Macy’s, Inc. Reports Second Quarter Earnings and Reaffirms Full-Year Guidance

CINCINNATI–(BUSINESS WIRE)–Macy’s, Inc. (NYSE:M) today reported diluted earnings per share of 3
cents in the second quarter of 2016, ended July 30, 2016. Excluding
asset impairment and other charges primarily related to upcoming store
closings and non-cash retirement plan settlement charges of $255
million, or 51 cents per share (as described below), second quarter
earnings per share were 54 cents per share. The company’s earnings for
the second quarter of 2016 compare with 64 cents per diluted share in
the second quarter of 2015.

The company also reaffirmed its previous sales and earnings guidance for
full-year 2016.

(Editor’s Note: This morning, Macy’s, Inc. also issued a separate
news release announcing moves to drive profitable growth and enhance
shareholder value.)

Macy’s, Inc.’s earnings per share in the first half of 2016 were 41
cents (94 cents per share excluding asset impairment and other charges
primarily related to upcoming store closings and non-cash settlement
charges related to the company’s retirement plans, as described below),
compared with earnings per diluted share of $1.19 in the same period
last year.

“We are encouraged by the distinct improvement in our sales and earnings
trend in the second quarter. Over the past few months, we have been
saying that a setback is a setup for a comeback, and we now believe we
are set up well to proceed to a comeback. Our sales strengthened
month-by-month throughout the second quarter. This trend improvement
gives us confidence in our plans for the back half of the year, and in
our strategic planning for improvements to our business model going
forward,” said Terry J. Lundgren, Macy’s chairman and chief executive
officer.

“A number of factors worked in our favor in the second quarter,
including a normalized weather pattern, which contributed to a sales
lift in our apparel business in particular. We also saw a smaller
decrease in tourist spending during prime summer travel months,
supported by strengthened promotional events designed to increase
customer traffic and conversion. Macy’s first-ever ‘Black Friday in
July’ event was a terrific success which drove record store and online
sales for a mid-year period,” Lundgren said.

“We also are pleased that a number of sales-driving initiatives put in
place in recent months are beginning to gain traction. These include
additional investments in store staffing and visual presentation, the
rollout of our enhanced fine jewelry departments, athletic/active
apparel intensification, home store improvements and Last Act clearance
strategy,” he added.

Sales

Sales in the second quarter of 2016 totaled $5.866 billion, a decrease
of 3.9 percent, compared with sales of $6.104 billion in the same period
last year. Comparable sales on an owned plus licensed basis were down by
2.0 percent in the second quarter. On an owned basis, second quarter
comparable sales declined by 2.6 percent. The difference between the
year-over-year change in total and comparable sales largely resulted
from the closing of 41 underperforming Macy’s stores in fiscal 2015.

For the year to date, Macy’s, Inc. sales totaled $11.637 billion, down
5.7 percent from total sales of $12.336 billion in the first half of
2015. Comparable sales on an owned plus licensed basis were down by 3.8
percent year-to-date in 2016. On an owned basis, year-to-date comparable
sales declined by 4.4 percent.

In the second quarter, the company opened seven Bluemercury freestanding
specialty stores. In the fall season, scheduled store openings include a
Macy’s in Kapolei, HI, one Macy’s Backstage freestanding store in San
Antonio, one Bloomingdale’s Outlet in Orange, CA, and 10 additional
Bluemercury freestanding specialty stores. In the second quarter, eight
Macy’s Backstage and seven Bluemercury shops opened inside Macy’s
stores, with another five in-store Macy’s Backstage and seven in-store
Bluemercury shops planned for the fall season. In the third quarter,
Macy’s is closing stores in North Hollywood, CA, and West Valley City,
UT. In a separate news release issued today, the company announced plans
to close approximately 100 full-line Macy’s locations, most of which
will be closed in early 2017.

