Item 1. Financial Statements
MACY’S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(millions, except per share figures)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
May 5, 2018
|
|
April 29, 2017
|
Net sales
|
$
|
5,541
|
|
|
$
|
5,350
|
|
Credit card revenues, net
|
157
|
|
|
161
|
|
|
|
|
|
Cost of sales
|
(3,382
|
)
|
|
(3,303
|
)
|
Selling, general and administrative expenses
|
(2,083
|
)
|
|
(2,057
|
)
|
Gains on sale of real estate
|
24
|
|
|
68
|
|
Impairment and other costs
|
(19
|
)
|
|
—
|
|
Operating income
|
238
|
|
|
219
|
|
Benefit plan income, net
|
11
|
|
|
13
|
|
Interest expense
|
(71
|
)
|
|
(86
|
)
|
Premiums on early retirement of debt
|
—
|
|
|
(3
|
)
|
Interest income
|
5
|
|
|
2
|
|
Income before income taxes
|
183
|
|
|
145
|
|
Federal, state and local income tax expense
|
(52
|
)
|
|
(68
|
)
|
Net income
|
131
|
|
|
77
|
|
Net loss attributable to noncontrolling interest
|
8
|
|
|
1
|
|
Net income attributable to Macy's, Inc. shareholders
|
$
|
139
|
|
|
$
|
78
|
|
Basic earnings per share attributable to Macy's, Inc. shareholders
|
$
|
.45
|
|
|
$
|
.26
|
|
Diluted earnings per share attributable to Macy's, Inc. shareholders
|
$
|
.45
|
|
|
$
|
.26
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
May 5, 2018
|
|
April 29, 2017
|
Net income
|
$
|
131
|
|
|
$
|
77
|
|
Other comprehensive income (loss):
|
|
|
|
Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax
|
9
|
|
|
9
|
|
Tax effect related to items of other comprehensive income (loss)
|
(2
|
)
|
|
(3
|
)
|
Total other comprehensive income, net of tax effect
|
7
|
|
|
6
|
|
Comprehensive income
|
138
|
|
|
83
|
|
Comprehensive loss attributable to noncontrolling interest
|
8
|
|
|
1
|
|
Comprehensive income attributable to
Macy's, Inc. shareholders
|
$
|
146
|
|
|
$
|
84
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 5, 2018
|
|
February 3, 2018
|
|
April 29, 2017
|
ASSETS
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,531
|
|
|
$
|
1,455
|
|
|
$
|
1,201
|
|
Receivables
|
250
|
|
|
363
|
|
|
345
|
|
Merchandise inventories
|
5,291
|
|
|
5,178
|
|
|
5,626
|
|
Prepaid expenses and other current assets
|
638
|
|
|
650
|
|
|
634
|
|
Total Current Assets
|
7,710
|
|
|
7,646
|
|
|
7,806
|
|
Property and Equipment - net of accumulated depreciation and
amortization of $4,765, $4,610 and $5,013
|
6,575
|
|
|
6,672
|
|
|
6,886
|
|
Goodwill
|
3,908
|
|
|
3,897
|
|
|
3,897
|
|
Other Intangible Assets – net
|
486
|
|
|
488
|
|
|
496
|
|
Other Assets
|
889
|
|
|
880
|
|
|
793
|
|
Total Assets
|
$
|
19,568
|
|
|
$
|
19,583
|
|
|
$
|
19,878
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
Short-term debt
|
$
|
25
|
|
|
$
|
22
|
|
|
$
|
313
|
|
Merchandise accounts payable
|
2,045
|
|
|
1,590
|
|
|
2,028
|
|
Accounts payable and accrued liabilities
|
2,695
|
|
|
3,271
|
|
|
3,042
|
|
Income taxes
|
312
|
|
|
296
|
|
|
355
|
|
Total Current Liabilities
|
5,077
|
|
|
5,179
|
|
|
5,738
|
|
Long-Term Debt
|
5,857
|
|
|
5,861
|
|
|
6,412
|
|
Deferred Income Taxes
|
1,169
|
|
|
1,148
|
|
|
1,522
|
|
Other Liabilities
|
1,664
|
|
|
1,662
|
|
|
1,846
|
|
Shareholders' Equity:
|
|
|
|
|
|
Macy's, Inc.
|
5,821
|
|
|
5,745
|
|
|
4,362
|
|
Noncontrolling interest
|
(20
|
)
|
|
(12
|
)
|
|
(2
|
)
|
Total Shareholders’ Equity
|
5,801
|
|
|
5,733
|
|
|
4,360
|
|
Total Liabilities and Shareholders’ Equity
|
$
|
19,568
|
|
|
$
|
19,583
|
|
|
$
|
19,878
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
May 5, 2018
|
|
April 29, 2017
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
131
|
|
|
$
|
77
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Impairment and other costs
|
19
|
|
|
—
|
|
Depreciation and amortization
|
235
|
|
|
243
|
|
Stock-based compensation expense
|
17
|
|
|
13
|
|
Gains on sale of real estate
|
(24
|
)
|
|
(68
|
)
|
Changes in assets and liabilities:
|
|
|
|
Decrease in receivables
|
105
|
|
|
170
|
|
Increase in merchandise inventories
|
(115
|
)
|
|
(227
|
)
|
Increase in prepaid expenses and other current assets
|
(20
|
)
|
|
(16
|
)
|
Increase in merchandise accounts payable
|
415
|
|
|
573
|
|
Decrease in accounts payable, accrued liabilities
and other items not separately identified
|
(444
|
)
|
|
(545
|
)
|
Increase in current income taxes
|
25
|
|
|
3
|
|
Increase in deferred income taxes
|
19
|
|
|
41
|
|
Change in other assets and liabilities not separately identified
|
(41
|
)
|
|
(27
|
)
|
Net cash provided by operating activities
|
322
|
|
|
237
|
|
Cash flows from investing activities:
|
|
|
|
Purchase of property and equipment
|
(132
|
)
|
|
(117
|
)
|
Capitalized software
|
(58
|
)
|
|
(60
|
)
|
Disposition of property and equipment
|
23
|
|
|
96
|
|
Other, net
|
11
|
|
|
21
|
|
Net cash used by investing activities
|
(156
|
)
|
|
(60
|
)
|
Cash flows from financing activities:
|
|
|
|
Debt repaid
|
(3
|
)
|
|
(152
|
)
|
Dividends paid
|
(116
|
)
|
|
(115
|
)
|
Decrease in outstanding checks
|
(10
|
)
|
|
(10
|
)
|
Acquisition of treasury stock
|
—
|
|
|
(1
|
)
|
Issuance of common stock
|
28
|
|
|
2
|
|
Proceeds from noncontrolling interest
|
2
|
|
|
3
|
|
Net cash used by financing activities
|
(99
|
)
|
|
(273
|
)
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
67
|
|
|
(96
|
)
|
Cash, cash equivalents and restricted cash beginning of period
|
1,513
|
|
|
1,334
|
|
Cash, cash equivalents and restricted cash end of period
|
$
|
1,580
|
|
|
$
|
1,238
|
|
Supplemental cash flow information:
|
|
|
|
Interest paid
|
$
|
65
|
|
|
$
|
76
|
|
Interest received
|
5
|
|
|
2
|
|
Income taxes paid (net of refunds received)
|
8
|
|
|
16
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
Macy's, Inc. and subsidiaries (the "Company") is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods. The Company's operations are conducted through approximately
850
Macy's, Macy's Backstage, Bloomingdale's, Bloomingdale's The Outlet, bluemercury and STORY in
44
states, the District of Columbia, Guam and Puerto Rico, as well as macys.com, bloomingdales.com and bluemercury.com. In addition, Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 2018
(the "2017 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2017 10-K.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
The Consolidated Financial Statements for the
13 weeks ended
May 5, 2018
and
April 29, 2017
, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
Seasonality
Because of the seasonal nature of the retail business, the results of operations for the
13 weeks ended
May 5, 2018
and
April 29, 2017
(which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Reclassifications
Certain reclassifications were made to prior years’ amounts to conform to the classifications of such amounts in the most recent years and adoption of new accounting standards as discussed in more detail below.
Comprehensive Income
Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income. For the Company, the only other components of total comprehensive income for the
13 weeks ended
May 5, 2018
and
April 29, 2017
relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of operating expenses in the Consolidated Statements of Income. Amortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in selling, general and administrative expenses on the Consolidated Statements of Income. See Note 4, "Benefit Plans," for further information.
