Macy’s, Inc. Form 10-Q Summary
Reporting period: 13 weeks ended April 30, 2022, compared with 13 weeks ended May 1, 2021. Although the request metadata identifies “2021 Q1,” the filing is for the first quarter of fiscal 2022 and was filed June 6, 2022. Macy’s operates the Macy’s, Bloomingdale’s and bluemercury omnichannel retail businesses through stores, websites and mobile applications.
Financial Performance and Position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $5.348 billion | $4.706 billion | Up 13.6% |
| Net credit card revenues | $191 million | $159 million | Up $32 million |
| Gross margin | 39.6% | 38.6% | Up 100 basis points |
| SG&A expense | $1.879 billion | $1.748 billion | Up $131 million |
| SG&A as a percentage of sales | 35.1% | 37.1% | Improved 200 basis points |
| Operating income | $463 million | $215 million | Up $248 million |
| Net income | $286 million | $103 million | Up $183 million |
| Diluted EPS | $0.98 | $0.32 | Up $0.66 |
| Adjusted diluted EPS | $1.08 | $0.39 | Up $0.69 |
| Adjusted EBITDA | $684 million | $473 million | Up $211 million |
- Comparable sales increased 12.8% on an owned basis and 12.4% on an owned-plus-licensed basis. Macy’s, Bloomingdale’s and bluemercury comparable sales increased 10.7%, 28.1% and 25.2%, respectively, on an owned basis.
- Digital sales increased 2% but declined to 33% of net sales from 37% in the prior-year quarter as consumers returned to stores.
- Gross margin benefited from pricing optimization, lower promotional markdowns, higher ticket prices and favorable category mix.
- Inventory was $4.956 billion, up 17% year over year, reflecting supply-chain normalization and a shift in demand toward occasion-based apparel.
- Net cash provided by operating activities was $248 million, down from $494 million. Capital expenditures were $171 million, and capitalized software spending was $90 million.
- Cash and cash equivalents were $672 million at April 30, 2022, compared with $1.712 billion at January 29, 2022 and $1.798 billion at May 1, 2021.
- Long-term debt was $2.994 billion, down from $4.558 billion at May 1, 2021. The company had no borrowings under its asset-based credit facility and had $2.935 billion of available capacity after $65 million of standby letters of credit.
- Total assets were $16.972 billion and shareholders’ equity was $3.278 billion at April 30, 2022.
Material Changes Versus the Prior Comparable Period
- Sales and profitability improved substantially, reflecting stronger store traffic, occasion-based apparel demand, luxury strength and favorable pricing and merchandise mix.
- Operating margin increased to 8.7% from approximately 4.6%; net income margin increased to 5.3% from 2.2%.
- Credit card revenue increased because of higher credit sales, increased co-brand card spending and lower bad-debt levels associated with continued portfolio credit health.
- Operating cash flow declined because of increased inventory investment, payment timing and lower net inflows from merchandise accounts payable.
- Financing activity included $850 million of new unsecured notes, approximately $1.1 billion of debt repayments, $600 million of share repurchases and $45 million of dividends. The company reported a $31 million loss on early retirement of debt.
- The company amended its asset-based facility, increasing it to $3.0 billion and extending maturity to March 2027. Management stated that the company has no material debt maturities for the next five years.
- Approximately 24.0 million shares were repurchased for $600 million at an average price of $24.98 per share. Approximately $1.4 billion remained available under the authorization at quarter-end.
Guidance, Outlook, Commentary and Risks
- On May 26, 2022, Macy’s reaffirmed annual 2022 sales guidance and raised earnings guidance. It expected digital sales of approximately 35% of net sales, net credit card revenues of approximately 3.1% of net sales, adjusted EBITDA margin of 11.2% to 11.7%, diluted shares outstanding of approximately 283 million and adjusted diluted EPS of $4.53 to $4.95.
- Management highlighted continued execution of its Polaris strategy, including investments in personalization, digital capabilities, off-mall formats, Macy’s Backstage, technology and supply-chain infrastructure.
- The company expected to launch a curated digital marketplace in the third quarter of 2022 and planned new fulfillment facilities in Texas and North Carolina.
- Management cited supply-chain disruptions, inflationary and macroeconomic uncertainty, labor shortages, changing consumer behavior, inventory mix risk and the transition between digital and store shopping as important operating considerations.
- Other disclosed risks include competition, cybersecurity and systems failures, dependence on foreign sourcing and transportation, interest rates, consumer spending, real estate transactions, impairment charges, indebtedness and the timing of future dividends and share repurchases.
- The retail business is seasonal, and first-quarter results do not include the Christmas selling period and are not necessarily indicative of full-year results.
- The filing states that routine legal proceedings are not expected to have a material adverse effect and that there were no material changes to the risk factors disclosed in the 2021 Form 10-K.
Most Important Facts for Investors to Verify
- Confirm the reconciliation and definitions of adjusted EPS, EBITDA and comparable sales, which are non-GAAP measures and may not be comparable with other retailers.
- Assess whether the 17% inventory increase can be converted into sales without elevated markdowns, particularly in underperforming casual, activewear and soft-home categories.
- Monitor operating cash flow, liquidity and cash balances after substantial share repurchases, dividends and capital expenditures.
- Review the maturity profile, covenants and borrowing-base availability of the $3.0 billion asset-based credit facility and the unsecured notes.
- Evaluate whether store traffic, occasion-based apparel demand and luxury sales remain durable as macroeconomic conditions and consumer spending change.
- Track progress against the 2022 guidance, including the adjusted EPS range of $4.53 to $4.95 and adjusted EBITDA margin target of 11.2% to 11.7%.
- Consider the potential effect of supply-chain disruptions, labor costs, inflation, cybersecurity events and changing digital-channel economics on future margins and cash flow.