Operating Income

Macy’s, Inc.’s operating income totaled $117 million or 2.0 percent of
sales for the quarter ended July 30, 2016. Excluding asset impairment
and other charges primarily related to upcoming store closings announced
today of $249 million ($154 after tax, or 49 cents per share) and
non-cash settlement charges related to the company’s retirement plans of
$6 million ($3 million after tax, or 2 cents per share), operating
income for the second quarter was $372 million or 6.4 percent of sales.
This compares with operating income of $436 million or 7.1 percent of
sales for the same period last year.

For the first half of 2016, Macy’s, Inc.’s operating income totaled $393
million or 3.4 percent of sales. Excluding asset impairment and other
charges of $249 million ($154 million after tax, or 49 cents per share)
and non-cash settlement charges related to the company’s retirement
plans of $19 million ($12 million after tax, or 4 cents per share),
operating income for the first half of 2016 was $661 million, or 5.7
percent of sales. This compares with operating income of $845 million,
or 6.8 percent of sales, in the first half of 2015.

Cash Flow

Net cash provided by operating activities was $560 million in the first
half of 2016, compared with $398 million in the first six months of last
year. Net cash used by investing activities in the first half of 2016
was $338 million, compared with $615 million a year ago. Investing
activities in the first six months of 2015 included the acquisition of
Bluemercury. Net cash used by financing activities in the first six
months of 2016 was $331 million, compared with $1.186 billion in the
first half of 2015.

The company did not repurchase any shares of its common stock in the
second quarter of 2016. Given first quarter results, the company had
decided to suspend its repurchase program but will consider resuming
stock buybacks in the second half of 2016 assuming current sales trends
continue. At July 30, 2016, the company has remaining authorization to
repurchase up to approximately $1.9 billion of its common stock.

Looking Ahead

Based upon improved sales and earnings in the second quarter, the
company remains confident in its previously provided guidance for
full-year 2016.

Macy’s, Inc. expects full-year 2016 comparable sales on an owned plus
licensed basis sales to decrease in the range of 3 percent to 4 percent,
with comparable sales on an owned basis to be approximately 50 basis
points lower. The company expects earnings per diluted share (excluding
asset impairment charges and retirement settlement charges) in fiscal
2016 to be in a range of $3.15 to $3.40.

Important Information Regarding Financial
Measures

Please see the final pages of this news release for important
information regarding the calculation of the company’s non-GAAP
financial measures.

Macy’s, Inc., with corporate offices in Cincinnati and New York, is one
of the nation’s premier retailers, with fiscal 2015 sales of $27.079
billion. The company operates about 880 stores in 45 states, the
District of Columbia, Guam and Puerto Rico under the names of Macy’s,
Bloomingdale’s, Bloomingdale’s Outlet, Macy’s Backstage and Bluemercury,
as well as the macys.com, bloomingdales.com and bluemercury.com
websites. Bloomingdale’s in Dubai is operated by Al Tayer Group LLC
under a license agreement.

All statements in this press release that are not statements of
historical fact are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are
based upon the current beliefs and expectations of Macy’s management and
are subject to significant risks and uncertainties. Actual results could
differ materially from those expressed in or implied by the
forward-looking statements contained in this release because of a
variety of factors, including conditions to, or changes in the timing
of, proposed transactions, prevailing interest rates and non-recurring
charges, store closings, competitive pressures from specialty stores,
general merchandise stores, off-price and discount stores,
manufacturers’ outlets, the Internet, mail-order catalogs and television
shopping and general consumer spending levels, including the impact of
the availability and level of consumer debt, the effect of weather and
other factors identified in documents filed by the company with the
Securities and Exchange Commission.

(NOTE: Additional information on Macy’s, Inc., including past news
releases, is available at www.macysinc.com/pressroom.
A webcast of Macy’s, Inc.’s call with analysts and investors will be
held today (Aug. 11) at 10 a.m. (ET). (Note this is a new time
for Macy’s quarterly earnings conference call.) Macy’s, Inc.’s webcast
is accessible to the media and general public via the company’s website
at www.macysinc.com.
Analysts and investors may call in on 1-888-211-9951, passcode 1044180.
A replay of the conference call can be accessed on the Web site or by
calling 1-888-203-1112 (same passcode) about two hours after the
conclusion of the call.

