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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended May 1, 2021

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to

 

Commission file number: 1-13536

 

 

Macy's, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-3324058

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

151 West 34th Street, New York, New York 10001

(Address of Principal Executive Offices, including Zip Code)

(212) 494-1621

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $.01 par value per share

 

M

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

  

Accelerated Filer

 

 

 

 

 

Non-Accelerated Filer

 

  

Smaller Reporting Company

 

 

 

 

 

 

 

 

Emerging Growth Company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at May 29, 2021

Common Stock, $.01 par value per share

 

311,868,429 shares

 

 

 

 


 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MACY’S, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

(millions, except per share figures)

 

 

 

13 Weeks Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

Net sales

 

$

4,706

 

 

$

3,017

 

Credit card revenues, net

 

 

159

 

 

 

131

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

(2,889

)

 

 

(2,501

)

Selling, general and administrative expenses

 

 

(1,748

)

 

 

(1,598

)

Gains on sale of real estate

 

 

6

 

 

 

16

 

Impairment, restructuring and other costs

 

 

(19

)

 

 

(3,184

)

Operating income (loss)

 

 

215

 

 

 

(4,119

)

Benefit plan income, net

 

 

15

 

 

 

9

 

Interest expense

 

 

(79

)

 

 

(49

)

Losses on early retirement of debt

 

 

(11

)

 

 

 

Interest income

 

 

 

 

 

2

 

Income (loss) before income taxes

 

 

140

 

 

 

(4,157

)

Federal, state and local income tax benefit (expense)

 

 

(37

)

 

 

576

 

Net income (loss)

 

$

103

 

 

$

(3,581

)

Basic earnings (loss) per share

 

$

0.33

 

 

$

(11.53

)

Diluted earnings (loss) per share

 

$

0.32

 

 

$

(11.53

)

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

2


 

MACY’S, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

(millions)

 

 

 

13 Weeks Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

Net income (loss)

 

$

103

 

 

$

(3,581

)

Reclassifications to net income (loss):

 

 

 

 

 

 

 

 

Amortization of net actuarial loss and prior service credit on

   post employment and postretirement benefit plans included in

   net income, before tax

 

 

10

 

 

 

12

 

Tax effect related to items of other comprehensive income

 

 

(2

)

 

 

(3

)

Total other comprehensive income, net of tax effect

 

 

8

 

 

 

9

 

Comprehensive income (loss)

 

$

111

 

 

$

(3,572

)

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

3


 

MACY’S, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(millions)

 

 

 

May 1, 2021

 

 

January 30, 2021

 

 

May 2, 2020

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,798

 

 

$

1,679

 

 

$

1,523

 

Receivables

 

 

205

 

 

 

276

 

 

 

170

 

Merchandise inventories

 

 

4,230

 

 

 

3,774

 

 

 

4,923

 

Prepaid expenses and other current assets

 

 

1,007

 

 

 

455

 

 

 

519

 

Total Current Assets

 

 

7,240

 

 

 

6,184

 

 

 

7,135

 

Property and Equipment - net of accumulated depreciation and

   amortization of $4,550, $4,400 and $4,560

 

 

5,798

 

 

 

5,940

 

 

 

6,425

 

Right of Use Assets

 

 

2,853

 

 

 

2,878

 

 

 

2,672

 

Goodwill

 

 

828

 

 

 

828

 

 

 

838

 

Other Intangible Assets – net

 

 

436

 

 

 

437

 

 

 

439

 

Other Assets

 

 

927

 

 

 

1,439

 

 

 

1,072

 

Total Assets

 

$

18,082

 

 

$

17,706

 

 

$

18,581

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

$

294

 

 

$

452

 

 

$

739

 

Merchandise accounts payable

 

 

2,545

 

 

 

1,978

 

 

 

2,196

 

Accounts payable and accrued liabilities

 

 

2,616

 

 

 

2,927

 

 

 

2,757

 

Income taxes

 

 

63

 

 

 

 

 

 

80

 

Total Current Liabilities

 

 

5,518

 

 

 

5,357

 

 

 

5,772

 

