Macy’s, Inc. Form 10-K Summary
Reporting period: Fiscal year 2022 ended January 28, 2023, comprising 52 weeks. The requested “2021 Q4” is not the period covered by the supplied filing; the filing compares fiscal 2022 with fiscal 2021 ended January 29, 2022.
Business Context
Macy’s is an omni-channel retailer operating Macy’s, Bloomingdale’s and bluemercury formats, including Macy’s Backstage, Market by Macy’s, Bloomingdale’s The Outlet and Bloomies. At year-end, the Company operated 722 locations across the United States, Puerto Rico, Guam and the District of Columbia, with approximately 94,570 non-seasonal employees. Operations are reported as one segment.
Management continued executing its Polaris strategy, emphasizing fashion and private brands, value, digital shopping, store experience, supply-chain modernization and organizational transformation. Digital sales represented 33% of net sales, down from 35% in fiscal 2021 as customers shifted back toward stores.
Key Financial Metrics
| Metric | Fiscal 2022 | Fiscal 2021 | Change |
|---|---|---|---|
| Net sales | $24.442 billion | $24.460 billion | Essentially flat |
| Comparable sales, owned basis | +0.3% | +43.0% | Decelerated materially |
| Credit card revenue, net | $863 million | $832 million | +$31 million |
| Gross margin | 37.4% | 38.9% | Down 150 basis points |
| SG&A expense | $8.317 billion | $8.047 billion | Up $270 million |
| Operating income | $1.730 billion | $2.350 billion | Down $620 million |
| Net income | $1.177 billion | $1.430 billion | Down $253 million |
| Diluted EPS | $4.19 | $4.55 | Down $0.36 |
| Adjusted diluted EPS | $4.48 | $5.31 | Down $0.83 |
| Adjusted EBITDA | $2.648 billion | $3.320 billion | Down $672 million |
| Net cash from operations | $1.615 billion | $2.712 billion | Down $1.097 billion |
| Capital expenditures | $1.295 billion | $597 million | Increased substantially |
Gross-margin pressure primarily reflected higher markdowns and promotions, particularly in pandemic-related categories, and elevated industry inventory levels. SG&A increased because the Company filled open positions and raised compensation and benefits, including a $15-per-hour minimum wage beginning May 1, 2022.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $862 million at January 28, 2023, compared with $1.712 billion a year earlier.
- Merchandise inventories were $4.267 billion, down 3% year over year; inventory turnover declined 4%.
- Long-term debt was $2.996 billion, versus $3.295 billion at the prior year-end. The filing also states aggregate principal indebtedness of approximately $2.996 billion.
- The Company had no borrowings under its $3.0 billion ABL facility at year-end. Borrowing availability was $2.531 billion after borrowing-base adjustments and outstanding letters of credit.
- Total undiscounted operating lease obligations were approximately $6.832 billion, primarily payable after 2027.
- Credit ratings at year-end were Moody’s Ba1, S&P BB+ and Fitch BBB-, each with a stable outlook.
- The Company paid $173 million of dividends and repurchased approximately 24.0 million shares for $600 million during fiscal 2022. Approximately $1.4 billion remained available under the $2.0 billion repurchase authorization.
Material Changes Versus Fiscal 2021
- Sales were broadly unchanged, but comparable sales growth slowed sharply from 43.0% to 0.3% on an owned basis.
- Customer demand shifted toward gifting and occasion-based categories, including beauty, men’s tailored apparel, dresses, shoes and luggage; active, casual and soft-home categories weakened.
- Digital penetration decreased from 35% to 33% as in-store shopping recovered.
- Gross margin declined 150 basis points, while SG&A rose 110 basis points as a percentage of sales, reducing operating income and adjusted EBITDA.
- Operating cash flow fell partly because fiscal 2021 included a $582 million CARES Act income-tax refund and because adjusted EBITDA was lower.
- The Company issued $850 million of senior notes due 2030 and 2032 and used proceeds and cash to redeem approximately $1.1 billion of existing debt, recognizing a $31 million early-retirement loss.
- Macy’s launched its digital Marketplace in September 2022, expanded smaller off-mall formats and introduced permanent Toys “R” Us shops. Toy sales more than doubled from fiscal 2021.
- Macy’s Media Network generated approximately $144 million of net income, up 34% from fiscal 2021.
Guidance, Outlook and Management Commentary
For fiscal 2023, based on a 53-week year, management guided to:
- Net sales of $23.7 billion to $24.2 billion.
- Comparable owned-plus-licensed sales down approximately 2% to 4% on a 52-week basis.
- Digital sales of approximately 32% to 34% of net sales.
- Gross margin of approximately 38.7% to 39.2% and SG&A of approximately 36.3% of sales.
- Adjusted diluted EPS of $3.67 to $4.11 and adjusted EBITDA of approximately 10.3% to 10.8% of net sales.
- Capital expenditures of approximately $1.0 billion.
Management expects to focus on private-brand redevelopment, expansion of Market by Macy’s and Bloomies, digital Marketplace development, luxury brands and personalized customer offers. It expects to open a Texas distribution center in 2023 and a North Carolina fulfillment center in 2025.
Risks, Contingencies and Unusual Items
- Key risks include discretionary consumer spending, inflation, interest rates, labor shortages and wage pressure, competition from digital and off-price retailers, inventory markdowns, supply-chain disruption, foreign sourcing and tariffs.
- Credit card revenue was $863 million, or approximately 3.5% of net sales. Deteriorating consumer credit, reduced proprietary-card usage or proposed limits on credit-card late fees could reduce this revenue stream.
- The Company identified cybersecurity, data privacy, technology outages, natural disasters, extreme weather and public-health events as material operational risks. It stated that no cybersecurity incident had materially affected results to date.
- Fiscal 2022 included $41 million of impairment, restructuring and other costs, $39 million of pension settlement charges and $31 million of losses on early debt retirement. It also included $89 million of real-estate sale gains.
- The Company expects to pay $1.925 million to resolve a California hazardous-waste investigation; the amount was reserved at year-end.
- The Company believes available cash, operating cash flow and its ABL facility will be sufficient for anticipated needs for at least the next 12 months, but the business is seasonal and requires substantial inventory and working capital before the holiday period.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Merchandise inventory was identified as the critical audit matter because of the highly automated, judgment-intensive inventory process.
Important Facts for Investors to Verify
- Confirm that the intended comparison is fiscal 2021 Q4 rather than the supplied fiscal 2022 Form 10-K.
- Assess whether projected gross-margin recovery and SG&A control can offset expected sales declines in fiscal 2023.
- Evaluate cash generation after approximately $1.0 billion of planned capital expenditures, dividends and possible share repurchases.
- Review debt maturities, refinancing requirements, ABL covenant compliance and the effect of interest-rate changes.
- Monitor credit-card revenue, proprietary-card penetration and regulatory developments affecting late fees and consumer credit.
- Evaluate inventory quality, markdown exposure and the sustainability of the 2022 inventory reduction.
- Track execution and returns from private brands, digital Marketplace, off-mall stores, luxury initiatives and supply-chain investments.