Macy’s, Inc. Form 10-Q Summary
Reporting period: The filing covers the 13 and 26 weeks ended July 29, 2023, compared with July 30, 2022. Although the request metadata identifies “2022 Q2,” the provided filing is Macy’s fiscal second quarter and first half of 2023. The financial statements are unaudited.
Business Context
Macy’s is an omnichannel retailer operating Macy’s, Bloomingdale’s and Bluemercury stores, websites and mobile applications. The company operates in 43 states, the District of Columbia, Puerto Rico and Guam. Retail results are seasonal, and the reported periods exclude the holiday season.
Key Financial Metrics
| Metric | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 |
|---|---|---|---|---|
| Total revenue | $5.280 billion | $5.834 billion | $10.453 billion | $11.399 billion |
| Net sales | $5.130 billion | $5.600 billion | $10.112 billion | $10.948 billion |
| Operating income | $124 million | $399 million | $368 million | $862 million |
| Net income (loss) | $(22) million | $275 million | $133 million | $561 million |
| Diluted EPS | $(0.08) | $0.99 | $0.48 | $1.97 |
| Adjusted diluted EPS | $0.26 | $1.00 | $0.82 | $2.08 |
| Gross margin rate | 38.1% | 38.9% | 39.0% | 39.2% |
| Adjusted EBITDA | $347 million | $616 million | $815 million | $1.299 billion |
| Net cash from operating activities | Not separately provided | Not separately provided | $271 million | $303 million |
- Second-quarter comparable sales declined 8.2% on an owned basis and 7.3% on an owned-plus-licensed basis. First-half comparable sales declined 8.1% and 7.2%, respectively.
- Second-quarter digital sales declined 10% year over year; digital sales represented 30% of net sales. First-half digital penetration was 31%, compared with 32% in the prior-year period.
- Second-quarter SG&A expense declined $31 million to $1.980 billion, but SG&A rose to 37.5% of total revenue from 34.5%.
- Merchandise inventories were $4.129 billion at July 29, 2023, down 10% from $4.610 billion at July 30, 2022.
- Cash and cash equivalents were $438 million, compared with $300 million at July 30, 2022 and $862 million at January 28, 2023.
- Long-term debt was $2.997 billion and long-term lease liabilities were $2.975 billion at July 29, 2023.
- The company had no borrowings under its $3.0 billion ABL Credit Facility. Standby letters of credit of $138 million reduced available capacity to $2.862 billion.
Material Changes Versus the Prior Comparable Period
- Revenue declined 9.5% in the quarter and 8.3% in the first half, reflecting pressure on discretionary consumer spending and lower credit card revenue.
- Credit card revenue declined $84 million in the quarter and $113 million in the first half, primarily because of higher delinquency rates and estimated bad debt, as well as lower card sales in the first half.
- Gross margin rate decreased 80 basis points in the quarter and 20 basis points in the first half. Merchandise margin was pressured by increased markdowns, unfavorable category mix and higher inventory shortage, partly offset by lower inbound freight costs.
- Operating income declined $275 million in the quarter and $494 million in the first half.
- Net income declined $297 million in the quarter and $428 million in the first half. Results included a $122 million non-cash pension settlement charge in 2023. The prior-year first half included $31 million of losses on early debt retirement.
- Operating cash flow declined to $271 million from $303 million. Investing cash use increased to $531 million from $515 million, while financing cash use decreased to $164 million from $1.200 billion because the prior-year period included substantial debt repayment and share repurchases.
- Macy’s repurchased approximately 1.4 million shares for $25 million in the first quarter; no repurchases occurred in the second quarter. Remaining authorization was $1.375 billion at July 29, 2023.
Guidance, Outlook, Commentary and Risks
On August 22, 2023, management updated 2023 guidance. Other revenue is expected to be approximately 3.2% of net sales, with credit card revenue representing approximately 80% to 81% of other revenue. Gross margin rate is expected to be 38.3% to 38.6%; SG&A is expected to be approximately 35.2% to 35.6% of total revenue and 36.4% to 36.7% of net sales; asset sale gains are expected to be approximately $50 million; adjusted EBITDA is expected to be approximately 8.7% to 9.4% of total revenue and 9.0% to 9.7% of net sales; interest expense is expected to be approximately $160 million; and diluted shares outstanding are expected to be approximately 279 million.
- Management is investing in private-brand reimagination, small-format stores, digital marketplaces, luxury offerings and personalized customer communications.
- The company launched the On 34th private brand and expanded its marketplace to approximately 1,350 brands. Bloomingdale’s also launched a marketplace during the quarter.
- Bluemercury reported its tenth consecutive quarter of comparable-sales growth, while active customers increased 20% on a trailing-twelve-month basis.
- Management believes cash on hand, operating cash flow, ABL availability and market access will be sufficient for working capital, capital expenditures and dividends for at least the next 12 months.
- Principal risks include weaker discretionary consumer spending, credit-card delinquencies and declining credit-card revenue, competition, digital-channel shifts, inventory shortage, labor and wage pressures, supply-chain disruption, cybersecurity, real estate execution, seasonality, indebtedness and changes in dividends or repurchases.
- The company reported no material changes to previously disclosed risk factors or market-risk exposures. A California hazardous-waste matter was resolved in August 2023 through a judgment requiring approximately $1.9 million of payments and a five-year compliance program.
Investor Verification Checklist
- Verify the filing period and reconcile the request’s “2022 Q2” label with the actual July 29, 2023 reporting period.
- Assess whether comparable-sales declines, lower digital sales and weaker discretionary demand persist through the holiday season.
- Monitor credit-card delinquencies, bad-debt estimates and the resulting effect on other revenue.
- Reconcile reported GAAP results with adjusted EPS and adjusted EBITDA, particularly the $122 million non-cash pension settlement charge.
- Evaluate progress toward the updated 2023 margin, SG&A, adjusted EBITDA and interest-expense guidance.
- Review liquidity after capital expenditures, dividends, share repurchases and seasonal working-capital requirements.
- Confirm debt maturities, lease obligations, ABL availability and the structural subordination of unsecured notes.
- Consider the reliability and comparability of the company’s non-GAAP measures, which may differ from those used by other retailers.