Long-Term Debt

 

 

4,558

 

 

 

4,407

 

 

 

4,918

 

Long-Term Lease Liabilities

 

 

3,166

 

 

 

3,185

 

 

 

2,923

 

Deferred Income Taxes

 

 

868

 

 

 

908

 

 

 

944

 

Other Liabilities

 

 

1,297

 

 

 

1,296

 

 

 

1,327

 

Shareholders' Equity

 

 

2,675

 

 

 

2,553

 

 

 

2,697

 

Total Liabilities and Shareholders’ Equity

 

$

18,082

 

 

$

17,706

 

 

$

18,581

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

4


 

MACY’S, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

 

(millions)

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Equity

 

 

Treasury

Stock

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Shareholders'

Equity

 

Balance at January 30, 2021

$

3

 

 

$

571

 

 

$

3,928

 

 

$

(1,161

)

 

$

(788

)

 

$

2,553

 

Net income

 

 

 

 

 

 

 

 

 

103

 

 

 

 

 

 

 

 

 

 

 

103

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

8

 

Stock-based compensation expense

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

Stock issued under stock plans

 

 

 

 

 

(24

)

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

Balance at May 1, 2021

$

3

 

 

$

558

 

 

$

4,031

 

 

$

(1,137

)

 

$

(780

)

 

$

2,675

 

 

5


 

 

MACY’S, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - (Continued)

(Unaudited)

 

(millions)

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Equity

 

 

Treasury

Stock

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Shareholders'

Equity

 

Balance at February 1, 2020

$

3

 

 

$

621

 

 

$

7,989

 

 

$

(1,241

)

 

$

(995

)

 

$

6,377

 

Net loss

 

 

 

 

 

 

 

 

 

(3,581

)

 

 

 

 

 

 

 

 

 

 

(3,581

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

9

 

Common stock dividends

($0.3775 per share)

 

 

 

 

 

 

 

 

 

(117

)

 

 

 

 

 

 

 

 

 

 

(117

)

Stock-based compensation expense

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Stock issued under stock plans

 

 

 

 

 

(62

)

 

 

 

 

 

 

61

 

 

 

 

 

 

 

(1

)

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

Balance at May 2, 2020

$

3

 

 

$

565

 

 

$

4,291

 

 

$

(1,180

)

 

$

(982

)

 

$

2,697

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

6


 

MACY’S, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

(millions)

 

 

 

13 Weeks Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

103

 

 

$

(3,581

)

Adjustments to reconcile net income (loss) to net cash provided (used) by

   operating activities:

 

 

 

 

 

 

 

 

Impairment, restructuring and other costs

 

 

19

 

 

 

3,184

 

Depreciation and amortization

 

 

224

 

 

 

237

 

Stock-based compensation expense

 

 

11

 

 

 

6

 

Gains on sale of real estate

 

 

(6

)

 

 

(16

)

Benefit plans

 

 

10

 

 

 

12

 

Amortization of financing costs and premium on acquired debt

 

 

8

 

 

 

 

Deferred income taxes

 

 

(43

)

 

 

(225

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Decrease in receivables

 

 

71

 

 

 

236

 

(Increase) decrease in merchandise inventories

 

 

(457

)

 

 

265

 

(Increase) decrease in prepaid expenses and other current assets

 

 

(56

)

 

 

12

 

Increase in merchandise accounts payable

 

 

674

 

 

 

629

 

Decrease in accounts payable and accrued liabilities

 

 

(114

)

 

 

(531

)

(Increase) decrease in current income taxes

 

 

75

 

 

 

(353

)

Change in other assets, liabilities, and other items not separately identified

 

 

(25

)

 

 

(39

)

Net cash provided (used) by operating activities

 

 

494

 

 

 

(164

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(61

)

 

 

(122

)

Capitalized software

 

 

(38

)

 

 

(38

)

Disposition of property and equipment

 

 

8

 

 

 

21

 

Other, net

 

 

17

 

 

 

26

 

Net cash used by investing activities

 

 

(74

)

 

 

(113

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Debt issued

 

 

500

 