Macy’s, Inc. is scheduled to present at the Goldman Sachs Annual Global
Retailing Conference at 8:05 a.m. ET on Thursday, Sept. 8, in New York
City. Media and investors may access a live audio webcast of the
presentation at www.macysinc.com/ir
beginning at 8:05 a.m. on Sept. 8. A replay of the webcast will be
available on the company’s website.)

   

MACY’S, INC.

 

Consolidated Statements of Income
(Unaudited) (Note 1)

 

(All amounts in millions except percentages and per share figures)

 

 
13 Weeks Ended 13 Weeks Ended
July 30, 2016 August 1, 2015
  % to   % to
$ Net sales $ Net sales
 
Net sales $ 5,866 $ 6,104
 
Cost of sales (Note 2)   3,468 59.1%   3,610 59.1%
 
Gross margin 2,398 40.9% 2,494 40.9%
 
Selling, general and administrative expenses (2,026) (34.5%) (2,058) (33.8%)
 
Impairments and other costs (Note 3) (249) (4.3%) -%
 
Settlement charges (Note 4)   (6) (0.1%)   -%
 
Operating income 117 2.0% 436 7.1%
 
Interest expense – net   (97)   (93)
 
Income before income taxes 20 343
 
Federal, state and local income tax expense (Note 5)   (11)   (126)
 
Net income 9 217
 
Net loss attributable to noncontrolling interest   2  
 
Net income attributable to Macy’s, Inc. shareholders $ 11 $ 217
 
Basic earnings per share attributable to
Macy’s, Inc. shareholders $ .03 $ .65
 
Diluted earnings per share attributable to
Macy’s, Inc. shareholders $ .03 $ .64
 
Average common shares:
Basic 309.4 335.7
Diluted 311.3 341.0
 
End of period common shares outstanding 308.5 331.0
 
Depreciation and amortization expense $ 260 $ 261
 
 
 
MACY’S, INC.
 

Consolidated Statements of Income (Unaudited)

 
Notes:
   
(1) Because of the seasonal nature of the retail business, the results
of operations for the 13 weeks ended July 30, 2016 and August 1,
2015 (which do not include the Christmas season) are not necessarily
indicative of such results for the fiscal year.
 
(2) Merchandise inventories are valued at the lower of cost or market
using the last-in, first-out (LIFO) retail inventory method.
Application of the LIFO retail inventory method did not result in
the recognition of any LIFO charges or credits affecting cost of
sales for the 13 weeks ended July 30, 2016 or August 1, 2015.
 
(3) For the 13 weeks ended July 30, 2016, includes $249 million on a
pre-tax basis, or $154 million after tax or $.49 per diluted share
attributable to Macy’s, Inc., primarily for asset impairment
charges. These charges relate primarily to anticipated store
closings.
 
(4) For the 13 weeks ended July 30, 2016, includes $6 million on a
pre-tax basis, or $3 million after tax or $.02 per diluted share
attributable to Macy’s, Inc., of non-cash settlement charges
relating to the Company’s defined benefit retirement plans. These
charges result from an increase in lump sum distributions associated
with store closings, a voluntary separation program and
organizational restructuring, in addition to periodic distribution
activity.
 
(5) Federal, state and local income taxes differ from the federal income
tax statutory rate of 35%, principally because of the effect of
state and local taxes, including the settlement of various tax
issues and tax examinations.
 
 

MACY’S, INC.

 

Consolidated Statements of Income
(Unaudited) (Note 1)

 

(All amounts in millions except percentages and per share figures)

 

  26 Weeks Ended   26 Weeks Ended
July 30, 2016 August 1, 2015
  % to   % to
$ Net sales $ Net sales
 
Net sales $ 11,637 $ 12,336
 
Cost of sales (Note 2)   6,984 60.0%   7,410 60.1%
 
Gross margin 4,653 40.0% 4,926 39.9%
 
Selling, general and administrative expenses (3,992) (34.3%) (4,081) (33.1%)
 
Impairments and other costs (Note 3) (249) (2.1%) -%
 
Settlement charges (Note 4)   (19) (0.2%)   -%
 
Operating income 393 3.4% 845 6.8%
 
Interest expense – net   (195)   (188)
 
