Macy’s, Inc. Form 10-Q Summary
Reporting period: Fiscal third quarter and first 39 weeks ended October 28, 2023, compared with the periods ended October 29, 2022. The provided filing is for 2023 Q3, despite the request metadata referencing 2022 Q3. Results exclude the holiday season and are not necessarily indicative of full-year performance. Macy’s operates Macy’s, Bloomingdale’s and Bluemercury through stores, websites and mobile applications.
Financial Performance and Position
Third quarter
| Metric | Q3 2023 | Q3 2022 | Change |
|---|
| Total revenue | $5.038 billion | $5.467 billion | Down 7.8% |
| Net sales | $4.860 billion | $5.230 billion | Down 7.1% |
| Operating income | $86 million | $192 million | Down $106 million |
| Net income | $43 million | $108 million | Down $65 million |
| Diluted EPS | $0.15 | $0.39 | Down $0.24 |
| Gross margin rate | 40.3% | 38.7% | Up 160 basis points |
| Adjusted EBITDA | $334 million | $439 million | Down $105 million |
- Comparable sales declined 7.0% on an owned basis and 6.3% on an owned-plus-licensed basis.
- Macy’s comparable sales declined 7.6% on an owned basis; Bloomingdale’s declined 3.2%; Bluemercury increased 2.5%.
- Digital sales decreased 7% and represented 31% of net sales.
- SG&A expense declined 2% to $2.040 billion, but increased to 40.5% of total revenue from 38.2%.
- Credit card revenue declined $64 million to $142 million, primarily because of higher portfolio funding costs and estimated credit losses. Macy’s Media Network revenue increased 16% to $36 million.
First 39 weeks
| Metric | 2023 | 2022 | Change |
|---|
| Total revenue | $15.491 billion | $16.866 billion | Down 8.2% |
| Operating income | $453 million | $1.054 billion | Down $601 million |
| Net income | $175 million | $668 million | Down $493 million |
| Diluted EPS | $0.63 | $2.37 | Down $1.74 |
| Gross margin rate | 39.4% | 39.1% | Up 30 basis points |
| Adjusted EBITDA | $1.149 billion | $1.738 billion | Down $589 million |
- Comparable sales declined 7.7% on an owned basis and 6.9% on an owned-plus-licensed basis.
- Other revenue declined $169 million to $519 million, including a $177 million decline in credit card revenue. Macy’s Media Network revenue increased $8 million to $95 million.
- Gross margin improved modestly, while merchandise margin declined approximately 20 basis points because of category mix and the private-brand transition.
Cash flow, liquidity and capital structure
- Net cash provided by operating activities was $158 million, down from $488 million. The decline primarily reflected lower earnings before depreciation and amortization and a $1.757 billion increase in merchandise inventories.
- Capital expenditures and capitalized software totaled $749 million, compared with $983 million in the prior-year period.
- Cash and cash equivalents were $364 million at October 28, 2023, versus $326 million at October 29, 2022 and $862 million at January 28, 2023.
- Total debt included $160 million of short-term ABL borrowings and $2.997 billion of long-term debt. The ABL facility provides $3.0 billion of capacity; availability was $2.862 billion after standby letters of credit.
- The company paid $135 million of dividends and repurchased approximately 1.4 million shares for $25 million during the first quarter. No shares were repurchased in the second or third quarters. Remaining repurchase authorization was $1.375 billion.
- Management stated that cash on hand, expected operating cash flow, ABL availability and market credit are expected to meet working-capital, capital-expenditure and dividend needs for at least the next twelve months and the foreseeable future, assuming no change in the current business plan.
Material Changes Versus the Prior Comparable Period
- Consumer spending remained pressured in discretionary categories, producing broad-based comparable-sales declines at Macy’s and Bloomingdale’s; Bluemercury continued to grow.
- Profitability declined substantially despite improved gross margin and lower SG&A in dollars, primarily because of lower revenue and reduced credit card profitability.
- Year-to-date operating cash flow fell $330 million, while inventory was down 6% year over year but increased seasonally to $6.025 billion from $4.267 billion at fiscal year-end.
- Year-to-date settlement charges increased to $129 million from $32 million, primarily due to the transfer of certain pension obligations through a group annuity contract. These charges were non-cash.
- Prior-year results included $31 million of losses on early debt retirement; no such charge occurred in 2023.
- The company expanded its digital marketplace to more than 1,500 Macy’s brands and 55 Bloomingdale’s marketplace brands. It also continued private-brand, small-format, luxury and personalized-offer initiatives.
Guidance, Outlook, Risks and Unusual Items
- Updated 2023 guidance calls for net sales of $22.9 billion to $23.2 billion, comparable owned-plus-licensed sales down approximately 7% to 6%, gross margin of 38.4% to 38.5%, and adjusted diluted EPS of $2.88 to $3.13.
- Guidance also includes adjusted EBITDA of approximately 8.9% to 9.1% of total revenue, interest expense of approximately $140 million, depreciation and amortization of approximately $895 million and approximately 278 million diluted shares.
- Management identified macroeconomic pressure on discretionary spending, competition, digital-channel migration, credit card revenue declines, inventory and supply-chain execution, labor and wage pressures, cybersecurity, real estate strategy, indebtedness, interest rates, geopolitical conditions and potential goodwill or asset impairments as material risks.
- The company performed an interim qualitative goodwill impairment review after a decline in market valuation and concluded that goodwill was not impaired. A sustained decline in market capitalization or weaker business conditions could result in a future impairment charge.
- The filing reports no material changes to previously disclosed market risks or risk factors, and no legal proceedings expected to have a material adverse effect.
- The business is seasonal, and the reported periods do not include the holiday season, Macy’s most significant selling period.
Important Facts for Investors to Verify
- Whether holiday-season demand supports the updated full-year sales and adjusted EPS guidance.
- Whether credit card funding costs and estimated credit losses continue to reduce other revenue.
- Whether gross-margin improvements persist despite category mix changes, private-brand transitions and potential markdown pressure.
- Whether operating cash flow improves as inventory levels and working-capital requirements normalize.
- The company’s ability to maintain dividends and resume share repurchases while funding technology, supply-chain and store investments.
- The sensitivity of goodwill and other asset valuations to market capitalization, sales, margins and macroeconomic conditions.
- The comparability of adjusted EBITDA and adjusted EPS with other retailers, because these non-GAAP measures exclude selected impairment, restructuring and pension settlement items.