 

 

1,500

 

Debt issuance costs

 

 

(9

)

 

 

 

Debt repurchase premium and expenses

 

 

(12

)

 

 

 

Debt repaid

 

 

(503

)

 

 

(4

)

Dividends paid

 

 

 

 

 

(117

)

Decrease in outstanding checks

 

 

(276

)

 

 

(231

)

Net cash provided (used) by financing activities

 

 

(300

)

 

 

1,148

 

Net increase in cash, cash equivalents and restricted cash

 

 

120

 

 

 

871

 

Cash, cash equivalents and restricted cash beginning of period

 

 

1,754

 

 

 

731

 

Cash, cash equivalents and restricted cash end of period

 

$

1,874

 

 

$

1,602

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

52

 

 

$

38

 

Interest received

 

 

 

 

 

3

 

Income taxes paid (net of refunds received)

 

 

5

 

 

 

2

 

 

Note: Restricted cash of $76 million and $79 million have been included with cash and cash equivalents for the 13 weeks ended May 1, 2021 and May 2, 2020, respectively.

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

7


MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1.

Organization and Summary of Significant Accounting Policies

Nature of Operations

Macy's, Inc., together with its 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 kids'), cosmetics, home furnishings and other consumer goods. The Company has stores in 43 states, the District of Columbia, Puerto Rico and Guam. As of May 1, 2021, the Company's operations were conducted through Macy's, Market by Macy’s, Macy’s Backstage, Bloomingdale's, Bloomingdale's The Outlet, and bluemercury.  

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 January 30, 2021 (the "2020 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2020 10-K.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("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, including the ultimate financial impact of the COVID-19 pandemic, which may result in actual amounts differing from reported amounts.

The Consolidated Financial Statements for the 13 weeks ended May 1, 2021 and May 2, 2020, 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 1, 2021 and May 2, 2020 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.

Comprehensive Income (Loss)

Total comprehensive income (loss) represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income (loss).  For the Company, the only other components of total comprehensive income (loss) for the 13 weeks ended May 1, 2021 and May 2, 2020 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of income (loss) before income taxes in the Consolidated Statements of Operations. Amortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in benefit plan income, net on the Consolidated Statements of Operations.  See Note 6, "Benefit Plans," for further information.

COVID-19 Pandemic

As the COVID-19 pandemic continues into fiscal 2021, the Company remains focused on prudent cash management, maintaining strong liquidity, and executing its strategic initiatives.  In addition, the Company continues to prioritize health and safety measures in its stores and facilities to protect the well-being of its customers and colleagues.  Although the Company has experienced recovery in operating results during the first quarter of 2021 as compared to fiscal 2020, certain stores continued to operate under local governmental orders or restrictions. The full impact of COVID-19 will continue to depend on future developments, including the continued spread and duration of the pandemic, variant strains of COVID-19, the availability and distribution of effective medical treatments or vaccines as well as any related federal, state or local governmental orders or restrictions. In addition, numerous uncertainties continue to surround the pandemic and its ultimate impact on the Company, including the timing and extent of any recovery in consumer traffic and spending, and potential delays, interruptions and disruptions in the Company’s supply chain, all of which are highly uncertain and cannot be predicted.

8


MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

 

 

As further disclosed in the Company’s 2020 Form 10-K, on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which permitted, among other benefits, the carryback of certain net operating losses.  Based on the Company’s 2020 fiscal results, a $520 million income tax receivable has been recognized as of May 1, 2021, associated with this net operating loss carryback benefit.  This income tax receivable is estimated to be received in the first quarter of 2022 and is included within prepaid expenses and other current assets on the Company’s Consolidated Balance Sheet.

2.

Impairment, Restructuring and Other Costs

 

 

 

13 Weeks Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

 

 

(millions)

 

Impairments

 

$

18

 

 

$

3,150

 

Restructuring

 

 

(1

)

 

 

25

 

Other

 

 

2

 

 

 

9

 

Total

 

$

19

 

 

$

3,184

 

 

During the 13 weeks ended May 1, 2021, the Company incurred non-cash impairment charges totaling $18 million primarily related to capitalized software assets.