Income before income taxes 198 657
 
Federal, state and local income tax expense (Note 5)   (74)   (247)
 
Net income 124 410
 
Net loss attributable to noncontrolling interest   3  
 
Net income attributable to Macy’s, Inc. shareholders $ 127 $ 410
 
Basic earnings per share attributable to
Macy’s, Inc. shareholders $ .41 $ 1.21
 
Diluted earnings per share attributable to
Macy’s, Inc. shareholders $ .41 $ 1.19
 
Average common shares:
Basic 310.0 338.2
Diluted 312.4 343.7
 
End of period common shares outstanding 308.5 331.0
 
Depreciation and amortization expense $ 520 $ 520
 
 
 
MACY’S, INC.
 

Consolidated Statements of Income (Unaudited)

 
Notes:
 
(1)     Because of the seasonal nature of the retail business, the results
of operations for the 26 weeks ended July 30, 2016 and August 1,
2015 (which do not include the Christmas season) are not necessarily
indicative of such results for the fiscal year.
 
(2) Merchandise inventories are valued at the lower of cost or market
using the last-in, first-out (LIFO) retail inventory method.
Application of the LIFO retail inventory method did not result in
the recognition of any LIFO charges or credits affecting cost of
sales for the 26 weeks ended July 30, 2016 or August 1, 2015.
 
(3) For the 26 weeks ended July 30, 2016, includes $249 million on a
pre-tax basis, or $154 million after tax or $.49 per diluted share
attributable to Macy’s, Inc., primarily for asset impairment
charges. These charges relate primarily to anticipated store
closings.
 
(4) For the 26 weeks ended July 30, 2016, includes $19 million on a
pre-tax basis, or $12 million after tax or $.04 per diluted share
attributable to Macy’s, Inc., of non-cash settlement charges
relating to the Company’s defined benefit retirement plans. These
charges result from an increase in lump sum distributions associated
with store closings, a voluntary separation program and
organizational restructuring, in addition to periodic distribution
activity.
 
(5) Federal, state and local income taxes differ from the federal income
tax statutory rate of 35%, principally because of the effect of
state and local taxes, including the settlement of various tax
issues and tax examinations.
 
 

MACY’S, INC.

 

Consolidated Balance Sheets (Unaudited)

 

(millions)

 

  July 30,   January 30,   August 1,
2016 2016 2015
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,000 $ 1,109 $ 843
Receivables 423 558 334
Merchandise inventories 5,322 5,506 5,496
Prepaid expenses and other current assets   471   479   437
Total Current Assets 7,216 7,652 7,110
 
Property and Equipment – net 7,187 7,616 7,704
Goodwill 3,897 3,897 3,897
Other Intangible Assets – net 502 514 523
Other Assets   904   897   726
 
Total Assets $ 19,706 $ 20,576 $ 19,960
 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities:
Short-term debt $ 942 $ 642 $ 83
Merchandise accounts payable 1,877 1,526 1,942
Accounts payable and accrued liabilities 2,514 3,333 2,277
Income taxes   23   227   64
Total Current Liabilities 5,356 5,728 4,366
 
Long-Term Debt 6,688 6,995 7,151
Deferred Income Taxes 1,448 1,477 1,449
Other Liabilities 2,164 2,123 2,150
Shareholders’ Equity:
Macy’s, Inc. 4,046 4,250 4,844
Noncontrolling interest   4   3  
Total Shareholders’ Equity   4,050   4,253   4,844
 
Total Liabilities and Shareholders’ Equity $ 19,706 $ 20,576 $ 19,960
 

Note: Certain reclassifications were made to prior year’s amounts to
conform with the classifications of such amounts in the most recent
years.

 

MACY’S, INC.

