Macy's(M) - 2026 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Macy's, Inc.'s unaudited consolidated financial statements, including income, comprehensive income, balance sheets, equity, cash flows, and detailed accounting notes Consolidated Statements of Income 13 Weeks Ended August 2, 2025 vs. August 3, 2024 | Metric | August 2, 2025 (millions) | August 3, 2024 (millions) | Change | | :-------------------------------- | :------------- | :------------- | :----- | | Net sales | $4,812 | $4,937 | (2.5%) | | Total revenue | $4,999 | $5,096 | (1.9%) | | Operating income | $149 | $222 | (32.8%) | | Net income | $87 | $150 | (42.0%) | | Basic EPS | $0.32 | $0.54 | (40.7%) | | Diluted EPS | $0.31 | $0.53 | (41.5%) | 26 Weeks Ended August 2, 2025 vs. August 3, 2024 | Metric | August 2, 2025 (millions) | August 3, 2024 (millions) | Change | | :-------------------------------- | :------------- | :------------- | :----- | | Net sales | $9,411 | $9,783 | (3.8%) | | Total revenue | $9,791 | $10,096 | (3.0%) | | Operating income | $242 | $346 | (30.0%) | | Net income | $124 | $212 | (41.5%) | | Basic EPS | $0.45 | $0.77 | (41.6%) | | Diluted EPS | $0.44 | $0.75 | (41.3%) | Consolidated Statements of Comprehensive Income - For both the 13 and 26 weeks ended August 2, 2025, and August 3, 2024, total comprehensive income was equal to net income, as other comprehensive income (net of tax) was zero or negligible[15] Consolidated Balance Sheets - Total Assets decreased from $16,402 million on February 1, 2025, to $15,551 million on August 2, 2025[18] - Total Liabilities decreased from $11,850 million on February 1, 2025, to $11,199 million on August 2, 2025[18] - Shareholders' Equity decreased from $4,552 million on February 1, 2025, to $4,451 million on August 2, 2025[18] - Merchandise Inventories were $4,342 million as of August 2, 2025, a slight decrease from $4,468 million on February 1, 2025, and $4,378 million on August 3, 2024[18] Consolidated Statements of Changes in Shareholders' Equity - Shareholders' Equity remained at $4,451 million from May 3, 2025, to August 2, 2025, after starting at $4,552 million on February 1, 2025[22] - Stock repurchases for the 26 weeks ended August 2, 2025, totaled $153 million[22] - Common stock dividends paid for the 26 weeks ended August 2, 2025, totaled $101 million[22] Consolidated Statements of Cash Flows - Net cash provided by operating activities increased to $255 million for the 26 weeks ended August 2, 2025, from $137 million in the prior year[28] - Net cash used by investing activities decreased to $262 million for the 26 weeks ended August 2, 2025, from $373 million in the prior year[28] - Net cash used by financing activities increased significantly to $471 million for the 26 weeks ended August 2, 2025, from $152 million in the prior year, primarily due to debt transactions and stock repurchases[28] - Cash, cash equivalents and restricted cash decreased to $832 million as of August 2, 2025, from $1,310 million at the beginning of the period[28] Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies - Macy's, Inc. operates as an omni-channel retail organization under three nameplates: Macy's, Bloomingdale's, and Bluemercury, selling a wide range of merchandise[30] - Effective February 4, 2024, the Company changed its inventory valuation method from LIFO retail inventory method (RIM) to the LIFO cost method for improved accuracy, transparency, and comparability[35] - The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, is not expected to materially impact the estimated fiscal 2025 effective tax rate but is expected to decrease fiscal 2025 cash tax payments[39] - The Company is evaluating the impacts of ASU 2023-09 (Income Tax Disclosures, effective FY2026), ASU 2024-03 (Expense Disaggregation Disclosures, effective FY2028), and ASU 2025-05 (Credit Losses for Accounts Receivable, effective FY2027)[40][41][42] 2. Earnings Per Share - Diluted EPS for the 13 weeks ended August 2, 2025, was $0.31, down from $0.53 for August 3, 2024[45] - Diluted EPS for the 26 weeks ended August 2, 2025, was $0.44, down from $0.75 for August 3, 2024[45] - Stock options (5.9 million shares) and restricted stock units (1.0 million shares) were outstanding but excluded from diluted EPS computation for August 2, 2025, as their inclusion would have been antidilutive or performance conditions were not met[45] 3. Revenue - Net sales represented 96% of total revenue for both the 13 and 26 weeks ended August 2, 2025[47] Revenue Breakdown (26 Weeks Ended August 2, 2025) | Revenue Type | Amount (millions) | | :-------------------------- | :---------------- | | Total Net Sales | $9,411 | | Credit card revenues, net | $306 | | Macy's Media Network revenue, net | $74 | | Total Other Revenue | $380 | | Total Revenue | $9,791 | - Macy's accounted for 84% and 83% of the Company's net sales for the 13 and 26 weeks ended August 2, 2025, respectively[50] - Digital sales accounted for 31% and 32% of net sales for the 13 and 26 weeks ended August 2, 2025, respectively[50] - Credit card revenues increased to $306 million for the 26 weeks ended August 2, 2025, from $242 million in the prior year, driven by a strong credit portfolio and active management of net credit card losses[48][57] 4. Financing Activities - Debt repayments for the 26 weeks ended August 2, 2025, totaled $650 million, including $6 million short-term debt and $644 million long-term debt[60] - On July 29, 2025, Macy's Retail Holdings, LLC issued $500 million in 7.375% senior notes due 2033[60] - The Company recognized a $13 million loss on extinguishment of debt in Q2 2025 due to tender offers and redemptions of senior notes and debentures[63] - On April 9, 2025, the ABL Credit Facility was reduced from $3,000 million to $2,100 million and extended to April 2030[64] - Approximately 12.6 million shares were repurchased for $151 million during the 26 weeks ended August 2, 2025, with $1,224 million remaining under the share repurchase authorization[70] 5. Retirement Plans - Defined contribution plan expense for the 401(k) Qualified Defined Contribution Plan was $44 million for the 26 weeks ended August 2, 2025[75] - The Pension Plan reported a net benefit of $(19) million for the 26 weeks ended August 2, 2025[75] - Supplementary Retirement Plan expense was $13 million for the 26 weeks ended August 2, 2025[75] 6. Fair Value Measurements - The total fair value of marketable equity and debt securities was $38 million as of August 2, 2025, classified as Level 1[77] - The fair value of long-term debt was $2,336 million as of August 2, 2025, compared to a carrying amount of $2,626 million[80] - The Company concluded that goodwill and intangible assets with indefinite lives were not impaired in its annual assessment as of May 2025[81] 7. Supplier Finance Programs - Outstanding obligations related to suppliers participating in SCF programs were $136 million as of August 2, 2025, recorded within merchandise accounts payable[83] - The Company's obligations to its suppliers are not impacted by a supplier's participation in the SCF programs[82] 8. Segments - Macy's, Inc. aggregates all its operations into a single reporting segment due to similar business activities, economic environments, and key economic metrics across its brands[85] - The Chief Executive Officer, Tony Spring, acts as the Chief Operating Decision Maker (CODM) and reviews segment performance based on net income, with disaggregation of depreciation and amortization from selling, general and administrative expenses[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Macy's, Inc.'s financial condition and results of operations, covering its 'A Bold New Chapter' strategy, performance, liquidity, capital resources, and non-GAAP reconciliations Quarterly Overview and Company Strategy - The Company is executing its 'A Bold New Chapter' strategy, focusing on enhancing the omni-channel shopping experience, strengthening the Macy's nameplate, accelerating luxury growth, and simplifying operations[89] - Macy's delivered its strongest second quarter net promoter score on record, with Reimagine 125 locations outperforming the rest of the Macy's fleet in traffic, average order value, and net promoter scores[89] - Bloomingdale's achieved its highest second quarter sales and net promoter score on record, and Bluemercury achieved its 18th consecutive quarter of comparable sales growth[89] Comparable Sales (Q2 2025 vs. Q2 2024) | Metric | Owned Basis | O+L+M Basis | | :-------------------------------- | :---------- | :---------- | | Macy's, Inc. | +0.8% | +1.9% | | Macy's, Inc. go-forward business | +1.1% | +2.2% | | Macy's | +0.4% | +1.2% | | Reimagine 125 locations | +1.1% | +1.4% | | Bloomingdale's | +3.6% | +5.7% | | Bluemercury | +1.2% | +1.2% | Results of Operations Comparison of the Second Quarter of 2025 and the Second Quarter of 2024 - Net sales decreased by $125 million (2.5%) to $4,812 million, primarily due to the closing of 64 non-go-forward locations (approximately $170 million impact)[93] - Other revenue increased by $28 million, mainly driven by credit card revenues due to a strong credit portfolio and active management of net credit card losses[94] - Gross margin rate declined 80 basis points to 39.7%, attributed to proactive markdowns on early Spring assortments and