Macy’s, Inc. Form 10-K Summary
Period mismatch: The request identifies “2019 Q4,” but the supplied filing is Macy’s Form 10-K for the fiscal year ended January 30, 2021 (“2020”), filed March 29, 2021. Fiscal 2019 ended February 1, 2020. The summary below covers the supplied 2020 filing.
Business Context and Reporting Period
Macy’s is an omnichannel retailer operating Macy’s, Bloomingdale’s and bluemercury stores, websites and mobile applications. As of January 30, 2021, the Company operated 727 locations across 43 states, the District of Columbia, Puerto Rico and Guam, and reported one operating segment.
The fiscal year included 52 weeks and was materially affected by COVID-19. All stores temporarily closed on March 18, 2020; stores began reopening on May 4, 2020, and substantially all were open by the end of the second quarter.
Financial Metrics
| Metric | 2020 | 2019 | Change or commentary |
|---|---|---|---|
| Net sales | $17.346 billion | $24.560 billion | Down 29.4% |
| Comparable sales | (27.9%) | (0.8%) | Owned and owned-plus-licensed basis |
| Credit card revenue, net | $751 million | $771 million | Down $20 million |
| Gross margin | $5.060 billion; 29.2% | $9.389 billion; 38.2% | Rate down 900 basis points |
| SG&A expense | $6.767 billion; 39.0% of sales | $8.998 billion; 36.6% of sales | Expense down 24.8%; rate increased 240 basis points |
| Operating income (loss) | $(4.475) billion | $970 million | Loss driven largely by impairment and restructuring charges |
| Net income (loss) | $(3.944) billion | $564 million | Loss attributable to Macy’s shareholders was also $(3.944) billion |
| Diluted EPS | $(12.68) | $1.81 | GAAP basis |
| Adjusted EBITDA | $117 million | $2.336 billion | Margin declined to 0.7% from 9.5% |
| Operating cash flow | $649 million | $1.608 billion | Down $959 million |
| Capital expenditures | $466 million | $1.157 billion | Reduced to preserve liquidity |
| Cash and cash equivalents | $1.679 billion | $685 million | Increased by $994 million |
| Total debt principal | $4.906 billion | Not clearly stated as a comparable principal amount | Balance-sheet short-term debt was $452 million and long-term debt was $4.407 billion |
Material Changes Versus the Prior Comparable Period
- Digital sales increased to 44.3% of net sales from 25.3%, reflecting the shift in consumer behavior during the pandemic.
- Merchandise inventory declined 27.3% year over year; management stated that the Company ended the year in a clean inventory position.
- The Company recognized $3.579 billion of restructuring, impairment, store-closing and other costs, compared with $354 million in 2019.
- Impairment charges included $3.080 billion of goodwill impairment and $200 million of primarily store-related long-lived-asset and right-of-use-asset impairments.
- The Company reduced corporate and management headcount by approximately 3,900 and implemented broader staffing reductions, furloughs and discretionary spending controls.
- The Company suspended quarterly cash dividends beginning in the second quarter of 2020 and rescinded the remaining authorization under its share repurchase program.
- Shareholders’ equity declined to $2.553 billion from $6.377 billion, primarily reflecting the net loss.
Liquidity, Debt and Financing
Management reported approximately $1.7 billion of cash and approximately $3.0 billion of untapped asset-based credit capacity at year-end. The Company had no borrowings under its $2.941 billion asset-based revolving facility, although $142 million of standby letters of credit reduced availability.
In June 2020, Macy’s issued $1.3 billion of 8.375% senior secured notes due 2025 and completed other financing activities totaling nearly $4.5 billion. The proceeds and cash on hand were used in part to repay a $1.5 billion revolving-credit draw. The asset-based facility matures May 9, 2024; the senior secured notes mature June 15, 2025.
Contractual obligations totaled $18.019 billion, including $7.039 billion of operating lease payments, $4.906 billion of debt and $2.025 billion of interest on debt. Debt ratings at January 30, 2021 were below investment grade, with negative outlooks from Moody’s, S&P and Fitch.
Guidance and Outlook
For fiscal 2021, management expected continued pandemic-related challenges in the spring, with momentum building in the second half. Guidance included:
- Net sales of $19.75 billion to $20.75 billion.
- Digital sales of approximately 35% of net sales.
- Gross margin rate of up to 37%.
- Adjusted EBITDA of 7% to 7.5% of net sales.
- Adjusted diluted EPS of $0.40 to $0.90.
- Capital expenditures of approximately $650 million.
The Polaris strategy focuses on fashion and style, clear value, digital shopping, store experience, supply-chain modernization and organizational transformation. Management cited approximately $900 million of expected permanent annualized cost savings from restructuring efforts.
Risks, Contingencies and Unusual Items
- COVID-19 remained the principal risk, including potential store restrictions or closures, reduced traffic, supply-chain disruption, changing consumer demand and additional impairment charges.
- Citibank could terminate the credit-card program because the Company’s trailing twelve-month sales had declined more than 34% relative to the contractual benchmark year. As of the filing date, Citibank had not provided a termination notice, and the financial impact could not be estimated.
- The Company’s substantial debt, negative credit outlooks and asset-based facility covenants could constrain liquidity if operating performance deteriorates.
- The Company planned to close approximately 125 lower-productivity stores over three years and acknowledged that additional Polaris-related charges or capital expenditures could occur through 2022.
- A California hazardous-waste investigation involving cosmetic-product disposal remained unresolved. Macy’s stated that penalties could exceed $1 million, although it did not expect a material adverse effect.
- On March 17, 2021, the Company issued $500 million of 5.875% senior notes due 2029 and used the proceeds and cash on hand to repurchase $500 million of senior notes and debentures.
Important Facts for Investors to Verify
- Confirm the intended filing period: the supplied document is fiscal 2020, not 2019 Q4.
- Reconcile GAAP results with management’s adjusted EBITDA and adjusted EPS, particularly the substantial impairment and restructuring charges.
- Monitor sales recovery, gross-margin normalization, digital-sales profitability and the sustainability of the stated $900 million cost savings.
- Review liquidity availability, debt maturities, interest expense, ABL covenants and the Company’s ability to refinance or repay debt.
- Track Citibank’s decision regarding the credit-card program and the potential effect on credit-card revenue.
- Assess whether further store closures, real-estate monetizations or goodwill and long-lived-asset impairments are required.
- Verify the status of the COVID-19 recovery, supply-chain conditions, inventory levels and the Company’s fiscal 2021 guidance against subsequent filings.