Revenue
Revenue is recognized when customers obtain control of goods and services promised by the Company. The amount of revenue recognized is based on the amount that reflects the consideration that is expected to be received in exchange for those respective goods and services. The Company's revenue generating activities include the following:
Retail Sales
Retail sales include merchandise sales, licensed department income, sales of private brand goods directly to third party retailers and sales of excess inventory to third parties. Sales of merchandise are recorded at the time of shipment to the customer and are reported net of estimated merchandise returns and certain customer incentives. Commissions earned on sales generated by
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
licensed departments are included as a component of total net sales and are recognized as revenue at the time merchandise is sold to customers. Service revenues (e.g., alteration and cosmetic services) are recorded at the time the customer receives the benefit of the service. The Company has elected to present sales taxes on a net basis and, as such, sales taxes are included in Accounts Payable and Accrued Liabilities until remitted to the taxing authorities.
For each of the
13 weeks ended
May 5, 2018
and
April 29, 2017
, Macy's accounted for
88%
of the Company's net sales. Disaggregation of the Company's net sales by family of business for the
13 weeks ended
May 5, 2018
and
April 29, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
Net sales by family of business
|
May 5, 2018
|
|
April 29, 2017
|
|
(millions)
|
Women's Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances
|
$
|
2,165
|
|
|
$
|
2,069
|
|
Women's Apparel
|
1,354
|
|
|
1,333
|
|
Men's and Children's
|
1,175
|
|
|
1,115
|
|
Home/Other
(a)
|
847
|
|
|
833
|
|
Total
|
$
|
5,541
|
|
|
$
|
5,350
|
|
(a) Other primarily includes restaurant sales and breakage income from unredeemed gift cards.
Merchandise Returns
The Company estimates merchandise returns using historical data and recognizes an allowance that reduces net sales and cost of sales. The liability for merchandise returns is included in Accounts Payable and Accrued Liabilities on the Company's consolidated balance sheets and was
$298 million
,
$291 million
and
$338 million
as of May 5, 2018, February 3, 2018 and April 29, 2017, respectively. Included in Prepaid Expenses and Other Current Assets is an asset totaling
$204 million
,
$201 million
and
$236 million
as of May 5, 2018, February 3, 2018 and April 29, 2017, respectively, for the right to recover products from customers associated with estimated merchandise returns.
Credit Card Revenues, net
In 2005, the Company entered into an arrangement with Citibank to sell the Company's private label and co-branded credit cards ("Credit Card Program"). Subsequent to this initial arrangement and associated amendments, in 2014, the Company entered into an amended and restated Credit Card Program Agreement (the "Program Agreement") with Citibank. As part of the Program Agreement, the Company receives payments for providing a combination of interrelated services and intellectual property to Citibank in support of the underlying Credit Card Program. Revenue based on the spending activity of the underlying accounts is recognized as the respective card purchases occur and the Company’s profit share is recognized based on the performance of the underlying portfolio. Revenue associated with the establishment of new credit accounts and assisting in the receipt of payments for existing accounts is recognized as such activities occur. Credit card revenues include finance charges, late fees and other revenue generated by the Company’s Credit Card Program, net of fraud losses and expenses associated with establishing new accounts.
Customer Loyalty Programs
The Company maintains customer loyalty programs in which customers earn points based on their purchases. Under the Macy’s brand, points are earned based on customers’ spending on Macy’s private label and co-branded credit cards as well as non-proprietary cards during certain tender-neutral promotional events. Under the Bloomingdale’s brand, the Company offers a tender neutral points-based program. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer. The liability for customer loyalty programs is included in Accounts Payable and Accrued Liabilities on the Company's consolidated balance sheets and was
$71 million
,
$73 million
and
$60 million
as of May 5, 2018, February 3, 2018 and April 29, 2017, respectively.
Gift Cards
The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold, no revenue is recognized; rather, the Company records an accrued liability to customers. The liability is relieved and revenue is recognized equal to the amount redeemed at the time gift cards are redeemed for merchandise. The Company records revenue from unredeemed gift cards (breakage) in net sales in proportion over the time period gift cards are actually redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns. The liability for unredeemed gift
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
cards is included in Accounts Payable and Accrued Liabilities on the Company's consolidated balance sheets and was
$656 million
,
$821 million
and
$651 million
as of May 5, 2018, February 3, 2018 and April 29, 2017, respectively.
Newly Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which established principles to report useful information to financial statements users about the nature, timing and uncertainty of revenue from contracts with customers. ASU No. 2014-09 along with various related amendments comprise ASC Topic 606, Revenue from Contracts with Customers, and provide guidance that is applicable to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. The new standard and its related updates were adopted by the Company on February 4, 2018. On the effective date, the Company elected to apply the new guidance retrospectively to each prior reporting period presented which resulted in an increase to retained earnings of
$72 million
and
$54 million
at the beginning of fiscal 2018 and fiscal 2017, respectively.
Overall, the new standard did not have a material impact to the results of the Company's operations or consolidated statements of financial position, but impacted the presentation and timing of certain revenue transactions. Specifically, the changes included gross presentation of the Company's estimates for future sales returns and related recoverable assets, presenting income from credit operations, gift card breakage income, and certain loyalty program income as separate components of revenue and recognizing gift card breakage revenue over the period of redemption for gift cards associated with certain returns. The Company's evaluation of the new standards included a review of certain vendor arrangements to determine whether the Company acts as principal or agent in such arrangements and such evaluation did not result in any material changes in gross versus net presentation as a result of the adoption of the new standards.
In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (ASC Topic 715), which requires employers to disaggregate the service cost component from other components of net periodic benefit costs and to disclose the amounts of net periodic benefit costs that are included in each income statement line item. The standard requires employers to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) separately and outside a subtotal of operating income. The Company adopted this standard effective February 4, 2018 on a retrospective basis and has recognized its net periodic benefit costs, excluding service costs, in Benefit Plan Income, net on its consolidated statements of income.
In 2016 the FASB issued ASU No. 2016-18, Statement of Cash Flows (ASC Topic 230): Restricted Cash, and ASU No. 2016-15, Statement of Cash Flows (ASC Topic 230): Classification of Certain Cash Receipts and Cash Payments. These standards were issued to resolve numerous diversities in practice with regard to the presentation and classification of certain cash receipts and payments in the statement of cash flows. The standards were effective for the Company on February 4, 2018, and were adopted using a retrospective transition method to each period presented. As a result of these standards, the Company included its beginning-of-period restricted cash balances of
$58 million
and end-of-period restricted cash balances of
$49 million
when reconciling the consolidated statement of cash flow movement for the first quarter of 2018. Similarly, for the first quarter of 2017, the Company included its beginning-of-period restricted cash balances of
$37 million
and end-of-period restricted cash balances of
$37 million
. In addition to these changes, the Company changed the classification of
$3 million
of cash payments for the prepayment of debt from an operating outflow to a financing outflow for the first quarter of 2017.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for stranded tax effects in accumulated other comprehensive income resulting from H.R. 1, originally known as the “Tax Cuts and Jobs Act,” to be reclassified to retained earnings. The Company early adopted this standard during the first quarter of 2018 and, as a result, reclassified
$164 million
of stranded tax effects to retained earnings.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
2. Earnings Per Share Attributable to Macy's, Inc. Shareholders
The following tables set forth the computation of basic and diluted earnings per share attributable to Macy's, Inc. shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
May 5, 2018
|
|
April 29, 2017
|
|
Net
Income
|
|
|
|
Shares
|
|
Net
Income
|
|
|
|
Shares
|
|
(millions, except per share data)
|
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding
|
$
|
139
|
|
|
|
|
305.7
|
|
|
$
|
78
|
|
|
|
|
304.3
|
|
Shares to be issued under deferred
compensation and other plans
|
|
|
|
|
0.9
|
|
|
|
|
|
|
0.7
|
|
|
$
|
139
|
|
|
|
|
306.6
|
|
|
$
|
78
|
|
|
|
|
305.0
|
|
Basic earnings per share attributable to
Macy's, Inc. shareholders
|
|
|
$
|
.45
|
|
|
|
|
|
|
$
|
.26
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock and restricted stock units
|
|
|
|
|
2.8
|
|
|
|
|
|
|
1.9
|
|
|
$
|
139
|
|
|
|
|
309.4
|
|
|
$
|
78
|
|
|
|
|
306.9
|
|
Diluted earnings per share attributable to
Macy's, Inc. shareholders
|
|
|
$
|
.45
|
|
|
|
|
|
|
$
|
.26
|
|
|
|
In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase
15.7 million
shares of common stock and restricted stock units relating to
2.5 million
shares of common stock were outstanding at
May 5, 2018
, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase
16.2 million
shares of common stock and restricted stock units relating to
1.6 million
shares of common stock were outstanding at
April 29, 2017
, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
3. Financing Activities
The following table shows the detail of debt repayments:
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
May 5, 2018
|
|
April 29, 2017
|
|
(millions)
|
6.375% Senior notes due 2037
|
$
|
—
|
|
|
$
|
135
|
|
6.7% Senior debentures due 2034
|
—
|
|
|
11
|
|
9.5% amortizing debentures due 2021
|
2
|
|
|
2
|
|
9.75% amortizing debentures due 2021
|
1
|
|
|
1
|
|
|
$
|
3
|
|
|
$
|
149
|
|
During the
13 weeks ended
April 29, 2017
, the Company repurchased
$146 million
face value of senior notes and debentures. The debt repurchases were made in the open market for a total cost of
$149 million
, including expenses related to the transactions. Such repurchases resulted in the recognition of additional interest expense of
$3 million
during the
13 weeks ended
April 29, 2017
. This additional interest expense is presented as premium on early retirement of debt on the consolidated statements of income.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
4. Benefit Plans
The Company has defined contribution plans which cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has a funded defined benefit plan ("Pension Plan") and an unfunded defined benefit supplementary retirement plan ("SERP"), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.