the flow-through of product bought under 145% China tariffs[95] - Selling, general and administrative (SG&A) expenses decreased by $29 million (1.5%) but increased as a percent of total revenue to 38.9% from 38.7% due to declining net sales[96] - Operating income decreased to $149 million (3.0% of total revenue) from $222 million (4.4% of total revenue) in the prior year[92] Comparison of the 26 Weeks Ended August 2, 2025 and August 3, 2024 - Net sales for the first half of 2025 decreased by $372 million (3.8%) to $9,411 million, primarily due to the closing of 64 non-go-forward locations (approximately $340 million impact)[101] - Other revenue increased by $67 million to $380 million, mainly from a $64 million increase in credit card revenues and a $3 million increase in Macy's Media Network revenue[102] - Gross margin rate decreased 40 basis points to 39.5%, driven by proactive markdowns and the flow-through of 145% China tariffs[103] - SG&A expenses decreased by $28 million (0.7%) but increased as a percent of total revenue to 39.4% from 38.5% due to declining net sales[104] - Operating income decreased to $242 million (2.5% of total revenue) from $346 million (3.4% of total revenue) in the prior year[100] Liquidity and Capital Resources - The Company's principal sources of liquidity are cash from operations, cash on hand, and the Amended & Extended ABL Credit Facility[108] - Management believes current liquidity sources will be sufficient to satisfy anticipated needs for working capital, capital expenditures, and cash dividends for at least the next twelve months and the foreseeable future[109] - Capital allocation goals include maintaining a healthy balance sheet, achieving investment-grade credit metrics, investing in long-term profitable growth, and returning capital to shareholders through dividends and share repurchases[110] - Cash and cash equivalents were $829 million as of August 2, 2025, an increase of $183 million from August 3, 2024[111] - Borrowing availability under the ABL Credit Facility was $1,957 million as of August 2, 2025, after accounting for standby letters of credit[111] Operating Activities - Net cash provided by operating activities increased to $255 million for the first half of 2025, up from $137 million in the prior year, driven by decreased working capital requirements and lower cash taxes paid[112][113] Investing Activities - Capital expenditures were $343 million in the first half of 2025, down from $432 million in the prior year, primarily focused on digital, technology, and omni-channel capabilities[114] Financing Activities - Dividends paid totaled $100 million in the first half of 2025, up from $96 million in the prior year[115] - Approximately 12.6 million shares were repurchased for $151 million in the first half of 2025 under the existing share repurchase program; no shares were repurchased in the prior year[117] - On July 29, 2025, the Company issued $500 million in 7.375% senior unsecured notes due 2033, redeemed $393 million of senior notes/debentures, and completed a tender offer for $251 million of senior notes/debentures, resulting in a $13 million loss on extinguishment of debt[118] - On April 9, 2025, the ABL Credit Facility was amended, reducing it from $3,000 million to $2,100 million and extending its maturity to April 2030, with no outstanding borrowings[118] Contractual Obligations - There were no material changes to the Company's contractual obligations and commitments outside the ordinary course of business since February 1, 2025[119] Guarantor Summarized Financial Information - The Company had $1,941 million in senior unsecured notes outstanding as of August 2, 2025, which are fully and unconditionally guaranteed by Macy's, Inc. but are structurally subordinated to all existing and future secured indebtedness[120] Summarized Balance Sheets (Obligor Group, August 2, 2025) | Asset/Liability | Amount (millions) | | :-------------- | :---------------- | | Current Assets | $993 | | Noncurrent Assets | $5,620 | | Current Liabilities | $1,450 | | Noncurrent Liabilities | $6,995 | Summarized Statement of Operations (Obligor Group, 26 Weeks Ended August 2, 2025) | Metric | Amount (millions) | | :-------------------------- | :---------------- | | Net sales | $372 | | Consignment commission income | $1,453 | | Other revenue | $63 | | Cost of sales | $(154) | | Operating loss | $(713) | | Loss before income taxes | $(322) | | Net loss | $(117) | Important Information Regarding Non-GAAP Financial Measures - The Company uses non-GAAP financial measures such as comparable sales (O+L+M basis), EBITDA, Adjusted EBITDA, and Core Adjusted EBITDA to provide