Macy's(M) - 2024 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The unaudited statements show a year-over-year decline in revenue, net income, and operating cash flow Consolidated Income Statement Highlights (Unaudited, in millions, except per share data) | Metric | 13 Weeks Ended Oct 28, 2023 | 13 Weeks Ended Oct 29, 2022 | 39 Weeks Ended Oct 28, 2023 | 39 Weeks Ended Oct 29, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $4,860 | $5,230 | $14,972 | $16,178 | | Total Revenue | $5,038 | $5,467 | $15,491 | $16,866 | | Operating Income | $86 | $192 | $453 | $1,054 | | Net Income | $43 | $108 | $175 | $668 | | Diluted EPS | $0.15 | $0.39 | $0.63 | $2.37 | Key Balance Sheet Items (Unaudited, in millions) | Account | Oct 28, 2023 | Jan 28, 2023 | Oct 29, 2022 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $364 | $862 | $326 | | Merchandise inventories | $6,025 | $4,267 | $6,403 | | Total Assets | $18,111 | $16,866 | $18,230 | | Long-Term Debt | $2,997 | $2,996 | $2,996 | | Total Shareholders' Equity | $4,144 | $4,082 | $3,475 | Cash Flow Summary (Unaudited, in millions) | Cash Flow Activity | 39 Weeks Ended Oct 28, 2023 | 39 Weeks Ended Oct 29, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $158 | $488 | | Net cash used by investing activities | $(716) | $(869) | | Net cash provided (used) by financing activities | $60 | $(1,005) | | Net decrease in cash | $(498) | $(1,386) | - Macy's operates under three brands: Macy's, Bloomingdale's, and Bluemercury, with stores in 43 states, D.C., Puerto Rico, and Guam as of October 28, 2023[32] Net Sales by Merchandise Category (39 Weeks Ended, in millions) | Category | Oct 28, 2023 | Oct 29, 2022 | | :--- | :--- | :--- | | Women's Accessories, Shoes, Cosmetics & Fragrances | $6,067 | $6,214 | | Women's Apparel | $3,348 | $3,772 | | Men's and Kids' | $3,177 | $3,459 | | Home/Other | $2,380 | $2,733 | | Total Net Sales | $14,972 | $16,178 | - Credit card revenues, net of various costs, decreased to $142 million in Q3 2023 from $206 million in Q3 2022, with the long-term program agreement with Citibank expiring on March 31, 2030[45][54][55] - During the 39 weeks ended October 28, 2023, the company repurchased 1.4 million shares for approximately $25 million, with $1,375 million remaining under the share repurchase authorization[59] - The company incurred non-cash settlement charges of $129 million in the 39 weeks ended Oct 28, 2023, related to its Pension Plan, primarily from the purchase of a group annuity contract[65][96] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a sales decline from macroeconomic pressures, improved gross margin, and five key growth vectors Q3 2023 Financial Highlights vs. Q3 2022 | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Comparable Sales (Owned+Licensed) | -6.3% | -2.7% | | Digital Sales | -7% | N/A | | Gross Margin Rate | 40.3% | 38.7% | | Net Income | $43M | $108M | | Adjusted Diluted EPS | $0.21 | $0.52 | | Merchandise Inventories | -6% | N/A | - The company is focused on five strategic growth vectors including private brand reimagination, small-format stores, digital marketplace expansion, luxury offerings, and personalized marketing[77] - Q3 2023 net sales were impacted by macroeconomic conditions, with strength in beauty and weakness in women's casual sportswear, big ticket items, and handbags[79] - Q3 2023 gross margin rate increased by 160 bps YoY to 40.3%, driven by lower permanent markdowns and improved inbound freight costs[82] - Q3 2023 credit card revenue decreased by $64 million YoY, primarily due to increased portfolio funding costs and higher estimated credit losses[81] - For the 39-week period, the gross margin rate increased 30 bps YoY, while the merchandise margin rate decreased 20 bps, driven by category mix changes[92] - The company's capital allocation goals are to maintain an investment-grade balance sheet, invest in growth, and return capital to shareholders[102] Cash Flow Summary (39 Weeks Ended, in millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $158 | $488 | | Net cash used by investing activities | $(716) | $(869) | | Net cash from (used by) financing activities | $60 | $(1,005) | - As of October 28, 2023, the company had $2,862 million of available borrowing capacity under its ABL Credit Facility[111] Updated Full-Year 2023 Guidance | Metric | Guidance Range | | :--- | :--- | | Net Sales | $22.9B - $23.2B | | Comparable Sales (Owned+Licensed, 52-wk) | -7% to -6% vs. 2022 | | Gross Margin Rate | 38.4% - 38.5% | | Adjusted Diluted EPS | $2.88 - $3.13 | - The company reviews goodwill for impairment annually, with 97% of goodwill allocated to the Macy's reporting unit[134] - Qualitative impairment tests in May 2023 and Q3 2023 concluded that goodwill was not impaired, though future impairment risk exists if market conditions worsen[140][141] Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures remain materially unchanged from the prior Annual Report on Form 10-K - There have been no material changes to the Company's market risk as described in the Company's 2022 10-K[142] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that as of October 28, 2023, the Company's disclosure controls and procedures were effective to provide reasonable assurance of timely reporting[143] - No changes occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[144] PART II – OTHER INFORMATION Legal Proceedings Current legal proceedings are not expected to have a material adverse effect on the company's financial condition - The Company does not expect that any of its current legal proceedings will have a material adverse effect on its financial position or results of operations[147] Risk Factors Risk factors remain materially unchanged from those disclosed in the 2022 Form 10-K - There have been no material changes to the Risk Factors described in the Company's 2022 Form 10-K[148] Other Information This section includes forward-looking statement disclaimers and disclosures on Rule 10b5-1 trading arrangements - The report contains forward-looking statements subject to various risks, including consumer spending, competitive pressures, and macroeconomic conditions[149][150][154] - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended October 28, 2023[153] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and iXBRL data - Exhibits filed include CEO and CFO certifications under the Sarbanes-Oxley Act and the financial statements formatted in iXBRL[157]