In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.
In addition, certain retired employees currently are provided with specified health care and life insurance benefits ("Postretirement Obligations"). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.
The defined contribution plan expense and actuarially determined components of the net periodic benefit cost (income) associated with the defined benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
May 5, 2018
|
|
April 29, 2017
|
|
(millions)
|
401(k) Qualified Defined Contribution Plan
|
$
|
23
|
|
|
$
|
21
|
|
|
|
|
|
Non-Qualified Defined Contribution Plan
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Pension Plan
|
|
|
|
Service cost
|
$
|
2
|
|
|
$
|
1
|
|
Interest cost
|
26
|
|
|
27
|
|
Expected return on assets
|
(53
|
)
|
|
(56
|
)
|
Recognition of net actuarial loss
|
8
|
|
|
8
|
|
Amortization of prior service credit
|
—
|
|
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
(20
|
)
|
Supplementary Retirement Plan
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
6
|
|
|
6
|
|
Recognition of net actuarial loss
|
2
|
|
|
2
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
$
|
8
|
|
|
$
|
8
|
|
|
|
|
|
Total Retirement Expense
|
$
|
14
|
|
|
$
|
9
|
|
|
|
|
|
Postretirement Obligations
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
1
|
|
|
1
|
|
Recognition of net actuarial gain
|
(1
|
)
|
|
(1
|
)
|
Amortization of prior service credit
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
5. Fair Value Measurements
The following table shows the Company's financial assets that are required to be measured at fair value on a recurring basis, by level within the hierarchy as defined by applicable accounting standards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 5, 2018
|
|
April 29, 2017
|
|
|
|
Fair Value Measurements
|
|
|
|
Fair Value Measurements
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(millions)
|
Marketable equity and debt securities
|
$
|
96
|
|
|
$
|
25
|
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
90
|
|
|
$
|
21
|
|
|
$
|
69
|
|
|
$
|
—
|
|
Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, certain short-term investments and other assets, short-term debt, merchandise accounts payable, accounts payable and accrued liabilities and long-term debt. With the exception of long-term debt, the carrying amount of these financial instruments approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are generally estimated based on quoted market prices for identical or similar instruments, and are classified as Level 2 measurements within the hierarchy as defined by applicable accounting standards.
The following table shows the estimated fair value of the Company's long-term debt, excluding capital leases and other obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 5, 2018
|
|
April 29, 2017
|
|
Notional
Amount
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Notional
Amount
|
|
Carrying
Amount
|
|
Fair
Value
|
|
(millions)
|
Long-term debt
|
$
|
5,803
|
|
|
$
|
5,832
|
|
|
$
|
5,621
|
|
|
$
|
6,310
|
|
|
$
|
6,385
|
|
|
$
|
6,251
|
|
6. Condensed Consolidating Financial Information
Certain debt obligations of the Company, which constitute debt obligations of Macy's Retail Holdings, Inc. ("Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent"), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, "Other Subsidiaries" includes all other direct subsidiaries of Parent, including Bluemercury, Inc., FDS Bank, West 34th Street Insurance Company New York, Macy's Merchandising Corporation, Macy's Merchandising Group, Inc. and its subsidiaries Macy's Merchandising Group (Hong Kong) Limited, Macy's Merchandising Group Procurement, LLC, Macy's Merchandising Group International, LLC, Macy's Merchandising Group International (Hong Kong) Limited, and its majority-owned subsidiary Macy's China Limited. "Subsidiary Issuer" includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in "Other Subsidiaries."
Condensed Consolidating Statements of Comprehensive Income for the
13 weeks ended
May 5, 2018
and
April 29, 2017
, Condensed Consolidating Balance Sheets as of
May 5, 2018
,
April 29, 2017
and
February 3, 2018
, and the related Condensed Consolidating Statements of Cash Flows for the
13 weeks ended
May 5, 2018
and
April 29, 2017
are presented on the following pages.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the
13 weeks ended
May 5, 2018
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
2,008
|
|
|
$
|
5,363
|
|
|
$
|
(1,830
|
)
|
|
$
|
5,541
|
|
Credit card revenues (expense), net
|
—
|
|
|
(6
|
)
|
|
163
|
|
|
—
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
(1,320
|
)
|
|
(3,892
|
)
|
|
1,830
|
|
|
(3,382
|
)
|
Selling, general and administrative expenses
|
—
|
|
|
(828
|
)
|
|
(1,255
|
)
|
|
—
|
|
|
(2,083
|
)
|
Gains on sale of real estate
|
—
|
|
|
23
|
|
|
1
|
|
|
—
|
|
|
24
|
|
Impairment and other costs
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
(19
|
)
|
Operating income (loss)
|
—
|
|
|
(123
|
)
|
|
361
|
|
|
—
|
|
|
238
|
|
Benefit plan income, net
|
—
|
|
|
4
|
|
|
7
|
|
|
—
|
|
|
11
|
|
Interest (expense) income, net:
|
|
|
|
|
|
|
|
|
|
External
|
4
|
|
|
(71
|
)
|
|
1
|
|
|
—
|
|
|
(66
|
)
|
Intercompany
|
—
|
|
|
(18
|
)
|
|
18
|
|
|
—
|
|
|
—
|
|
Equity in earnings of subsidiaries
|
136
|
|
|
102
|
|
|
—
|
|
|
(238
|
)
|
|
—
|
|
Income (loss) before income taxes
|
140
|
|
|
(106
|
)
|
|
387
|
|
|
(238
|
)
|
|
183
|
|
Federal, state and local income
tax benefit (expense)
|
(1
|
)
|
|
37
|
|
|
(88
|
)
|
|
—
|
|
|
(52
|
)
|
Net income (loss)
|
139
|
|
|
(69
|
)
|
|
299
|
|
|
(238
|
)
|
|
131
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Net income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
139
|
|
|
$
|
(69
|
)
|
|
$
|
307
|
|
|
$
|
(238
|
)
|
|
$
|
139
|
|
Comprehensive income (loss)
|
$
|
146
|
|
|
$
|
(63
|
)
|
|
$
|
303
|
|
|
$
|
(248
|
)
|
|
$
|
138
|
|
