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MarketScreener Homepage  >  Equities  >  Nyse  >  Macy's    M

MACY'S

(M)
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MACY'S : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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07/02/2020 | 04:01pm EDT
For purposes of the following discussion, all references to "first quarter of
2020" and "first quarter of 2019" are to the Company's 13-week fiscal periods
ended May 2, 2020 and May 4, 2019, respectively. References to "2020" and "2019"
are to the Company's 52-week periods ended January 30, 2021 and February 1,
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 2019 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 2019 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 page 32.

Impact of COVID-19


In March 2020, the World Health Organization declared the outbreak of COVID-19
as a global pandemic, which continues to spread throughout the United States.
The COVID-19 pandemic has had a negative impact on the Company's fiscal 2020
operations and financial results to date, and the full financial impact of the
pandemic cannot be reasonably estimated at this time due to uncertainty as to
the severity and duration of the pandemic. The following summarizes the actions
taken and impacts from the COVID-19 pandemic during and subsequent to the 13
weeks ended May 2, 2020.

• The Company temporarily closed all stores on March 18, 2020, which

included all Macy's, Bloomingdale's, Bluemercury, Macy's Backstage,

Bloomingdales the Outlet and Market by Macy's stores. The first tranche of

       stores began reopening on May 4, 2020 and as of July 1, 2020, nearly all
       the Company's stores have been reopened.


As a result of store closures, the Company recognized an approximate $300 million inventory write-down, primarily on fashion merchandise, during the 13 weeks ended May 2, 2020.

• In an effort to increase liquidity, the Company fully drew on its $1,500

million credit facility, announced the suspension of quarterly cash

dividends beginning in the second quarter of 2020 and took additional

steps to reduce discretionary spending. The Company's Board of Directors

rescinded its authorization of any unused amounts under the Company's

share repurchase program. In June 2020, the Company completed financing

activities of nearly $4.5 billion. See Note 7, "Financing Activities," for

       further discussion on these activities.



•      To improve the Company's current cash position and reduce its cash

expenditures during this uncertain time, the Company's Board of Directors

       and Chief Executive Officer did not receive compensation from the
       beginning of the COVID-19 crisis through June 30, 2020. In addition, the
       Company deferred cash expenditures where possible and temporarily
       implemented a furlough for the majority of its employee population that

will end at the beginning of July 2020. Certain executives not impacted by

       the furlough took a temporary reduction of their pay through June 30,
       2020.


In the first quarter of 2020, the Company deferred rent payments for a significant number of its stores. The Company has elected to treat the COVID-19 pandemic-related rent deferrals as accrued liabilities. The Company will continue to recognize expense during the deferral periods.


In June 2020, the Company announced a restructuring that will align its cost
base with anticipated near-term sales as the business recovers from the impact
of the COVID-19 pandemic. The Company will reduce corporate and management
headcount by approximately 3,900. Additionally, the Company has reduced staffing
across its stores portfolio, supply chain and customer support network, which it
will adjust as sales recover. The Company expects the actions announced to
generate expense savings of approximately $365 million in fiscal 2020 and
approximately $630 million on an annualized basis. These savings will be on top
of the anticipated $1.5 billion in annual expense savings announced in February,
which the Company expects to fully realize by year-end 2022. For fiscal 2020,
the Company expects pre-tax costs of approximately $180 million for these
restructuring activities, the majority of which will be recorded in the second
quarter of 2020 and all of which will be in cash.



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                                  MACY'S, INC.

• During the 13 weeks ended May 2, 2020, the Company incurred non-cash

impairment charges on long-lived tangible and right of use assets to

adjust the carrying value of certain store locations to their estimated

fair value. The Company also incurred a non-cash impairment charge on

goodwill as a result of the sustained decline in the Company's market

capitalization and decline in projected cash flows primarily as a result

of the COVID-19 pandemic. See Note 3, "Impairment, Restructuring and Other

Costs" and Note 4, "Goodwill and Indefinite Lived Intangible Assets",

       respectively, for further discussion of these charges.


• On March 27, 2020, the CARES Act was signed into law, providing payroll

tax credits for employee retention, deferral of payroll taxes, and several

income tax provisions including modifications to the net interest

deduction limitation, changes to certain property depreciation and allows

for carryback of certain operating losses.




