Macy’s, Inc. Form 10-K Summary
Reporting period: Fiscal year 2012 ended February 2, 2013, including 53 weeks; comparable fiscal 2011 ended January 28, 2012 and included 52 weeks. The request metadata identifies “2011 Q4,” but the supplied filing is an annual report for fiscal 2012, not a standalone 2011 fourth-quarter filing.
Business Context
Macy’s operated approximately 841 stores and the Macy’s, Bloomingdale’s, and related e-commerce businesses in 45 states, the District of Columbia, Guam, and Puerto Rico. The Company reported one operating segment. Its principal strategies were My Macy’s localization, omnichannel retailing, and customer-centric selling. Internet comparable sales increased 41.0% in 2012, and 292 Macy’s stores fulfilled store, Internet, or mobile orders at year-end versus 23 in 2011.
Financial Performance and Position
| Metric | Fiscal 2012 | Fiscal 2011 |
|---|---|---|
| Net sales | $27,686 million | $26,405 million |
| Comparable sales growth | 3.7% | 5.3% |
| Gross margin | $11,148 million; 40.3% | $10,667 million; 40.4% |
| Operating income | $2,661 million; 9.6% | $2,411 million; 9.1% |
| Net income | $1,335 million; 4.8% | $1,256 million; 4.8% |
| Diluted EPS | $3.24 | $2.92 |
| Operating cash flow | $2,261 million | $2,093 million |
| Capital expenditures | $942 million | $764 million |
| Cash and equivalents | $1,836 million | $2,827 million |
| Short-term debt | $124 million | $1,103 million |
| Long-term debt | $6,806 million | $6,655 million |
| Shareholders’ equity | $6,051 million | $5,933 million |
Management’s supplemental measures showed operating income excluding certain items of $2,666 million, or 9.6% of sales; diluted EPS excluding certain items of $3.46; adjusted EBITDA of $3,715 million, or 13.4% of sales; and ROIC of 21.2%.
Material Changes Versus Fiscal 2011
- Sales increased $1,281 million, or 4.9%, helped by the additional fiscal week and 3.7% comparable-sales growth.
- Operating income increased 10.4% on a GAAP basis; the operating margin rose 50 basis points to 9.6%.
- Gross margin declined 10 basis points, primarily reflecting omnichannel growth and free-shipping costs.
- SG&A increased $201 million, but declined to 30.7% of sales from 31.4%, reflecting sales leverage. Retirement expense increased to $232 million from $160 million.
- Credit-operation income increased to $663 million from $582 million.
- Operating cash flow increased $168 million, while pension contributions declined to $150 million from $375 million.
- Financing cash use increased substantially to $2,389 million, driven by $1,397 million of share repurchases, $1,803 million of debt repayments, and $324 million of dividends.
- The Company issued $1,000 million of long-term debt and repurchased $700 million of senior notes, improving near-term maturities and reducing expected annual interest expense by approximately $30 million.
Guidance, Outlook, Risks, and Unusual Items
- For fiscal 2013, management projected comparable-sales growth of approximately 3.5%, diluted EPS of $3.90 to $3.95, a $150 million pension contribution, and capital expenditures of approximately $925 million.
- Planned fiscal 2013 capital spending focused on store remodels, the Macy’s Herald Square renovation, technology, omnichannel investments, and distribution-network improvements.
- The Company recorded $137 million of premium and related costs for early debt retirement, including $133 million associated with the November 2012 note repurchase.
- Six Macy’s and Bloomingdale’s stores were announced for closure in January 2013; related 2012 impairment, severance, and other costs totaled $5 million.
- The Pension Plan was underfunded by $168 million at year-end, and the SERP was underfunded by $795 million. The Company expected approximately $160 million of 2013 pension and SERP expense from amortization of actuarial losses.
- Key risks include intense retail and online competition, discretionary consumer spending, weather and natural disasters, foreign sourcing and supply-chain disruption, employee-benefit and pension costs, access to capital markets, debt-covenant compliance, goodwill impairment, litigation, cybersecurity, privacy, and regulatory developments.
- The Company had no borrowings under its $1.5 billion revolving credit facility. Its interest-coverage ratio was 8.41 versus a 3.25 minimum, and its leverage ratio was 1.81 versus a 3.75 maximum.
- A conditional class-action ERISA lawsuit relating to the Company’s retirement plans was subject to a settlement agreement requiring final court approval. Management did not expect other ordinary-course proceedings to materially affect financial position or results.
Important Facts for Investors to Verify
- Confirm that the intended period is fiscal 2012 rather than 2011 fourth quarter; the supplied filing reports the full fiscal year ended February 2, 2013.
- Reconcile GAAP EPS of $3.24 with management’s adjusted EPS of $3.46, including the $137 million debt-retirement charge.
- Assess whether the projected 3.5% comparable-sales growth and $3.90–$3.95 EPS guidance were achieved.
- Monitor free-shipping and omnichannel costs, gross-margin trends, credit-operation income, and the sustainability of SG&A leverage.
- Review debt maturities, covenant requirements, share-repurchase activity, and liquidity after the substantial 2012 capital returns.
- Evaluate pension funding needs and sensitivity to discount rates, asset returns, and actuarial losses.
- Review store-closure charges, goodwill impairment assumptions, litigation settlement terms, and cybersecurity or privacy disclosures.