Comprehensive loss attributable to
noncontrolling interest
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
146
|
|
|
$
|
(63
|
)
|
|
$
|
311
|
|
|
$
|
(248
|
)
|
|
$
|
146
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the
13 weeks ended
April 29, 2017
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
2,064
|
|
|
$
|
5,130
|
|
|
$
|
(1,844
|
)
|
|
$
|
5,350
|
|
Credit card revenues (expense), net
|
—
|
|
|
(6
|
)
|
|
167
|
|
|
—
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
(1,386
|
)
|
|
(3,761
|
)
|
|
1,844
|
|
|
(3,303
|
)
|
Selling, general and administrative expenses
|
(1
|
)
|
|
(767
|
)
|
|
(1,289
|
)
|
|
—
|
|
|
(2,057
|
)
|
Gains on sale of real estate
|
—
|
|
|
65
|
|
|
3
|
|
|
—
|
|
|
68
|
|
Operating income (loss)
|
(1
|
)
|
|
(30
|
)
|
|
250
|
|
|
—
|
|
|
219
|
|
Benefit plan income, net
|
—
|
|
|
5
|
|
|
8
|
|
|
—
|
|
|
13
|
|
Interest (expense) income, net:
|
|
|
|
|
|
|
|
|
|
External
|
1
|
|
|
(85
|
)
|
|
—
|
|
|
—
|
|
|
(84
|
)
|
Intercompany
|
—
|
|
|
(34
|
)
|
|
34
|
|
|
—
|
|
|
—
|
|
Premiums on early retirement of debt
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
Equity in earnings of subsidiaries
|
78
|
|
|
1
|
|
|
—
|
|
|
(79
|
)
|
|
—
|
|
Income (loss) before income taxes
|
78
|
|
|
(146
|
)
|
|
292
|
|
|
(79
|
)
|
|
145
|
|
Federal, state and local income
tax benefit (expense)
|
—
|
|
|
26
|
|
|
(94
|
)
|
|
—
|
|
|
(68
|
)
|
Net income (loss)
|
78
|
|
|
(120
|
)
|
|
198
|
|
|
(79
|
)
|
|
77
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Net income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
78
|
|
|
$
|
(120
|
)
|
|
$
|
199
|
|
|
$
|
(79
|
)
|
|
$
|
78
|
|
Comprehensive income (loss)
|
$
|
84
|
|
|
$
|
(114
|
)
|
|
$
|
202
|
|
|
$
|
(89
|
)
|
|
$
|
83
|
|
Comprehensive loss attributable to
noncontrolling interest
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
84
|
|
|
$
|
(114
|
)
|
|
$
|
203
|
|
|
$
|
(89
|
)
|
|
$
|
84
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of
May 5, 2018
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,070
|
|
|
$
|
79
|
|
|
$
|
382
|
|
|
$
|
—
|
|
|
$
|
1,531
|
|
Receivables
|
—
|
|
|
48
|
|
|
202
|
|
|
—
|
|
|
250
|
|
Merchandise inventories
|
—
|
|
|
2,283
|
|
|
3,008
|
|
|
—
|
|
|
5,291
|
|
Prepaid expenses and other current assets
|
—
|
|
|
150
|
|
|
488
|
|
|
—
|
|
|
638
|
|
Total Current Assets
|
1,070
|
|
|
2,560
|
|
|
4,080
|
|
|
—
|
|
|
7,710
|
|
Property and Equipment – net
|
—
|
|
|
3,298
|
|
|
3,277
|
|
|
—
|
|
|
6,575
|
|
Goodwill
|
—
|
|
|
3,326
|
|
|
582
|
|
|
—
|
|
|
3,908
|
|
Other Intangible Assets – net
|
—
|
|
|
43
|
|
|
443
|
|
|
—
|
|
|
486
|
|
Other Assets
|
1
|
|
|
96
|
|
|
792
|
|
|
—
|
|
|
889
|
|
Deferred Income Taxes
|
5
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
Intercompany Receivable
|
1,156
|
|
|
—
|
|
|
2,113
|
|
|
(3,269
|
)
|
|
—
|
|
Investment in Subsidiaries
|
3,975
|
|
|
4,232
|
|
|
—
|
|
|
(8,207
|
)
|
|
—
|
|
Total Assets
|
$
|
6,207
|
|
|
$
|
13,555
|
|
|
$
|
11,287
|
|
|
$
|
(11,481
|
)
|
|
$
|
19,568
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
25
|
|
Merchandise accounts payable
|
—
|
|
|
896
|
|
|
1,149
|
|
|
—
|
|
|
2,045
|
|
Accounts payable and accrued liabilities
|
109
|
|
|
784
|
|
|
1,802
|
|
|
—
|
|
|
2,695
|
|
Income taxes
|
253
|
|
|
35
|
|
|
24
|
|
|
—
|
|
|
312
|
|
Total Current Liabilities
|
362
|
|
|
1,721
|
|
|
2,994
|
|
|
—
|
|
|
5,077
|
|
Long-Term Debt
|
—
|
|
|
5,841
|
|
|
16
|
|
|
—
|
|
|
5,857
|
|
Intercompany Payable
|
—
|
|
|
3,269
|
|
|
—
|
|
|
(3,269
|
)
|
|
—
|
|
Deferred Income Taxes
|
—
|
|
|
570
|
|
|
604
|
|
|
(5
|
)
|
|
1,169
|
|
Other Liabilities
|
24
|
|
|
416
|
|
|
1,224
|
|
|
—
|
|
|
1,664
|
|
Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
Macy's, Inc.
|
5,821
|
|
|
1,738
|
|
|
6,469
|
|
|
(8,207
|
)
|
|
5,821
|
|
Noncontrolling Interest
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
(20
|
)
|
Total Shareholders' Equity
|
5,821
|
|
|
1,738
|
|
|
6,449
|
|
|
(8,207
|
)
|
|
5,801
|
|
Total Liabilities and Shareholders' Equity
|
$
|
6,207
|
|
|
$
|
13,555
|
|
|
$
|
11,287
|
|
|
$
|
(11,481
|
)
|
|
$
|
19,568
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of
April 29, 2017
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
779
|
|
|
$
|
99
|
|
|
$
|
323
|
|
|
$
|
—
|
|
|
$
|
1,201
|
|
Receivables
|
—
|
|
|
118
|
|
|
227
|
|
|
—
|
|
|
345
|
|
Merchandise inventories
|
—
|
|
|
2,560
|
|
|
3,066
|
|
|
—
|
|
|
5,626
|
|
Prepaid expenses and other current assets
|
—
|
|
|
150
|
|
|
484
|
|
|
—
|
|
|
634
|
|
Total Current Assets
|
779
|
|
|
2,927
|
|
|
4,100
|
|
|
—
|
|
|
7,806
|
|
Property and Equipment – net
|
—
|
|
|
3,479
|
|
|
3,407
|
|
|
—
|
|
|
6,886
|
|
Goodwill
|
—
|
|
|
3,315
|
|
|
582
|
|
|
—
|
|
|
3,897
|
|
Other Intangible Assets – net
|
—
|
|
|
49
|
|
|
447
|
|
|
—
|
|
|
496
|
|
Other Assets
|
—
|
|
|
45
|
|
|
748
|
|
|
—
|
|
|
793
|
|
Deferred Income Taxes
|
24
|
|
|
—
|
|
|
—
|
|
|
(24
|
)
|
|
—
|
|
Intercompany Receivable
|
902
|
|
|
—
|
|
|
2,092
|
|
|
(2,994
|
)
|
|
—
|
|
Investment in Subsidiaries
|
3,063
|
|
|
3,598
|
|
|
—
|
|
|
(6,661
|
)
|
|
—
|
|
Total Assets
|
$
|
4,768
|
|
|
$
|
13,413
|
|
|
$
|
11,376
|
|
|
$
|
(9,679
|
)
|
|
$
|
19,878
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
$
|
—
|
|
|
$
|
306
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
313
|
|
Merchandise accounts payable
|
—
|
|
|
841
|
|
|
1,187
|
|
|
—
|
|
|
2,028
|
|
Accounts payable and accrued liabilities
|
22
|
|
|
962
|
|
|
2,058
|
|
|
—
|
|
|
3,042
|
|
Income taxes
|
317
|
|
|
6
|
|
|
32
|
|
|
—
|
|
|
355
|
|
Total Current Liabilities
|
339
|
|
|
2,115
|
|
|
3,284
|
|
|
—
|
|
|
5,738
|
|
Long-Term Debt
|
—
|
|
|
6,395
|
|
|
17
|
|
|
—
|
|
|
6,412
|
|
Intercompany Payable
|
—
|
|
|
2,994
|
|
|
—
|
|
|
(2,994
|
)
|
|
—
|
|
Deferred Income Taxes
|
—
|
|
|
733
|
|
|
813
|
|
|
(24
|
)
|
|
1,522
|
|
Other Liabilities
|
67
|
|
|
498
|
|
|
1,281
|
|
|
—
|
|
|
1,846
|
|
Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
Macy's, Inc.
