and senior unsecured debentures (collectively the “Unsecured Notes”) outstanding as of both April 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’s existing and future senior unsecured obligations, senior to any of the Company’s future subordinated indebtedness, and are structurally subordinated to all existing and future obligations of each of the Company’s subsidiaries that do not guarantee the Unsecured Notes. Holders of the Company’s secured indebtedness, including any borrowings under the ABL Credit Facility, will have a priority claim on the assets that secure such secured indebtedness; therefore, the Unsecured Notes and the related guarantee are effectively subordinated to all of the Subsidiary Issuer’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 April 29, 2023 and January 28, 2023, respectively, have been excluded from the Summarized Balance Sheets. Equity in earnings of non-Guarantor subsidiaries of $401 million for the 13 weeks ended April 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.
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MACY'S, INC.
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 | ||||
(a)Income pertains to transactions with ABL Borrower, a non-Guarantor subsidiary.
(b)Includes $442 million of dividend income from non-Guarantor subsidiaries for the 13 weeks ended April 29, 2023.
Outlook and Recent Developments
On June 1, 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% of net sales, with credit card revenues accounting for approximately 82% to 83% of other revenue,
•Gross margin rate is now expected to be between 38.0% and 38.5%,
•SG&A as a percent of total revenue and as a percent to net sales is now expected to be approximately 34.5% to 35.5% and 36.7% to 36.8%, respectively,
•Benefit plan income is now expected to be approximately $13 million,
•Depreciation and amortization is now expected to be approximately $900 million,
•Adjusted EBITDA as a percent of total revenue and as a percent of net sales is now expected to be approximately 8.8% to 9.4% and 9.1% to 9.7%, respectively,
•Adjusted diluted EPS is now expected to be between $2.70 and $3.20, and
•Capital expenditures are now expected to be approximately $950 million
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MACY'S, INC.
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’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 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 | %) | |||||||||||
Notes:
(1)Represents the period-to-period percentage change in net sales from stores in operation for both the entire 13 weeks ended April 29, 2023 and April 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.
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MACY'S, INC.
(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’s and Bloomingdale’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 | ||||||||||
| (millions) | |||||||||||
| Net income | $ | 155 | $ | 286 | |||||||
| Interest expense - net | 37 | 47 | |||||||||
| Losses on early retirement of debt | — | 31 | |||||||||
| Federal, state and local income tax expense | 56 | 106 | |||||||||
| Depreciation and amortization | 218 | 206 | |||||||||
| EBITDA | $ | 466 | $ | 676 | |||||||
| Impairment, restructuring and other costs | 2 | 8 | |||||||||
| Adjusted EBITDA | $ | 468 | $ | 684 | |||||||
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 | ||||||||||||||||||||||
| Net Income | Diluted Earnings Per Share | Net Income | Diluted Earnings Per Share | ||||||||||||||||||||
| (millions, except per share figures) | |||||||||||||||||||||||
| As reported | $ | 155 | $ | 0.56 | $ | 286 | $ | 0.98 | |||||||||||||||
| Impairment, restructuring and other costs | 2 | — | 8 | 0.03 | |||||||||||||||||||
| Losses on early retirement of debt | — | — | 31 | 0.11 | |||||||||||||||||||
| Income tax impact of certain items noted above | — | — | (10) | (0.04) | |||||||||||||||||||
| As adjusted to exclude certain items above | $ | 157 | $ | 0.56 | $ | 315 | $ | 1.08 | |||||||||||||||
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to the Company’s market risk as described in the Company's 2022 10-K. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market 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 April 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 April 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.
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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.
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” or “continue” or the negative or other variations thereof and (ii) statements regarding matters that are not historical facts. Such forward-looking statements are subject to various risks and uncertainties, including risks and uncertainties relating to:
•the possible invalidity of the underlying beliefs and assumptions;
•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’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;
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MACY'S, INC.
•competitive pressures from department stores, specialty stores, general merchandise stores, manufacturers’ outlets and websites, off-price and discount stores, and all other retail channels, including digitally-native retailers, social media and catalogs;
•the Company’s ability to remain competitive and relevant as 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’s business;
•the effects of weather and natural disasters, including the impact of climate change, and health pandemics, including the COVID-19 pandemic, on the Company’s business, including the ability to open stores, customer demand and its supply chain, as well as our consolidated results of operations, financial position and cash flows;
•conditions to, or changes in the timing of, proposed transactions and changes in expected synergies, cost savings and non-recurring charges;
•the potential for the incurrence of charges in connection with the impairment of tangible and intangible assets, including goodwill;
•possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions, including supply chain disruptions, 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’s manufacturers or transporters to deliver products in a timely manner or meet the Company’s quality standards;
•the Company’s reliance on foreign sources of production, including risks related to the disruption of imports by labor disputes, regional and global health pandemics, and regional political and economic conditions;
•duties, taxes, other charges and quotas on imports;
•labor shortages
•the amount and timing of future dividends and share repurchases; and
•the Company's ability to execute on its strategies or achieve expectations related to environmental, social, and governance matters.
In addition to any risks and uncertainties specifically identified in the text surrounding such forward-looking statements, the statements in the immediately preceding sentence and the statements under captions such as “Risk Factors” in reports, statements and information filed by the Company with the SEC from time to time constitute cautionary statements identifying important factors that could cause actual amounts, results, events and circumstances to differ materially from those expressed in or implied by such forward-looking statements.
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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 April 29, 2023, filed on June 6, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (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. | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| 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, 2023 | ||||||||
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