The COVID-19 pandemic continues to have a material adverse impact on the
Company's operational performance, financial results and cash flows, although
the full impact will depend on future developments, including the continued
spread and duration of the outbreak and any related restrictions, all of which
are highly uncertain and cannot be predicted. The Company continues to monitor
the situation closely.

Polaris Strategy

On February 4, 2020, Macy's, Inc. announced its Polaris strategy, a three-year plan designed to stabilize profitability and position the Company for sustainable, profitable growth. The five major components of the Polaris strategy are:

• Strengthen Customer Relationships: The Company is focusing on building

customer lifetime value and expanding the Macy's Star Rewards loyalty

program with the launch of Loyalty 3.0 in early February 2020. Loyalty 3.0

       allows every Star Rewards member to earn loyalty rewards on their
       purchases regardless of tender.


• Curate Quality Fashion: The Company is repositioning its merchandise

       category focus to drive sales and improve gross margin.



•      Accelerate Digital Growth: The Company will continue to invest in its
       websites and mobile apps to deliver a superior fashion experience and
       accelerate growth. The Company will grow its customer franchise with a
       strong focus on personalization and continued innovation to deliver the
       best digital fashion experience to its customers.


• Optimize the Store Portfolio: The Company completed a rigorous evaluation

of the Macy's store portfolio. This included a store-level assessment of

each store's overall value to the fleet, including predicted profitability

       based on consumer trends and demographics. As a result, the Company plans
       to close approximately 125 of its least productive stores over the next
       three years, including approximately 30 stores that were announced for
       closure in the spring of 2020.



•      Reset Cost Base: The Company is streamlining and right-sizing the

organization and expense base to drive improvement in working capital and

operating results. This includes reductions in corporate and support

functions, campus consolidations and the consolidation of the Company's

sole headquarters to New York City, New York. Additionally, the Company is

       further reshaping its supply chain to support omnichannel customer
       behavior and the Company's new retail ecosystem.



The impact of the COVID-19 pandemic has caused the Company to examine every
aspect of the Polaris strategy to determine where the Company should accelerate,
where the Company will continue but with an adjusted focus and where the Company
will pause initiatives. The Company may incur significant additional charges in
future periods as it more fully defines incremental Polaris strategy initiatives
and moves into the execution phases of these projects. Since the scope of such
efforts are not fully known at this time, the benefits of such initiatives, and
any related charges or capital expenditures, are not currently quantifiable.
Actions associated with the Polaris strategy are currently expected to continue
through 2022.


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                                  MACY'S, INC.


Results of Operations
Comparison of the First Quarter of 2020 and the First Quarter of 2019
                                               First Quarter of 2020           First Quarter of 2019
                                                                                                % to
                                                              % to Net                           Net
                                                Amount          Sales            Amount         Sales
                                                   (dollars in millions, except per share figures)
Net sales                                   $     3,017$     5,504
Credit card revenues, net                           131          4.3    %            172         3.1   %

Cost of sales                                    (2,501 )      (82.9 )  %         (3,403 )     (61.8 ) %
Selling, general and administrative
expenses                                         (1,598 )      (52.9 )  %         (2,112 )     (38.4 ) %
Gains on sale of real estate                         16          0.5    %             43         0.8   %
Impairment, restructuring and other costs        (3,184 )     (105.5 )  %             (1 )         -   %
Operating income (loss)                          (4,119 )     (136.5 )  %            203         3.7   %
Benefit plan income, net                              9                                7
Interest expense, net                               (47 )                            (47 )
Income (loss) before income taxes                (4,157 )                   

163

Federal, state and local income tax
benefit (expense)                                   576                              (27 )
Net income (loss)                           $    (3,581 )$       136

Diluted earnings (loss) per share           $    (11.53 )

$ 0.44


Supplemental Financial Measure
Gross margin (a)                            $       516         17.1    %   

$ 2,101 38.2 %


Supplemental Non-GAAP Financial Measure
Diluted earnings (loss) per share,
excluding the impact of certain items       $     (2.03 )