additional useful information for evaluating operating performance, sales growth, and operational efficiency[125] Non-GAAP Reconciliation (26 Weeks Ended August 2, 2025) | Metric | Amount (millions) | | :-------------------------- | :---------------- | | Net income (GAAP) | $124 | | EBITDA | $687 | | Adjusted EBITDA | $717 | | Core Adjusted EBITDA | $685 | - Adjusted diluted earnings per share for the 26 weeks ended August 2, 2025, was $0.57, compared to GAAP diluted EPS of $0.44[134] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the Company's market risk exposure since the filing of its 2024 Form 10-K - There have been no material changes to the Company's market risk as described in the 2024 10-K[135] Item 4. Controls and Procedures The Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of August 2, 2025, and no material changes to internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of August 2, 2025[136] - No changes in the Company's internal control over financial reporting occurred during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[137] PART II – OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in various legal proceedings incidental to its normal course of business but does not anticipate any of them to have a material adverse effect on its financial position or results of operations - The Company does not expect any current legal proceedings to have a material adverse effect on its financial position or results of operations[139] Item 1A. Risk Factors This section updates the Company's risk factors, specifically revising the 'Supply Chain and Third-Party Risks' to highlight increased dependencies on vendors, potential disruptions from geopolitical tensions (e.g., U.S.-China trade dispute, tariffs), and the uncertain impact of price increases and reduced demand on profitability - The 'Supply Chain and Third-Party Risks' section has been revised to emphasize dependence on vendors, potential disruptions from geopolitical tensions, and the impact of price increases and reduced demand[140][142][143][144] - New tariffs imposed by the Trump Administration on products from over 90 countries, including China, are expected to lead to strategic price increases across product categories, with uncertain impacts on gross margin and consumer demand[144] - The Company is evaluating sourcing options and working with vendors to mitigate tariff impacts, but these strategies may not be effective or timely[147] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on the Company's common stock repurchases during the second quarter of 2025 under its existing share repurchase program - The Company repurchased 3,965 thousand shares of common stock at an average price of $12.61 per share during the period of July 6, 2025 - August 2, 2025[150] - As of August 2, 2025, $1,224 million remained available under the $2,000 million share repurchase program authorized on February 22, 2022[150] Item 5. Other Information This section includes cautionary statements regarding forward-looking information, outlining various risks and uncertainties that could affect future results, and confirms that no directors or officers engaged in Rule 10b5-1 or non-Rule 10b5-1 trading arrangement changes during the quarter Forward-Looking Statements - The report contains forward-looking statements subject to various risks and uncertainties, including the Company's ability to successfully implement its 'A Bold New Chapter' strategy, competitive pressures, and changes in economic conditions[151][154] - Key risks include supply chain disruptions, labor shortages, wage pressures, rising inflation, geopolitical conditions, trade restrictions, tariffs, and the impact of weather and natural disasters[151][154] Trading Arrangements - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fiscal quarter ended August 2, 2025[153] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including indentures, certifications from the CEO and CFO, and the iXBRL formatted financial statements - Key exhibits include the Indenture for Macy's Retail Holdings, LLC's 7.375% Senior Notes due 2033, certifications of the Chief Executive Officer and Chief Financial Officer, and the iXBRL formatted financial statements[157] SIGNATURES SIGNATURES The report is duly signed on behalf of Macy's, Inc. by Tracy M. Preston, Chief Legal Officer and Corporate Secretary, and Paul Griscom, Senior Vice President and Controller, dated September 10, 2025 - The report was signed by Tracy M. Preston, Chief Legal Officer and Corporate Secretary, and Paul Griscom, Senior Vice President and Controller[160] - The signing date of the report is September 10, 2025[161]