 

During the 13 weeks ended May 2, 2020, primarily as a result of the COVID-19 pandemic, the Company incurred non-cash impairment charges totaling $3,150 million consisting of:

 

$3,070 million of goodwill impairments, with $2,972 million attributable to the Macy's reporting unit and $98 million attributable to the bluemercury reporting unit.

 

$80 million of impairments primarily related to long-lived tangible and right of use assets to adjust the carrying value of certain store locations to their estimated fair value.

A summary of the restructuring and other cash activity for the 13 weeks ended May 1, 2021 and May 2, 2020 related to the Polaris strategy, which was announced in February 2020 and included within accounts payable and accrued liabilities, is as follows:

 

 

 

Severance and

other benefits

 

 

Professional

fees and other

related charges

 

 

Total

 

 

 

(millions)

 

Balance at February 1, 2020

 

$

115

 

 

$

9

 

 

$

124

 

Additions charged to expense

 

 

25

 

 

 

7

 

 

 

32

 

Cash payments

 

 

(82

)

 

 

(6

)

 

 

(88

)

Balance at May 2, 2020

 

$

58

 

 

$

10

 

 

$

68

 

 

 

 

 

Severance and

other benefits

 

 

Professional

fees and other

related charges

 

 

Total

 

 

 

(millions)

 

Balance at January 30, 2021

 

$

14

 

 

$

2

 

 

$

16

 

Additions charged to expense

 

 

5

 

 

 

 

 

 

5

 

Cash payments

 

 

(16

)

 

 

(2

)

 

 

(18

)

Balance at May 1, 2021

 

$

3

 

 

$

 

 

$

3

 

 

9


MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

 

3.

Earnings (Loss) Per Share

The following tables set forth the computation of basic and diluted earnings (loss) per share:

 

 

 

13 Weeks Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

 

 

Net Income

 

 

 

 

 

 

Shares

 

 

Net Loss

 

 

 

 

 

 

Shares

 

 

 

(millions, except per share data)

 

Net income (loss)

 

$

103

 

 

 

 

 

 

 

310.7

 

 

$

(3,581

)

 

 

 

 

 

 

309.7

 

Shares to be issued under deferred

   compensation and other plans

 

 

 

 

 

 

 

 

 

 

0.9

 

 

 

 

 

 

 

 

 

 

 

0.9

 

 

 

$

103

 

 

 

 

 

 

 

311.6

 

 

$

(3,581

)

 

 

 

 

 

 

310.6

 

Basic earnings (loss) per share

 

 

 

 

 

$

0.33

 

 

 

 

 

 

 

 

 

 

$

(11.53

)

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and restricted

   stock units

 

 

 

 

 

 

 

 

 

 

7.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

103

 

 

 

 

 

 

 

318.6

 

 

$

(3,581

)

 

 

 

 

 

 

310.6

 

Diluted earnings (loss) per share

 

 

 

 

 

$

0.32

 

 

 

 

 

 

 

 

 

 

$

(11.53

)

 

 

 

 

 

In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 14.7 million shares of common stock and restricted stock units relating to 11.7 million shares of common stock were outstanding at May 1, 2021, 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.

 

For the 13 weeks ended May 2, 2020, as a result of the net loss for the quarter, all options and restricted stock units have been excluded from the calculation of diluted earnings per share and, therefore, there was no difference in the weighted average number of common shares for basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive. Stock options to purchase 17.3 million shares of common stock and restricted stock units relating to 3.4 million shares of common stock outstanding at May 2, 2020 were excluded from the computation of diluted earnings per share.

4.

Revenue

Net sales

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, inclusive of delivery income, 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 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.

10


MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Macy’s accounted for 87% of the Company’s net sales for each of the 13 weeks ended May 1, 2021 and May 2, 2020. In addition, digital sales accounted for approximately 37% and 43% of the Company’s net sales for the 13 weeks ended May 1, 2021 and May 2, 2020, respectively.