|
4,362
|
|
|
678
|
|
|
5,983
|
|
|
(6,661
|
)
|
|
4,362
|
|
Noncontrolling Interest
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Total Shareholders' Equity
|
4,362
|
|
|
678
|
|
|
5,981
|
|
|
(6,661
|
)
|
|
4,360
|
|
Total Liabilities and Shareholders' Equity
|
$
|
4,768
|
|
|
$
|
13,413
|
|
|
$
|
11,376
|
|
|
$
|
(9,679
|
)
|
|
$
|
19,878
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of
February 3, 2018
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,109
|
|
|
$
|
58
|
|
|
$
|
288
|
|
|
$
|
—
|
|
|
$
|
1,455
|
|
Receivables
|
—
|
|
|
85
|
|
|
278
|
|
|
—
|
|
|
363
|
|
Merchandise inventories
|
—
|
|
|
2,344
|
|
|
2,834
|
|
|
—
|
|
|
5,178
|
|
Prepaid expenses and other current assets
|
—
|
|
|
165
|
|
|
485
|
|
|
—
|
|
|
650
|
|
Total Current Assets
|
1,109
|
|
|
2,652
|
|
|
3,885
|
|
|
—
|
|
|
7,646
|
|
Property and Equipment – net
|
—
|
|
|
3,349
|
|
|
3,323
|
|
|
—
|
|
|
6,672
|
|
Goodwill
|
—
|
|
|
3,315
|
|
|
582
|
|
|
—
|
|
|
3,897
|
|
Other Intangible Assets – net
|
—
|
|
|
44
|
|
|
444
|
|
|
—
|
|
|
488
|
|
Other Assets
|
1
|
|
|
89
|
|
|
790
|
|
|
—
|
|
|
880
|
|
Deferred Income Taxes
|
11
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
Intercompany Receivable
|
884
|
|
|
—
|
|
|
2,388
|
|
|
(3,272
|
)
|
|
—
|
|
Investment in Subsidiaries
|
4,032
|
|
|
4,126
|
|
|
—
|
|
|
(8,158
|
)
|
|
—
|
|
Total Assets
|
$
|
6,037
|
|
|
$
|
13,575
|
|
|
$
|
11,412
|
|
|
$
|
(11,441
|
)
|
|
$
|
19,583
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
22
|
|
Merchandise accounts payable
|
—
|
|
|
653
|
|
|
937
|
|
|
—
|
|
|
1,590
|
|
Accounts payable and accrued liabilities
|
159
|
|
|
980
|
|
|
2,132
|
|
|
—
|
|
|
3,271
|
|
Income taxes
|
113
|
|
|
30
|
|
|
153
|
|
|
—
|
|
|
296
|
|
Total Current Liabilities
|
272
|
|
|
1,669
|
|
|
3,238
|
|
|
—
|
|
|
5,179
|
|
Long-Term Debt
|
—
|
|
|
5,844
|
|
|
17
|
|
|
—
|
|
|
5,861
|
|
Intercompany Payable
|
—
|
|
|
3,272
|
|
|
—
|
|
|
(3,272
|
)
|
|
—
|
|
Deferred Income Taxes
|
—
|
|
|
559
|
|
|
600
|
|
|
(11
|
)
|
|
1,148
|
|
Other Liabilities
|
20
|
|
|
430
|
|
|
1,212
|
|
|
—
|
|
|
1,662
|
|
Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
Macy's, Inc.
|
5,745
|
|
|
1,801
|
|
|
6,357
|
|
|
(8,158
|
)
|
|
5,745
|
|
Noncontrolling Interest
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
Total Shareholders' Equity
|
5,745
|
|
|
1,801
|
|
|
6,345
|
|
|
(8,158
|
)
|
|
5,733
|
|
Total Liabilities and Shareholders' Equity
|
$
|
6,037
|
|
|
$
|
13,575
|
|
|
$
|
11,412
|
|
|
$
|
(11,441
|
)
|
|
$
|
19,583
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the
13 weeks ended
May 5, 2018
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
139
|
|
|
$
|
(69
|
)
|
|
$
|
299
|
|
|
$
|
(238
|
)
|
|
$
|
131
|
|
Impairment and other costs
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
19
|
|
Equity in earnings of subsidiaries
|
(136
|
)
|
|
(102
|
)
|
|
—
|
|
|
238
|
|
|
—
|
|
Dividends received from subsidiaries
|
200
|
|
|
—
|
|
|
—
|
|
|
(200
|
)
|
|
—
|
|
Depreciation and amortization
|
—
|
|
|
82
|
|
|
153
|
|
|
—
|
|
|
235
|
|
Gains on sale of real estate
|
—
|
|
|
(23
|
)
|
|
(1
|
)
|
|
—
|
|
|
(24
|
)
|
Changes in assets, liabilities and other items not separately identified
|
150
|
|
|
175
|
|
|
(364
|
)
|
|
—
|
|
|
(39
|
)
|
Net cash provided by operating activities
|
353
|
|
|
63
|
|
|
106
|
|
|
(200
|
)
|
|
322
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment and capitalized software, net of dispositions
|
—
|
|
|
(50
|
)
|
|
(117
|
)
|
|
—
|
|
|
(167
|
)
|
Other, net
|
—
|
|
|
(10
|
)
|
|
21
|
|
|
—
|
|
|
11
|
|
Net cash used by investing activities
|
—
|
|
|
(60
|
)
|
|
(96
|
)
|
|
—
|
|
|
(156
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Debt repaid
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
Dividends paid
|
(116
|
)
|
|
—
|
|
|
(200
|
)
|
|
200
|
|
|
(116
|
)
|
Issuance of common stock, net of common stock acquired
|
28
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
Proceeds from noncontrolling interest
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Intercompany activity, net
|
(254
|
)
|
|
(10
|
)
|
|
264
|
|
|
—
|
|
|
—
|
|
Other, net
|
(50
|
)
|
|
23
|
|
|
17
|
|
|
—
|
|
|
(10
|
)
|
Net cash provided (used) by financing activities
|
(392
|
)
|
|
10
|
|
|
83
|
|
|
200
|
|
|
(99
|
)
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(39
|
)
|
|
13
|
|
|
93
|
|
|
—
|
|
|
67
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
1,109
|
|
|
79
|
|
|
325
|
|
|
—
|
|
|
1,513
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
1,070
|
|
|
$
|
92
|
|
|
$
|
418
|
|
|
$
|
—
|
|
|
$
|
1,580
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the
13 weeks ended
April 29, 2017
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
78
|
|
|
$
|
(120
|
)
|
|
$
|
198
|
|
|
$
|
(79
|
)
|
|
$
|
77
|
|
Equity in earnings of subsidiaries
|
(78
|
)
|
|
(1
|
)
|
|
—
|
|
|
79
|
|
|
—
|
|
Dividends received from subsidiaries
|
211
|
|
|
—
|
|
|
—
|
|
|
(211
|
)
|
|
—
|
|
Depreciation and amortization
|
—
|
|
|
89
|
|
|
154
|
|
|
—
|
|
|
243
|
|
Gains on sale of real estate
|
—
|
|
|
(65
|
)
|
|
(3
|
)
|
|
—
|
|
|
(68
|
)
|
Changes in assets, liabilities and other items not separately identified
|
251
|
|
|
241
|
|
|
(507
|
)
|
|
—
|
|
|
(15
|
)
|
Net cash provided (used) by operating activities
|
462
|
|
|
144
|
|
|
(158
|
)
|
|
(211
|
)
|
|
237
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment and capitalized software, net of dispositions
|
—
|
|
|
58
|
|
|
(139
|
)
|
|
—
|
|
|
(81
|
)
|
Other, net
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
21
|
|
Net cash provided (used) by investing activities
|
—
|
|
|
58
|
|
|
(118
|
)
|
|
—
|
|
|
(60
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Debt repaid
|
—
|
|
|
(152
|
)
|
|
—
|
|
|
—
|
|
|
(152
|
)
|
Dividends paid
|
(115
|
)
|
|
—
|
|
|
(211
|
)
|
|
211
|
|
|
(115
|
)
|
Issuance of common stock, net of common stock acquired
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Proceeds from noncontrolling interest
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Intercompany activity, net
|
(515
|
)
|
|
(1
|
)
|
|
516
|
|
|
—
|
|
|
—
|
|
Other, net
|
8
|
|
|
(31
|
)
|
|
13
|
|
|
—
|
|
|
(10
|
)
|
Net cash provided (used) by
financing activities
|
(621
|
)
|
|
(184
|
)
|
|
321
|
|
|
211
|
|
|
(273
|
)
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(159
|
)
|
|
18
|
|
|
45
|
|
|
—
|
|
|
(96
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
938
|
|
|
81
|
|
|
315
|
|
|
—
|
|
|
1,334
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
779
|
|
|
$
|
99
|
|
|
$
|
360
|
|
|
$
|
—
|
|
|
$
|
1,238
|
|
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
For purposes of the following discussion, all references to "
first quarter of 2018
" and "
first quarter of 2017
" are to the Company's 13-week fiscal periods ended
May 5, 2018
and
April 29, 2017
, respectively.
