Macy’s, Inc. Form 10-K Summary
Business context and reporting period
Macy’s, Inc. operates an omnichannel retail business through Macy’s, Bloomingdale’s and Bluemercury, including 718 stores across the United States, Puerto Rico and Guam as of February 3, 2024. Fiscal 2023 included 53 weeks; fiscal 2022 included 52 weeks. The filing is for the fiscal year ended February 3, 2024, not a standalone 2022 fourth quarter.
Financial performance and position
| Metric | Fiscal 2023 | Fiscal 2022 |
|---|---|---|
| Net sales | $23.092 billion | $24.442 billion |
| Total revenue | $23.866 billion | $25.449 billion |
| Net income | $105 million | $1.177 billion |
| Diluted EPS | $0.38 | $4.19 |
| Operating income | $382 million | $1.730 billion |
| Gross margin | 38.8% | 37.4% |
| Adjusted EBITDA | $2.317 billion | $2.648 billion |
| Operating cash flow | $1.305 billion | $1.615 billion |
| Capital expenditures | $993 million | Not clearly provided in the filing excerpt |
- Comparable sales declined 6.9% on an owned basis and 6.0% on an owned-plus-licensed basis, adjusted for the extra week.
- Other revenue declined to $774 million from $1.007 billion, primarily because net credit card revenue fell 28% to $619 million. Macy’s Media Network revenue increased 8% to $155 million.
- SG&A expenses decreased 1% to $8.375 billion, but increased to 35.1% of total revenue from 33.2% because of lower sales.
- Merchandise inventories increased 2% to $4.361 billion, while inventory turnover declined 2%.
- Cash and cash equivalents increased to $1.034 billion from $862 million. The ABL facility had $2.582 billion of borrowing availability and no outstanding borrowings at year-end.
- Total outstanding indebtedness was approximately $2.998 billion. Long-term debt maturities include $6 million in fiscal 2025, $71 million in 2027, $207 million in 2028, $592 million in 2029 and $2.131 billion thereafter.
- The Company paid $181 million in dividends and repurchased approximately $25 million of common stock during fiscal 2023. Approximately $1.4 billion remained available under its $2.0 billion repurchase authorization.
Material changes versus the prior comparable period
- Net sales declined 5.5%, including $252 million attributable to the 53rd week; comparable sales fell 6.0% on an owned-plus-licensed basis.
- Net income fell by $1.072 billion, and diluted EPS declined from $4.19 to $0.38.
- Fiscal 2023 included $1.027 billion of impairment, restructuring and other costs, compared with $41 million in fiscal 2022. The largest component was a $957 million non-cash impairment charge, primarily related to stores planned for closure.
- Settlement charges increased to $134 million from $39 million, primarily due to the transfer of certain pension obligations through a group annuity contract.
- Gross margin improved by 140 basis points, supported by lower permanent markdowns and improved inbound freight costs, partly offset by category mix and higher inventory shortage.
- Operating cash flow decreased $310 million, primarily because of lower adjusted EBITDA and working-capital changes.
- Net interest expense declined to $135 million from $162 million, reflecting lower ABL borrowings, interest savings from prior financing actions and higher interest income.
Guidance, outlook, commentary and risks
On February 27, 2024, Macy’s announced its “A Bold New Chapter” strategy. Management described fiscal 2024 as a transition and investment year and expects approximately $875 million of capital expenditures, focused on digital and technology, go-forward stores, small-format locations and omnichannel capabilities.
- The Company plans to close approximately 150 underproductive Macy’s locations over three years and prioritize approximately 350 go-forward locations. The planned closure locations represented approximately 25% of gross square footage but less than 10% of 2023 net sales.
- Macy’s plans to add up to 30 small-format locations over two years, open a combined 15 Bloomie’s and Bloomingdale’s The Outlet locations over three years, and open at least 30 Bluemercury locations while remodeling approximately 30 others.
- Management expects operational efficiencies, supply-chain rationalization and cost savings to help fund strategic investments and offset inflationary pressures. The filing does not provide clear quantitative revenue or earnings guidance for fiscal 2024.
- Key risks include discretionary consumer spending, inflation, interest rates, competitive and digital-channel pressures, merchandise and inventory execution, store closures and real-estate monetization, labor costs, credit-card revenue deterioration, supply-chain disruption, foreign sourcing and tariffs, cybersecurity, privacy regulation, climate-related events and debt covenant compliance.
- The Company reported no material cybersecurity incident as of the filing date and stated that its disclosure controls and internal control over financial reporting were effective. KPMG issued unqualified opinions on the financial statements and internal control.
- The Credit Card Program with Citibank extends through March 31, 2030, subject to an additional three-year renewal term. A finalized CFPB rule reducing the credit-card late-fee safe harbor could reduce future credit-card revenue.
Most important facts for investors to verify
- Whether the planned closure of approximately 150 stores produces the expected cash proceeds, cost savings and sales transfer without additional impairment or restructuring charges.
- Fiscal 2024 comparable sales, gross margin, adjusted EBITDA and operating cash flow performance relative to the decline reported in fiscal 2023.
- The sustainability of credit-card revenue and the financial effects of higher portfolio funding costs, credit losses and regulatory changes.
- Liquidity and refinancing capacity as approximately $2.131 billion of stated long-term debt maturities occur after fiscal 2029, with additional lease and purchase obligations.
- Execution and returns on the approximately $875 million fiscal 2024 capital expenditure plan, including investments in digital, technology, supply chain and go-forward stores.
- Inventory levels, markdown activity and shortage trends, given the 2% inventory increase and lower turnover in fiscal 2023.
- The effect of the 53rd week in fiscal 2023 when comparing future sales and earnings trends.