Disaggregation of the Company's net sales by family of business for the 13 weeks ended May 1, 2021 and May 2, 2020 were as follows:

 

 

 

13 Weeks Ended

 

Net sales by family of business

 

May 1, 2021

 

 

May 2, 2020

 

 

 

(millions)

 

Women's Accessories, Intimate Apparel, Shoes, Cosmetics

   and Fragrances

 

$

2,023

 

 

$

1,215

 

Women's Apparel

 

 

913

 

 

 

579

 

Men's and Kids'

 

 

932

 

 

 

573

 

Home/Other (a)

 

 

838

 

 

 

650

 

Total

 

$

4,706

 

 

$

3,017

 

 

(a)

Other primarily includes restaurant sales, allowance for merchandise returns adjustments 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 $225 million, $159 million and $184 million as of May 1, 2021, January 30, 2021 and May 2, 2020, respectively. Included in prepaid expenses and other current assets is an asset totaling $136 million, $103 million and $130 million as of May 1, 2021, January 30, 2021 and May 2, 2020, respectively, for the recoverable cost of merchandise estimated to be returned by customers.

Gift Cards and Customer Loyalty Programs

The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold or issued, 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 on a pro-rata basis 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 Company maintains customer loyalty programs in which customers earn points based on their purchases. Under the Macy’s Star Rewards loyalty program, points are earned based on customers’ spending on Macy’s private label and co-branded credit cards as well as non-proprietary cards. The Company’s Bloomingdale’s Loyallist and bluemercury BlueRewards programs provide tender neutral points-based programs to their customers. 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 unredeemed gift cards and customer loyalty programs is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $580 million, $616 million and $732 million as of May 1, 2021, January 30, 2021 and May 2, 2020, respectively.

Credit Card Revenues, net

In 2005, the Company entered into an arrangement with Citibank, N.A. ("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

11


MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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.

Under the terms of the Program Agreement, if sales decrease by more than 34% over a twelve-month period as compared to the Benchmark Year, defined as the twelve-month period from July 2006 to June 2007 in the Program Agreement, Citibank has the ability to provide written notice to terminate the agreement prior to the end of its current term.  Based on the results for the Company’s February 2021 fiscal period, sales for the twelve-month period ended February 27, 2021 decreased by more than 34% as compared to the Benchmark Year.  On June 4, 2021, the Company received a written notice of termination of the Program Agreement from Citibank.  The Company plans to continue negotiations with Citibank as well as evaluate a potential transfer of its Credit Card Program to another financial service entity.  Upon receipt of the written notice of termination, the Company has six months to exercise, or not exercise, an option to purchase the assets of the Program Agreement, or nominate a third party to purchase such assets, and a subsequent six month period to complete such transfer, subject to potential extensions as more fully described in the Program Agreement.  The Company and Citibank are required to continue to meet their respective obligations and provide support pursuant to the terms of the Program Agreement through this period.

5.

Financing Activities

The following table shows the detail of debt repayments:

 

 

 

13 Weeks Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

 

 

(millions)

 

9.5% Amortizing debentures due 2021

 

$

2

 

 

$

2

 

9.75% Amortizing debentures due 2021

 

 

1

 

 

 

1

 

3.875% Senior notes due 2022

 

 

156

 

 

 

 

2.875% Senior notes due 2023

 

 

136

 

 

 

 

4.375% Senior notes due 2023

 

 

49

 

 

 

 

3.625% Senior notes due 2024

 

 

150

 

 

 

 

6.65% Senior debentures due 2024

 

 

5

 

 

 

 

7.6% Senior debentures due 2025

 

 

4

 

 

 

 

 

 

$

503

 

 

$

3

 

On March 17, 2021, Macy’s Retail Holdings, LLC (“MRH”), a direct, wholly owned subsidiary of Macy’s, Inc., completed an offering of $500 million in aggregate principal amount of 5.875% senior notes due 2029 (the “2029 Notes”) in a private offering (the “Notes Offering”). The 2029 Notes mature on April 1, 2029.  The 2029 Notes are senior unsecured obligations of MRH and are unconditionally guaranteed on a senior unsecured basis by Macy’s, Inc.  MRH used the net proceeds from the Notes Offering, together with cash on hand, to fund the tender offer discussed below.