 

Consolidated Statements of Cash Flows
(Unaudited)

 

(millions)

 

  26 Weeks Ended   26 Weeks Ended

July 30, 2016

August 1, 2015

Cash flows from operating activities:
Net income $ 124 $ 410

Adjustments to reconcile net income to net cash provided by
operating activities:

Impairments and other costs 249
Settlement charges 19
Depreciation and amortization 520 520
Stock-based compensation expense 37 47

Amortization of financing costs and premium on acquired debt

(1) (2)
Changes in assets and liabilities:
Decrease in receivables 99 92
(Increase) decrease in merchandise inventories 184 (50)
Increase in prepaid expenses and other current assets (40) (29)
Increase in other assets not separately identified
Increase in merchandise accounts payable 307 314

Decrease in accounts payable, accrued liabilities and other items
not separately identified

(686) (626)
Decrease in current income taxes (204) (232)
Decrease in deferred income taxes (26) (20)

Decrease in other liabilities not separately identified

  (22)   (26)
Net cash provided by operating activities   560   398
 
Cash flows from investing activities:
Purchase of property and equipment (293) (367)
Capitalized software (151) (144)
Acquisition of Bluemercury, Inc., net of cash acquired (212)
Disposition of property and equipment 67 4
Other, net   39   104
Net cash used by investing activities   (338)   (615)
 

Cash flows from financing activities:

Debt repaid (3) (72)
Financing costs (3)
Dividends paid (228) (227)
Increase (decrease) in outstanding checks 2 (136)
Acquisition of treasury stock (130) (909)
Issuance of common stock 27 158
Proceeds from noncontrolling interest   4  
Net cash used by financing activities   (331)   (1,186)
 
Net decrease in cash and cash equivalents (109) (1,403)
Cash and cash equivalents at beginning of period   1,109   2,246
 
Cash and cash equivalents at end of period $ 1,000 $ 843
 

Note: Certain reclassifications were made to prior year’s amounts to
conform with the classifications of such amounts in the most recent
years.

MACY’S, INC.

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 excluding
certain items that may vary substantially in frequency and magnitude
from operating income, operating income as a percent of sales and
diluted earnings per share attributable to Macy’s, Inc. shareholders
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.
Management believes that providing changes in comparable sales on an
owned plus licensed basis, which includes the impact of growth in
comparable sales of departments licensed to third parties supplementally
to its results of operations calculated in accordance with GAAP 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.

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 and cash flows and should therefore be considered in
assessing the Company’s actual 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.

Diluted Earnings Per Share Attributable to Macy’s,
Inc. Shareholders, Excluding Certain Items

The following is a reconciliation of the non-GAAP financial measure
diluted earnings per share attributable to Macy’s, Inc. shareholders,
excluding certain items, to GAAP diluted earnings per share attributable
to Macy’s, Inc., shareholders, which the Company believes to be the most
directly comparable GAAP measure.

  13 Weeks   26 Weeks
Ended Ended
July 30, July 30,
2016 2016
 

Diluted earnings per share attributable to Macy’s, Inc.
shareholders

$0.03 $0.41
 
Add back the pre-tax impact of impairments and other costs 0.80 0.80
 
Add back the pre-tax impact of settlement charges 0.02 0.06
 

Deduct the income tax impact of impairments and other costs and
settlement charges

(0.31) (0.33)
 
Diluted earnings per share attributable to

Macy’s, Inc. shareholders, excluding impairments and other costs
and settlement charges

$0.54 $0.94
 

MACY’S, INC.

Important Information Regarding Non-GAAP Financial
Measures

Change in Comparable Sales

The following is a 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.

   
13 Weeks 26 Weeks
Ended Ended
July 30, July 30,
2016 2016
 
Decrease in comparable sales on an owned basis (Note 1) (2.6)% (4.4)%
 

Impact of growth in comparable sales of departments licensed to
third parties (Note 2)

0.6 % 0.6 %
 
Decrease in comparable sales on an owned plus licensed basis (2.0)% (3.8)%
 
Notes:
 
(1)     Represents the period-to-period 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.
 
(2) 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 via the
Internet 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 sales of the departments licensed to third
parties) in its net sales. The Company does not, however, include
any amounts in respect of 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.
 

Contacts

Macy’s, Inc.
Media – Jim Sluzewski, 513-579-7764
Investors –
Matt Stautberg, 513-579-7780

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