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report, as well as the financial and other information included in the 2017 10-K. The following discussion contains forward-looking statements that reflect the Company's plans, estimates and beliefs. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed below and elsewhere in this report (particularly in "Forward-Looking Statements") and in the 2017 10-K (particularly in "Risk Factors" and in "Forward-Looking Statements"). This discussion includes non-GAAP financial measures. For information about these measures, see the disclosure under the caption "Important Information Regarding Non-GAAP Financial Measures" on pages 24 to 26.
Overview
The Company is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods. The Company operates approximately 850 stores in 44 states, the District of Columbia, Guam and Puerto Rico. As of May 5, 2018, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage, bluemercury and STORY.
Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
During the first quarter of 2018, the Company continued to implement its North Star strategy whose points involve strengthening of the Company's brand, delivery of a meaningful and unique shopping experience, embracing customer centricity, identifying and realizing financial resources to fuel growth, and innovative transformation of the Company's omnichannel business. Specifically, the Company executed on a number of underlying initiatives during the quarter:
|
|
•
|
The Company added a tender-neutral option to the Macy's Star Rewards loyalty program to facilitate brand engagement, increase retention and provide rewards to its customers regardless of payment choice.
|
|
|
•
|
As part of the expansion of Backstage, Macy's off-price business, the Company opened 18 new Backstage locations within existing Macy’s stores. This expansion brings the total Backstage locations to 70 (7 freestanding and 63 inside Macy's stores) as of May 5, 2018. The Company expects to open approximately 40 more locations inside Macy's stores in the second quarter of 2018 and approximately 100 in total during fiscal 2018.
|
|
|
•
|
To enable the growth of its vendor direct program (i.e., e-commerce merchandise purchased from the Company's digital applications and websites and shipped directly from the respective vendor), the Company has partnered with CommerceHub to significantly increase the available online merchandise assortment (i.e., create an endless aisle) in select departments throughout the rest of fiscal 2018.
|
|
|
•
|
The Company's focus and development on product, presentation, process, promotion and people has begun at its Growth50 locations. The Growth50 locations represent a mix of 50 stores of varying size and geography where the Company is accelerating the implementation of numerous successful store initiatives tested in 2017, including facilities upgrades, merchandising strategies and localized marketing plans. Such activities are expected to be complete before the commencement of the 2018 holiday shopping season.
|
|
|
•
|
Throughout fiscal 2018, more options will be provided to customers for pick-up, delivery and checkout at Macy's, including the expansion of Buy Online Pickup in Store, Buy Online Ship to Store, At Your Service counters and mobile checkout.
|
During the first quarter of 2018, Bloomingdale's achieved strong performance and benefited from improved international tourism. Bloomingdale's also opened its newly remodeled shoe floor at the flagship 59
th
Street location in New York City. There are more than 100 shoe brands, 17 that are new to Bloomingdale's and 34 that are exclusive, occupying more than 25,000 selling square feet within the location.
In addition to the above, the Company is focused on accelerating the growth of its luxury beauty products and spa retailer, bluemercury, by opening additional freestanding bluemercury stores in urban and suburban markets, enhancing its online capabilities and adding bluemercury products and boutiques to Macy's stores. 2 new freestanding bluemercury locations were opened in the first quarter of 2018 and 23 additional locations are expected to open later in the fiscal year. As of May 5, 2018, the Company is operating 159 bluemercury locations (139 freestanding and 20 inside Macy's stores).
During the first quarter of 2018, the Company acquired STORY, a concept store in New York City that reinvents itself every few weeks to attract new customers and retain existing ones. In connection with this acquisition, Rachel Shechtman, STORY's founder and Chief Executive Officer, joined Macy's as its Brand Experience Officer to, among other things, enhance the shopping environment for Macy's in-store customers.
The Company has come to a mutual agreement to end the joint venture with Fung Retailing Limited. Macy’s will remain active on Alibaba’s e-commerce platform TMall, as well as social media channels. The Macy’s e-commerce team in San Francisco will manage the ongoing China business with operational support from Fung Omni in Shanghai.
Results of Operations
Comparison of the
First Quarter of 2018
and the
First Quarter of 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter of 2018
|
|
|
First Quarter of 2017
|
|
|
|
|
Amount
|
|
% to Sales
|
|
|
Amount
|
|
% to Sales
|
|
|
|
|
(dollars in millions, except per share figures)
|
Net sales
|
|
$
|
5,541
|
|
|
|
|
|
$
|
5,350
|
|
|
|
|
|
Increase (decrease) in comparable sales
|
|
3.9
|
|
%
|
|
|
(5.2
|
)
|
%
|
|
|
Credit card revenues, net
|
|
157
|
|
|
2.8
|
|
%
|
161
|
|
|
3.0
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
(3,382
|
)
|
|
(61.0
|
)
|
%
|
(3,303
|
)
|
|
(61.7
|
)
|
%
|
Selling, general and administrative expenses
|
|
(2,083
|
)
|
|
(37.6
|
)
|
%
|
(2,057
|
)
|
|
(38.5
|
)
|
%
|
Gains on sale of real estate
|
|
24
|
|
|
0.4
|
|
%
|
68
|
|
|
1.3
|
|
%
|
Impairment and other costs
|
|
(19
|
)
|
|
(0.3
|
)
|
%
|
—
|
|
|
—
|
|
%
|
Operating income
|
|
238
|
|
|
4.3
|
|
%
|
219
|
|
|
4.1
|
|
%
|
Benefit plan income, net
|
|
11
|
|
|
|
|
|
13
|
|
|
|
|
|
Interest expense - net
|
|
(66
|
)
|
|
|
|
|
(84
|
)
|
|
|
|
|
Premiums on the early retirement of debt
|
|
—
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Income before income taxes
|
|
183
|
|
|
|
|
|
145
|
|
|
|
|
|
Federal, state and local income tax expense
|
|
(52
|
)
|
|
|
|
|
(68
|
)
|
|
|
|
|
Net income
|
|
131
|
|
|
|
|
77
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
8
|
|
|
|
|
|
1
|
|
|
|
|
|
Net income attributable to Macy's, Inc. shareholders
|
|
$
|
139
|
|
|
2.5
|
|
%
|
$
|
78
|
|
|
1.5
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to
Macy's, Inc. shareholders
|
|
$
|
.45
|
|
|
|
|
|
$
|
.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Non-GAAP Financial Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of certain items
|
|
$
|
.48
|
|
|
|
|
|
$
|
.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of certain items and gains on sale of real estate
|
|
$
|
.42
|
|
|
|
|
|
$
|
.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Net sales for the
first quarter of 2018
increased
$191 million
or
3.6%
compared to the
first quarter of 2017
. The increase in comparable sales on an owned plus licensed basis for the
first quarter of 2018
was
4.2%
compared to the
first quarter of 2017
. Sales during the quarter benefited from a timing shift of the Spring 2018 Friends and Family promotional event from the second quarter to the first quarter of 2018 by approximately 250 basis points. Excluding this shift, comparable sales on an owned plus licensed basis were estimated to be up 1.7%. The Company’s digital business continued its strong growth with double digit gains in the
first quarter of 2018
and international tourism sales increased compared to the prior year and
for only the second time since mid-2014. Sales during the
first quarter of 2018
were the strongest in fine jewelry, fragrances, men's tailored clothing, dresses, kids, active and home. Geographically, the Company experienced strong sales across all regions.