 

On March 17, 2021, the Company completed a tender offer in which $500 million of senior notes and debentures were tendered for early settlement and purchased by MRH. The total cash cost for the tender offer was $17 million with the remainder funded through the net proceeds from the private offering discussed above. The Company recognized $11 million of loss related to the early retirement of debt on the Consolidated Statements of Operation during the first quarter of 2021.

 

6.

Benefit Plans

The Company has defined contribution plans which cover substantially all colleagues 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 colleagues, 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 colleagues 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.

12


MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

In addition, certain retired colleagues 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 colleagues who were hired prior to a certain date and retire after a certain age with specified years of service. Certain colleagues 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 1, 2021

 

 

May 2, 2020

 

 

 

(millions)

 

401(k) Qualified Defined Contribution Plan

 

$

22

 

 

$

13

 

Pension Plan

 

 

 

 

 

 

 

 

Service cost

 

$

 

 

$

1

 

Interest cost

 

 

12

 

 

 

19

 

Expected return on assets

 

 

(40

)

 

 

(45

)

Recognition of net actuarial loss

 

 

8

 

 

 

10

 

 

 

$

(20

)

 

$

(15

)

Supplementary Retirement Plan

 

 

 

 

 

 

 

 

Interest cost

 

 

3

 

 

 

4

 

Recognition of net actuarial loss

 

 

3

 

 

 

3

 

 

 

$

6

 

 

$

7

 

 

 

 

 

 

 

 

 

 

Total Retirement Expense

 

$

8

 

 

$

5

 

 

 

 

 

 

 

 

 

 

Postretirement Obligations

 

 

 

 

 

 

 

 

Interest cost

 

 

 

 

 

1

 

Recognition of net actuarial gain

 

 

(1

)

 

 

(1

)

 

 

$

(1

)

 

$

 

 

7.

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:

Level 1: Quoted prices in active markets for identical assets

Level 2: Significant observable inputs for the assets

Level 3: Significant unobservable inputs for the assets

 

 

 

May 1, 2021

 

 

May 2, 2020

 

 

 

 

 

 

 

Fair Value Measurements

 

 

 

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(millions)

 

Marketable equity and debt

   securities

 

$

82

 

 

$

38

 

 

$

44

 

 

$

 

 

$

102

 

 

$

28

 

 

$

74

 

 

$

 

 

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.

13


MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

The following table shows the estimated fair value of the Company's long-term debt:

 

 

 

May 1, 2021

 

 

May 2, 2020

 

 

 

Notional

Amount

 

 

Carrying

Amount

 

 

Fair

Value

 

 

Notional

Amount

 

 

Carrying

Amount

 

 

Fair

Value

 

 

 

(millions)

 

Long-term debt

 

$

4,610

 

 

$

4,558

 

 

$

4,643

 

 

$

4,903

 

 

$

4,918

 

 

$

3,698

 

 

 

 

14


MACY'S, INC.

 

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 2021" and "first quarter of 2020" are to the Company's 13-week fiscal periods ended May 1, 2021 and May 2, 2020, 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 2020 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 "Risk Factors" and in "Forward-Looking Statements") and in the 2020 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".

COVID-19 Update

As the COVID-19 pandemic continues into fiscal 2021, the Company remains focused on prudent cash management, maintaining strong liquidity, and executing its strategic initiatives.  In addition, the Company continues to prioritize health and safety measures in its stores and facilities to protect the well-being of its customers and colleagues.  The Company continuously monitors the ongoing impacts of COVID-19, including the evolving federal, state and local ordinances and health guidelines related to the mitigation of transmission risk associated with the pandemic.  The Company has taken, and continues to take, numerous steps to promote health and safety at its stores and facilities, including establishment of vaccine distribution sites at different corporate facilities, increasing safety equipment in stores, offering contactless shopping opportunities, providing company-supplied personal protection equipment and wellness checks for colleagues, performing enhanced cleaning and continuing to offer remote work plans for certain colleagues.