$ 0.44




(a) Gross margin is defined as net sales less cost of sales.
Net Sales
Net sales for the first quarter of 2020 decreased $2,487 million, or 45.2%,
compared to the first quarter of 2019. The Company's first quarter of 2020 sales
were negatively impacted by the closure of all stores on March 18, 2020,
resulting in stores sales being significantly down compared to first quarter of
2019. However, while digital sales also slowed during the first quarter of 2020,
the decline in digital sales was in the low single digits versus the prior year
quarter. The strongest performing categories during the first quarter of 2020
were home, fine jewelry, beauty, active wear, sleepwear and kids. Sales
performance was weaker in women's and men's apparel, including dresses and
suits.
Credit Card Revenues, Net
Credit card revenues, net were $131 million in the first quarter of 2020, a
decrease of $41 million, or 23.8%, compared to $172 million recognized in the
first quarter of 2019 with credit penetration versus the first quarter of 2019
being approximately the same at 46%. New accounts were down significantly in the
first quarter of 2020 versus the first quarter of 2019, which is primarily a
reflection of stores not being open for the last six weeks of the quarter and
drove the year-over-year decline.
Gross Margin
Gross margin was 17.1% in the first quarter of 2020 compared to 38.2% in the
first quarter of 2019. The reason for the decline was due to increased net
markdowns as compared to the first quarter of 2019 as well as the recognition of
an approximate $300 million inventory write-down primarily on fashion
merchandise during the 13 weeks ended May 2, 2020.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the first quarter of
2020 decreased $514 million from the first quarter of 2019. The decrease in SG&A
expense dollars reflects the discretionary spending freeze implemented by the
Company in response to the COVID-19 pandemic.

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                                  MACY'S, INC.

Impairment, Restructuring and Other Costs

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. See discussion at Note 4, "Goodwill and
       Indefinite Lived Intangible Assets."


$80 million of impairments on long-lived tangible and right of use assets

to adjust the carrying value of certain store locations to their estimated

fair value.



The first quarter of 2020 also included $34 million of restructuring and other
costs related to severance activity and other costs associated with
organizational restructuring, primarily associated with the Polaris strategy.
See discussion at Note 3, "Impairment, Restructuring and Other Costs."
Effective Tax Rate
The Company's effective tax rate of 13.9% on the pretax loss for the first
quarter of 2020 reflects the impact of the non-tax deductible component of the
goodwill impairment charge offset partially by the carryback of net operating
losses as permitted under the CARES Act. Additionally, the first quarter of
2019 effective tax rate of 16.6% was favorably impacted by the settlement of
certain tax matters.
Diluted Earnings (Loss) Per Share
Diluted loss per share for the first quarter of 2020 decreased $11.97 compared
to the first quarter of 2019, reflecting lower net income resulting from the
impact of the COVID-19 pandemic.

Cash Flow, Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on
hand and the credit facility described below.
Because of the COVID-19 outbreak, there is significant uncertainty surrounding
the potential impact on the Company's results of operations and cash flows. The
Company has proactively taken steps to increase available cash on hand
including, but not limited to, targeted reductions in discretionary operating
expenses and capital expenditures, suspension of the Company's quarterly
dividend, drawing the full $1,500 million available under the Company's credit
agreement as of May 2, 2020, and executing additional financing transactions
subsequent to the first quarter of 2020 as discussed in more detail below.
Operating Activities
Net cash used by operating activities in the first quarter of 2020 was $164
million, compared to $38 million in the first quarter of 2019. The difference in
operating cash flows period over period is due to the net loss driven by the
impact of the COVID-19 pandemic, primarily resulting from the temporary closure
of the Company's physical store location partially offset by the cash management
strategies including reduced spending and extension of payment terms during the
COVID-19 pandemic.
Investing Activities
Net cash used by investing activities was $113 million in the first quarter of
2020, compared to $237 million in the first quarter of 2019. The decrease in the
first quarter of 2020 is primarily due to a $104 million reduction in capital
spending compared to the first quarter of 2019 as a result of the COVID-19
pandemic.
Financing Activities
Net cash provided by the Company for financing activities was $1,148 million for
the first quarter of 2020, including debt issued of $1,500 million, partially
offset by a decrease in outstanding checks of $231 million resulting from the
Company's reduction in spending and $117 million of cash dividends. Net cash
used by the Company for financing activities was $158 million for the first
quarter of 2019, including payment of $116 million of cash dividends.
As of May 2, 2020, the Company was party to a credit agreement with certain
financial institutions. The credit agreement provided for revolving credit
borrowings and letters of credit in an aggregate amount not to exceed $1,500
million. The credit agreement was scheduled to expire on May 9, 2024, subject to
up to two one-year extensions that may be requested by the Company and agreed to
by the lenders. As of May 2, 2020, the Company had $1,500 million of borrowings
outstanding under the credit agreement.

