Macy’s, Inc. Form 10-Q Summary
Reporting period: 13 weeks ended May 4, 2024, compared with 13 weeks ended April 29, 2023. Although the request metadata states “2023 Q1,” the filing is for the first quarter of fiscal 2024 and was filed May 30, 2024.
Business Context and Reporting Period
Macy’s, Inc. operates an omnichannel retail business through Macy’s, Bloomingdale’s and Bluemercury stores, websites and mobile applications. The company sells apparel, accessories, cosmetics, home furnishings and other consumer goods. Results are seasonal and the first quarter excludes the holiday selling period.
Fiscal 2024 is described as a transition and investment year as Macy’s implements its “A Bold New Chapter” strategy, including store portfolio rationalization, assortment changes, digital investments, luxury growth and operating-cost reductions.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $5.000 billion | $5.173 billion | Down $173 million |
| Net sales | $4.846 billion | $4.982 billion | Down $136 million |
| Gross margin | $1.900 billion; 39.2% | $1.994 billion; 40.0% | Rate down 80 basis points |
| Operating income | $125 million | $244 million | Down $119 million |
| Net income | $62 million | $155 million | Down $93 million |
| Diluted EPS | $0.22 | $0.56 | Down $0.34 |
| Adjusted diluted EPS | $0.27 | $0.56 | Down $0.29 |
| EBITDA | $345 million | $466 million | Down $121 million |
| Adjusted EBITDA | $364 million | $468 million | Down $104 million |
| Net cash from operating activities | $129 million | $105 million | Up $24 million |
Other revenue declined to $154 million from $191 million, principally because credit card revenue decreased $45 million as delinquencies and net credit losses increased. Macy’s Media Network revenue increased $8 million, or 28%, to $37 million.
SG&A expense declined 2.0% to $1.911 billion, but increased to 38.2% of total revenue from 37.7% because revenue declined. Impairment, restructuring and other costs increased to $19 million from $2 million. The effective tax rate increased to 36.7% from 26.5%.
Liquidity, Cash Flow, Debt and Capital Allocation
- Cash and cash equivalents were $876 million at May 4, 2024, compared with $603 million at April 29, 2023 and $1.034 billion at February 3, 2024.
- Operating cash flow was $129 million. Investing cash flow was negative $217 million, including $154 million of property and equipment purchases and $75 million of capitalized software. Total capital expenditures were $229 million, compared with $296 million in the prior-year quarter.
- Financing cash flow was negative $70 million, including $48 million of dividends. No share repurchases occurred in Q1 2024; $1.375 billion remained available under the $2.0 billion authorization at May 4, 2024.
- Long-term debt was $2.998 billion, and long-term lease liabilities were $3.034 billion. The company had no borrowings under its $3.0 billion ABL Credit Facility, with $2.856 billion of borrowing capacity available after standby letters of credit.
- Management stated that available cash, expected operating cash flow, ABL availability and market credit should be sufficient for working capital, capital expenditures and dividends for at least the next twelve months and the foreseeable future, assuming no change in the current business plan.
- Merchandise inventories were $4.687 billion, up 1.7% year over year and up from $4.361 billion at fiscal year-end.
Material Changes Versus the Prior Comparable Period
- Company comparable sales declined 1.2% on an owned basis and 0.3% on an owned-plus-licensed-plus-marketplace basis, compared with declines of 7.9% and 7.2%, respectively, in Q1 2023.
- Macy’s comparable sales declined 1.6% on an owned basis, while Bloomingdale’s increased 0.8% and Bluemercury increased 4.3%.
- Macy’s First 50 pilot locations increased comparable sales 3.3% on an owned basis. Macy’s non-go-forward locations declined 4.5%.
- Beauty, particularly fragrances, performed strongly. Big-ticket, home and handbag categories continued to underperform.
- Gross margin declined primarily because of additional discounting of slower-moving warm-weather products. Merchandise margin declined 100 basis points.
- Credit card revenue declined, reflecting higher expected delinquencies and net credit losses.
- Cash flow from operations improved despite lower net income, principally due to working-capital changes, including merchandise accounts payable.
- Effective February 4, 2024, Macy’s changed its inventory valuation method from LIFO retail inventory method to LIFO cost method. The company said the initial effect was immaterial and prior periods were not restated because retrospective valuation was impracticable.
Guidance, Outlook, Commentary and Risks
Management did not provide a clear new full-year numerical guidance range in the supplied filing text. The company expects fiscal 2024 to remain a transition and investment year.
- Macy’s identified approximately 150 underproductive locations for closure over three years and expects to prioritize investment in approximately 350 remaining go-forward locations.
- The company opened one Macy’s small-format store in Q1 and plans to open 11 more during fiscal 2024.
- Bloomingdale’s expects approximately 15 small-format openings through fiscal 2026, including three in fiscal 2024.
- Bluemercury plans to open at least 30 locations and remodel approximately 30 existing locations through fiscal 2026.
- Digital visits increased 2.3%, although digital conversion declined 14 basis points. Digital sales represented 32% of net sales in both comparable periods.
- Management cited cost savings from technology-vendor consolidation and offshoring efforts, while continuing to invest in digital, technology and omnichannel capabilities.
Principal risks include execution of the “A Bold New Chapter” strategy, consumer spending and macroeconomic conditions, inflation, competitive and digital-channel pressures, credit card revenue declines, inventory and supply-chain disruption, labor and wage pressures, cybersecurity, real estate monetization, indebtedness, weather and geopolitical events, and the company’s ability to maintain dividends and future share repurchases. The filing reports no material changes to previously disclosed risk factors and no expected material adverse effect from pending legal proceedings.
Important Facts Investors Should Verify
- Reconcile the decline in revenue and earnings with comparable-sales trends, particularly the performance gap between Macy’s non-go-forward locations and the First 50 pilot stores.
- Monitor gross margin and markdown levels, especially in warm-weather, home, big-ticket and handbag categories.
- Assess whether higher credit card delinquencies and net credit losses continue to reduce other revenue.
- Evaluate inventory growth, inventory productivity and the effect of the new LIFO cost method on comparability.
- Track the pace, proceeds and restructuring costs associated with planned store closures and real estate monetization.
- Confirm that operating cash flow and liquidity remain adequate while the company funds capital expenditures, dividends and strategic investments.
- Review the company’s non-GAAP reconciliations when comparing adjusted EPS and adjusted EBITDA with GAAP results.