Macy’s, Inc. Form 10-K Summary
Business context and reporting period
This filing covers fiscal 2010, the 52 weeks ended January 29, 2011, not 2009 Q4. Macy’s operates approximately 850 Macy’s and Bloomingdale’s stores, websites and Bloomingdale’s Outlet stores across the United States and selected international markets. The company reports one operating segment.
Financial performance and liquidity
| Metric | Fiscal 2010 | Fiscal 2009 |
|---|---|---|
| Net sales | $25,003 million | $23,489 million |
| Comparable-store sales change | +4.6% | -5.3% |
| Gross margin | $10,179 million; 40.7% of sales | $9,516 million; 40.5% of sales |
| Operating income | $1,894 million; approximately 7.6% of sales | $1,063 million |
| Net income | $847 million; approximately 3.4% of sales | $329 million |
| Diluted EPS | $1.98 | $0.78 |
| Cash flow from operations | $1,506 million | $1,750 million |
| Capital expenditures and capitalized software | $505 million | $460 million |
| Cash and cash equivalents | $1,464 million | $1,686 million |
| Short-term and long-term debt | $7,425 million | $8,698 million |
| Shareholders’ equity | $5,530 million | $4,653 million |
Internet sales increased 28.7%. Cost of sales improved to 59.3% of net sales from 59.5%, while SG&A improved to 33.0% from 34.3%. Credit operations contributed $332 million, compared with $323 million in 2009. Advertising expense was $1,072 million.
Material changes versus the prior comparable period
- Sales increased 6.4%, driven by improved store performance, My Macy’s localization, Bloomingdale’s performance and digital growth.
- Net income increased $518 million, while operating income increased $831 million.
- Impairment, store-closing and division-consolidation costs declined to $25 million from $391 million.
- The company recorded no goodwill impairment in 2010 or 2009; fiscal 2008 included a $5,382 million goodwill impairment charge.
- Operating cash flow declined $244 million, primarily reflecting approximately $825 million of pension contributions in 2010 versus $370 million in 2009.
- The company repaid $1,245 million of debt, including approximately $1,000 million retired early, and paid $84 million in dividends.
- The company made no share repurchases during 2010; approximately $852 million remained under prior authorizations.
Guidance, outlook, commentary and risks
Management expected 2011 comparable-store sales to increase approximately 3% from 2010 levels. It budgeted approximately $800 million of 2011 capital expenditures for remodels, maintenance, technology, omnichannel initiatives and distribution improvements, including a new fulfillment center. Management expected to fund these investments with cash on hand and operating cash flow.
The $2.0 billion revolving credit facility, expandable to $2.5 billion subject to lender commitments, had no borrowings outstanding and expires August 30, 2012. The company reported an interest-coverage ratio of 5.64 versus a 3.25 minimum and a leverage ratio of 2.34 versus a 4.50 maximum.
- Retail demand remains exposed to consumer confidence, disposable income, unemployment, consumer debt, weather and economic conditions.
- The business is highly seasonal, with a disproportionate amount of sales and operating income generated during the holiday period.
- Competition includes department stores, specialty retailers, discounters, mass merchants and Internet channels.
- Goodwill and long-lived asset valuations depend on projected sales, margins, cash flows and discount rates; adverse conditions could produce future impairment charges.
- The company had a $220 million funded-pension deficit, a $688 million unfunded supplementary retirement obligation and a $278 million postretirement benefit obligation. It made a voluntary $225 million pension contribution on March 28, 2011.
- Risks also include supply-chain disruption, foreign sourcing, vendor performance, systems failures, data breaches, litigation, regulatory changes and debt-covenant or capital-market constraints.
- An ERISA class-action lawsuit relating to Macy’s and May employee retirement plans remained pending; the company considered it without merit and did not expect ordinary-course proceedings to materially affect results.
Most important facts for investors to verify
- Confirm the requested period: the supplied filing is the fiscal 2010 Form 10-K, with fiscal 2010 ending January 29, 2011.
- Reconcile reported sales growth and comparable-store sales with digital-channel growth and the company’s 2011 guidance.
- Assess whether operating-margin improvement is sustainable after excluding lower restructuring and store-closing costs.
- Review debt maturities, refinancing needs, covenant calculations and the effect of future interest-rate or credit-rating changes.
- Monitor pension funding requirements, actuarial assumptions and the expected increase in 2011 pension expense.
- Evaluate goodwill and store-asset impairment sensitivity to consumer spending, sales, margins and discount-rate assumptions.
- Review the full financial statements, debt footnotes, contractual obligations, legal proceedings and subsequent events for developments after January 29, 2011.