                                       29
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                                  MACY'S, INC.

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 2, 2020, the Company did
not have any borrowings outstanding under its commercial paper program.
As of May 2, 2020, the Company was required under its credit agreement 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. The Company's interest coverage ratio for the
first quarter of 2020 was 6.55 and its leverage ratio at May 2, 2020 was 4.69,
in each case as calculated in accordance with the credit agreement. On June 8,
2020, the Company amended the credit agreement in conjunction with the
additional financing as discussed further below. The amendment of the credit
agreement, discussed further below, removed the interest coverage and leverage
ratio requirements.
June 2020 Financing Activities

Secured Debt Issuance


On June 8, 2020, the Company issued $1,300 million aggregate principal amount of
8.375% senior secured notes due 2025 (the "Notes"). The Notes bear interest at a
rate of 8.375% per annum, which accrues from June 8, 2020 and is payable in
arrears on June 15 and December 15 of each year, commencing on December 15,
2020. The Notes mature on June 15, 2025, unless earlier redeemed or repurchased,
and are subject to the terms and conditions set forth in the related indenture.
The Notes were issued by Macy's, Inc. and are secured on a first-priority basis
by (i) a first mortgage/deed of trust in certain real property of subsidiaries
of Macy's, Inc. that were transferred to Macy's Propco Holdings, LLC, a newly
created direct, wholly-owned subsidiary of Macy's, Inc. ("Propco"), and (ii) a
pledge by Propco of the equity interests in its subsidiaries that own such
transferred real property. The Notes are, jointly and severally, unconditionally
guaranteed on a secured basis by Propco and its subsidiaries and unconditionally
guaranteed on an unsecured basis by Macy's Retail Holdings, LLC. (f/k/a Macy's
Retail Holdings, Inc.) ("MRH"), a direct, wholly owned subsidiary of Macy's,
Inc. The Company used the proceeds of the Notes offering, along with cash on
hand, to repay the outstanding borrowings under the existing $1,500 million
unsecured credit agreement.

Entry into Asset-Based Credit Facility


On June 8, 2020, Macy'sInventory Funding LLC (the "ABL Borrower"), an indirect
wholly owned subsidiary of the Company, and its parent, Macy's Inventory
Holdings LLC (the "ABL Parent"), entered into an asset-based credit agreement
(the "ABL Credit Facility") with Bank of America, N.A., as administrative agent
and collateral agent, and the lenders party thereto. The ABL Credit Facility
provides the ABL Borrower with (i) a $2,851 million revolving credit facility
(the "Revolving ABL Facility"), including a swingline sub-facility and a letter
of credit sub-facility, and (ii) a bridge revolving credit facility of up to
$300 million (the "Bridge Facility"). The ABL Borrower may request increases in
the size of the Revolving ABL Facility up to an additional aggregate principal
amount of $750 million.

Additionally on June 8, 2020 and concurrently with closing the ABL Credit
Facility, the ABL Borrower purchased all presently existing inventory, and
assumed the liabilities in respect of all presently existing and outstanding
trade payables owed to vendors in respect of such inventory, from MRH and
certain wholly owned subsidiaries of MRH. The ABL Credit Facility is secured on
a first priority basis (subject to customary exceptions) by (i) all assets of
the ABL Borrower including all such inventory and the proceeds thereof and (ii)
the equity of the ABL Borrower. The ABL Parent guaranteed the ABL Borrower's
obligations under the ABL Credit Facility. The Revolving ABL Facility matures on
May 9, 2024, and the Bridge Facility matures on December 30, 2020.