Credit Card Revenues, Net
Credit card revenues, net were
$157 million
in the
first quarter of 2018
, a decrease of $4 million compared to
$161 million
recognized in the
first quarter of 2017
. Credit card revenues, net include costs related to new account originations and fraudulent transactions incurred on the Company’s private label credit cards.
Cost of Sales
The cost of sales rate as a percent to net sales for the
first quarter of 2018
decreased to
61.0%
compared to
61.7%
for the
first quarter of 2017
. This decrease in the cost of sales rate as a percent to net sales was primarily due to fresher inventory levels during the quarter which resulted in lower markdowns.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the
first quarter of 2018
increased
$26 million
or 1.3% from the
first quarter of 2017
. The SG&A rate as a percent to net sales of
37.6%
was 90 basis points lower in the
first quarter of 2018
, as compared to the
first quarter of 2017
. This increase in SG&A expenses was driven primarily by investments in the Growth50 locations and continued investments in other strategic initiatives including digital growth, the expansion of Macy's Backstage and bluemercury and the Company's new employee incentive plan.
Gains on Sale of Real Estate
The
first quarter of 2018
included asset sale gains of
$24 million
, including approximately $18 million related to the Brooklyn transaction. This compares to
$68 million
of asset sale gains recognized in the
first quarter of 2017
, including $47 million related to the downtown Minneapolis property and $9 million related to the Brooklyn transaction.
Impairment and Other Costs
Impairment and other costs of
$19 million
for the
first quarter of 2018
were associated with the wind-down of Macy's China Limited. No such charges were recognized in the
first quarter of 2017
.
Benefit Plan Income, Net
The first quarters of 2018 and 2017 included
$11 million
and
$13 million
, respectively, of non-cash net benefit plan income relating to the Company's defined benefit plans. This income includes the net of: interest cost, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses.
Net Interest Expense
Net interest expense for the
first quarter of 2018
decreased $18 million from the
first quarter of 2017
due to a reduction in the Company's debt from $6.7 billion as of the end of the
first quarter of 2017
to $5.9 billion as of the end of the
first quarter of 2018
. This reduction of approximately $800 million is due to the maturity, open market repurchase and tender offer of certain of the Company's borrowings in fiscal 2017.
Premiums on Early Retirement of Debt
The Company repurchased approximately
$146 million
face value of senior notes and debentures in the
first quarter of 2017
. The debt repurchases were made in the open market for a total cost of approximately
$149 million
, including expenses related to the transactions. As a result of the debt repurchases, the Company recognized
$3 million
in premium and fees in the
first quarter of 2017
.
Effective Tax Rate
The Company's effective tax rate of
28.4%
for the
first quarter of 2018
and
46.9%
for the
first quarter of 2017
differ from the federal income tax statutory rate of 21% and 35%, respectively, because of the effects of state and local taxes, including the settlement of various tax issues and tax examinations. Further, the
first quarter of 2018
and 2017 included the recognition of approximately
$3 million
and
$11 million
, respectively, of net tax deficiencies associated with share-based payment awards. In addition to these items, the effective tax for the first quarter of 2018 was lower than the effective tax rate for the first quarter of 2017 due to the enactment of U.S. federal tax reform in December 2017, which lowered the Company's federal income tax statutory rate as outlined above.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for the
first quarter of 2018
increased
$61 million
compared to the
first quarter of 2017
. The
first quarter of 2018
included higher sales, lower interest expense and a lower effective tax rate. The
first quarter of 2018
also included $10 million of after tax impairment and other costs, lower gains associated with the sale of real estate as well as higher SG&A. Net income, excluding impairment and other costs, for the first quarter of 2018 increased $69 million compared to net income, excluding premiums on the early retirement of debt in the first quarter of 2017. Also excluding gains on the sale of real estate, net income for the first quarter of 2018 increased $93 million compared to the first quarter of 2017.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for the
first quarter of 2018
increased
$.19
compared to the
first quarter of 2017
, reflecting higher net income. Excluding the impact of impairment and other costs, diluted earnings per share for the
first quarter of 2018
increased $.22 or 84.6% compared to the
first quarter of 2017
. In addition excluding gains on sale of real estate, diluted earnings per share increased $.30 or 250% compared to the first quarter of 2017.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the credit facility described below.
Operating Activities
Net cash provided by operating activities in the
first quarter of 2018
was
$322 million
, compared to
$237 million
provided in
first quarter of 2017
, primarily due to higher sales in the current quarter.
Investing Activities
Net cash used by investing activities was
$156 million
in the
first quarter of 2018
, compared to net cash used by investing activities of
$60 million
in the
first quarter of 2017
. Investing activities for the
first quarter of 2018
include purchases of property and equipment totaling
$132 million
and capitalized software of
$58 million
, compared to purchases of property and equipment totaling
$117 million
and capitalized software of
$60 million
in the
first quarter of 2017
. Additionally, the Company received cash of $23 million from the disposition of property and equipment in the
first quarter of 2018
, primarily related to real estate transactions, as compared to $96 million received in the
first quarter of 2017
. The
first quarter of 2017
included $59 million of proceeds from the sale of the downtown Minneapolis property.
Financing Activities
Net cash used by the Company for financing activities was
$99 million
for the
first quarter of 2018
, including payment of
$116 million
of cash dividends. This outflow was partially offset by
$28 million
from the issuance of common stock, primarily related to the exercise of stock options.
Net cash used by the Company for financing activities was
$273 million
for the
first quarter of 2017
, including payment of
$115 million
of cash dividends and payments primarily related to debt repurchases of $152 million. These outflows were partially offset by
$2 million
from the issuance of common stock, primarily related to the exercise of stock options.
The Company is party to a credit agreement with certain financial institutions providing for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the option of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing) outstanding at any particular time. The agreement is set to expire May 6, 2021. As of
May 5, 2018
, the Company did not have any borrowings or letters of credit outstanding under its credit facility.
The Company is party to a $1,500 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate amount outstanding at any particular time not to exceed its then-current combined borrowing availability under its bank credit agreement. As of
May 5, 2018
, the Company did not have any borrowings outstanding under its commercial paper program.
As of
May 5, 2018
the Company was required to maintain a specified interest coverage ratio for the latest four quarters of no less than 3.25 and a specified leverage ratio as of and for the latest four quarters of no more than 3.75 under the credit agreement. The Company's interest coverage ratio for the
first quarter of 2018
was 9.59 and its leverage ratio at
May 5, 2018
was 2.02, in each case as calculated in accordance with the credit agreement.
On May 18, 2018, the Company's board of directors declared a quarterly dividend of 37.75 cents per share on its common stock, payable July 2, 2018, to shareholders of record at the close of business on June 15, 2018.
Capital Resources
Management believes that, with respect to the Company's current operations, its cash on hand and funds from operations, together with its credit facility and other capital resources, will be sufficient to cover the Company's reasonably foreseeable working capital, capital expenditure and debt service requirements and other cash requirements in both the near term and over the longer term. The Company's ability to generate funds from operations may be affected by numerous factors, including general economic conditions and levels of consumer confidence and demand; however, the Company expects to be able to manage its working capital levels and capital expenditure amounts so as to maintain sufficient levels of liquidity. To the extent that the Company's cash balances from time to time exceed amounts that are needed to fund its immediate liquidity requirements, the Company will consider alternative uses of some or all of such excess cash. Such alternative uses may include, among others, the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations. Depending upon its actual and anticipated sources and uses of liquidity, conditions in the capital markets and other factors, the Company will from time to time consider the issuance of debt or other securities, or other possible capital markets transactions, for the purpose of raising capital which could be used to refinance current indebtedness or for other corporate purposes, including the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations.
The Company intends from time to time to consider additional acquisitions of, and investments in, retail businesses and other complementary assets and companies. Acquisition transactions, if any, are expected to be financed from one or more of the following sources: cash on hand, cash from operations, borrowings under existing or new credit facilities and the issuance of long-term debt or other securities, including common stock.
Outlook and Recent Developments
The Company's operations are impacted by competitive pressures from department stores, off-price stores, specialty stores, mass merchandisers, online retailers and all other retail channels. The Company's operations are also impacted by general consumer spending levels, including the impact of general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods and the effects of weather or natural disasters and other factors over which the Company has little or no control.
In recent years, consumer spending levels have been affected to varying degrees by a number of factors, including modest economic growth, uncertainty regarding governmental spending and tax policies, unemployment levels, tightened consumer credit, an improving housing market and a fluctuating stock market. In addition, consumer spending levels of international customers are impacted by the strength of the U.S. dollar relative to foreign currencies. These factors have affected, to varying degrees, the amount of funds that consumers are willing and able to spend for discretionary purchases, including purchases of some of the merchandise offered by the Company.
All economic conditions ultimately affect the Company's overall operations. However, the effects of economic conditions can be experienced differently and at different times, in the various geographic regions in which the Company operates, in relation to the different types of merchandise that the Company offers for sale, or in relation to each of the Company's branded operations.
On May 16, 2018, the Company issued a press release to report its preliminary earnings for the first quarter of 2018 and updated its guidance for fiscal 2018. The Company now expects adjusted earnings per diluted share of $3.75 to $3.95 in fiscal 2018, excluding anticipated settlement charges related to the Company’s defined benefit plans as well as impairment and other costs. This reflects an increase of 20 cents compared to the prior guidance. Total sales are expected to range from a 1 percent decline to a .5 percent increase in fiscal 2018. Comparable sales on an owned plus licensed basis are expected to increase between 1 and 2 percent. Comparable sales on an owned basis are expected to be 20-30 basis points below comparable sales on an owned plus licensed basis. Total sales guidance is provided on a 52-week basis in 2018 compared to a 53-week basis in 2017. Comparable sales guidance is provided on a 52-week basis in both 2018 and 2017.
Important Information Regarding Non-GAAP Financial Measures
The Company reports its financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). However, management believes that certain non-GAAP financial measures provide users of the Company's financial information with additional useful information in evaluating operating performance. Management believes that providing supplemental changes in comparable sales on an owned plus licensed basis, which includes adjusting for growth in comparable sales of departments licensed to third parties and certain promotional events, assists in evaluating the Company's ability to generate sales growth, whether through owned businesses or departments licensed to third parties, on a comparable basis, and in evaluating the impact of changes in the manner in which certain departments are operated. In addition, management believes that excluding certain items from net income and diluted earnings per share attributable to Macy's, Inc. shareholders that are no longer associated with the Company’s core operations and that may vary substantially in frequency and magnitude period-to-period provides useful supplemental measures that assist in evaluating the Company's ability to generate earnings and leverage sales and to more readily compare these metrics between past and future periods.
The reconciliation of the forward-looking non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis to GAAP comparable sales (i.e., on an owned basis) is in the same manner as illustrated below, except that the impact of growth in comparable sales of departments licensed to third parties is the only reconciling item. In addition, the Company does not provide the most directly comparable forward-looking GAAP measure of net income and diluted earnings per share attributable to Macy’s, Inc. shareholders excluding certain items because the timing and amount of excluded items are unreasonably difficult to fully and accurately estimate.
Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the Company's financial results prepared in accordance with GAAP. Certain of the items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the Company's financial position, results of operations or cash flows and should therefore be considered in assessing the Company's actual and future financial condition and performance. Additionally, the amounts received by the Company on account of sales of departments licensed to third parties are limited to commissions received on such sales. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.
Change in Comparable Sales
The following is a tabular reconciliation of the non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis, to GAAP comparable sales (i.e. on an owned basis), which the Company believes to be the most directly comparable GAAP financial measure.
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First Quarter of 2018
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First Quarter of 2017
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Increase (decrease) in comparable sales on an owned basis (note 1)
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3.9
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%
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(5.2
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)%
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Impact of growth in comparable sales of departments licensed to third parties (note 2)
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0.3
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%
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0.6
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%
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Increase (decrease) in comparable sales on an owned plus licensed basis
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4.2
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%
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(4.6
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)%
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Impact of quarterly timing shift associated with the Spring 2018 Friends and Family promotional event
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(2.5
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)%
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—
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%
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Adjusted increase (decrease) in comparable sales on an owned plus licensed basis
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1.7
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%
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(4.6
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)%
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Notes:
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(1)
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Represents the period-to-period percentage change in net sales from stores in operation throughout the year presented and the immediately preceding year and all online sales, excluding commissions from departments licensed to third parties. Stores impacted by a natural disaster or undergoing significant expansion or shrinkage remain in the comparable sales calculation unless the store is closed for a significant period of time. Definitions and calculations of comparable sales differ among companies in the retail industry.
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(2)
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Represents the impact of including the sales of departments licensed to third parties occurring in stores in operation throughout the year presented and the immediately preceding year and all online sales in the calculation of comparable sales. The Company licenses third parties to operate certain departments in its stores and online and receives commissions from these third parties based on a percentage of their net sales. In its financial statements prepared in conformity with GAAP, the Company includes these commissions (rather than the sales of the departments licensed to third parties) in its net sales. The Company does not, however, include any amounts with respect to licensed department sales (or any commissions earned on such sales) in its comparable sales in accordance with GAAP (i.e., on an owned basis). The Company believes that the amounts of commissions earned on sales of departments licensed to third parties are not material to its results of operations for the periods presented.
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Net Income and Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders, Excluding Certain Items
The following is a tabular reconciliation of the non-GAAP financial measure of net income and diluted earnings per share attributable to Macy's, Inc. shareholders, excluding certain items identified below, to GAAP net income and diluted earnings per share attributable to Macy's, Inc., shareholders, which the Company believes to be the most directly comparable GAAP measures.
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First Quarter of 2018
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First Quarter of 2017
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Net income attributable to Macy’s, Inc. shareholders
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$
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139
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$
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78
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Add back the pre-tax impact of impairment and other costs (Note)
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13
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—
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Add back the pre-tax impact of premiums on the early retirement of debt
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—
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3
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Deduct the income tax impact of certain items identified above
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(3
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)
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(1
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)
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Net income attributable to Macy’s, Inc. shareholders, excluding certain items identified above
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$
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149
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$
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80
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Deduct the pre-tax impact of gains on sale of real estate
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(24
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)
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(68
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)
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Add back the income tax impact of gains on sale of real estate
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6
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26
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Net income attributable to Macy’s, Inc. shareholders, excluding gains on sale of real estate and other certain items identified above
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$
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131
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$
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38
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Note: The above pre-tax adjustment excludes impairment and other costs attributable to the noncontrolling interest shareholder of $6 million.
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First Quarter of 2018
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First Quarter of 2017
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Diluted earnings per share attributable to Macy’s, Inc. shareholders
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$
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0.45
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$
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0.26
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Add back the pre-tax impact of impairment and other costs
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0.04
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—
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Add back the pre-tax impact of premiums on the early retirement of debt
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—
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0.01
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Deduct the income tax impact of certain items identified above
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(0.01
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)
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(0.01
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)
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Diluted earnings per share attributable to Macy’s, Inc. shareholders, excluding certain items identified above
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$
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0.48
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$
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0.26
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Deduct the pre-tax impact of gains on sale of real estate
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(0.08
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)
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(0.22
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)
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Add back the income tax impact of gains on sale of real estate
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0.02
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0.08
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Diluted earnings per share attributable to Macy’s, Inc. shareholders, excluding gains on sale of real estate and other certain items identified above
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$
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0.42
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$
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0.12
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New Pronouncements
Accounting Pronouncements Recently Adopted
See Part I, Item 1, “Financial Statements — Note 1 — Summary of Significant Accounting Policies.”
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize substantially all leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The new standard is effective for the Company on February 3, 2019. Currently, the new standard is to be adopted utilizing a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. However, the FASB has proposed another transition method, in addition to the existing requirements, to transition to the new lease standard by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company is awaiting finalization of the alternatives for transitioning to the new standard before deciding upon a method of adoption.
The Company expects that the new lease standard will have a material impact on the Company's consolidated financial statements. While the Company is continuing to assess the effects of adoption, the Company currently believes the most significant changes relate to the recognition of new ROU assets and lease liabilities on the consolidated balance sheets for real property and personal property operating leases as well as changes to the timing of recognition of certain real estate asset sale gains in the consolidated statements of income due to application of the new sale-leaseback guidance and ASU No. 2017-05, Other Income - Gains and Losses from the Derecognition of NonFinancial Assets (Subtopic 610-20). The Company expects that substantially all of its operating lease commitments will be subject to the new guidance and will be recognized as operating lease liabilities and ROU assets upon adoption. A significant change in leasing activity between the date of this report and adoption is not expected.