The ABL Credit Facility contains customary borrowing conditions including a
borrowing base equal to the sum of (a) 80% (which shall automatically increase
to 90% upon the satisfaction of certain conditions, including the delivery of an
initial appraisal of the inventory) of the net orderly liquidation percentage of
eligible inventory, minus (b) customary reserves. Amounts borrowed under the ABL
Credit Facility are subject to interest at a rate per annum equal to (i) prior
to the Step Down Date (as defined in the ABL Credit Facility), at the ABL
Borrower's option, either (a) adjusted LIBOR plus a margin of 2.75% to 3.00% or
(b) a base rate plus a margin of 1.75% to 2.00%, in each case depending on
revolving line utilization and (ii) after the Step Down Date, at the ABL
Borrower's option, either (a) adjusted LIBOR plus a margin of 2.25% to 2.50% or
(b) a base rate plus a margin of 1.25% to 1.50%, in each case depending on
revolving line utilization. The ABL Credit Facility also contains customary
covenants that provide for, among other things, limitations on indebtedness,
liens, fundamental changes, restricted payments, cash hoarding, and prepayment
of certain indebtedness as well as customary representations and warranties and
events of default typical for credit facilities of this type.


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                                  MACY'S, INC.

The ABL Credit Facility also requires (1) the Company and its restricted
subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00
as of the end of any fiscal quarter on or after April 30, 2021 if (a) certain
events of default have occurred and are continuing or (b) Availability plus
Suppressed Availability (each as defined in the ABL Credit Facility) is less
than the greater of (x) 10% of the Loan Cap (as defined in the ABL Credit
Facility) and (y) $250 million, in each case, as of the end of such fiscal
quarter and (2) prior to April 30, 2021, that the ABL Borrower not permit
Availability plus Suppressed Availability to be lower than the greater of (x)
10% of the Loan Cap and (y) $250 million.

Amendment to Existing Credit Agreement


The Company substantially reduced the credit commitments of its existing $1,500
million unsecured credit agreement which now provides the Company with unsecured
revolving credit of up to $75 million. The unsecured revolving credit facility
contains covenants that provide for, among other things, limitations on
fundamental changes, use of proceeds, and maintenance of property, as well as
customary representations and warranties and events of default. In conjunction
with this amendment the interest coverage ratio and leverage ratio, as
previously discussed, were eliminated as covenant requirements.

Commencement of Exchange Offers and Consent Solicitations for Certain Outstanding Debt Securities of Macy's Retail Holdings, LLC


In June 2020, MRH commenced offers to eligible holders to exchange (each, an
"Exchange Offer" and, collectively, the "Exchange Offers") (i) new 6.65% Senior
Secured Debentures due 2024 ("New 2024 Notes") to be issued by MRH for validly
tendered (and not validly withdrawn) outstanding 6.65% Senior Debentures due
2024 issued by MRH ("Old 2024 Notes"), (ii) new 6.7% Senior Secured Debentures
due 2028 ("New 2028 Notes") to be issued by MRH for validly tendered (and not
validly withdrawn) outstanding 6.7% Senior Debentures due 2028 issued by MRH
("Old 2028 Notes"), (iii) new 8.75% Senior Secured Debentures due 2029 ("New
2029 Notes") to be issued by MRH for validly tendered (and not validly
withdrawn) outstanding 8.75% Senior Debentures due 2029 issued by MRH ("Old 2029
Notes"), (iv) new 7.875% Senior Secured Debentures due 2030 ("New 2030 Notes")
to be issued by MRH for validly tendered (and not validly withdrawn) outstanding
7.875% Senior Debentures due 2030 issued by MRH ("Old 2030 Notes"), (v) new 6.9%
Senior Secured Debentures due 2032 ("New 2032 Notes") to be issued by MRH for
validly tendered (and not validly withdrawn) outstanding 6.9% Senior Debentures
due 2032 issued by MRH ("Old 2032 Notes"), and (vi) new 6.7% Senior Secured
Debentures due 2034 ("New 2034 Notes" and, together with the New 2024 Notes, New
2028 Notes, New 2029 Notes, New 2030 Notes and New 2032 Notes, the "New Notes"
and each series, a "series of New Notes") to be issued by MRH for validly
tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2034
issued by MRH ("Old 2034 Notes" and, together with the Old 2024 Notes, Old 2028
Notes, Old 2029 Notes, Old 2030 Notes and Old 2032 Notes, the "Old Notes" and
each series, a "series of Old Notes"). Each New Note issued in the Exchange
Offers for a validly tendered Old Note will have an interest rate and maturity
date that is identical to the interest rate and maturity date of the tendered
Old Note, as well as identical interest payment dates and optional redemption
prices. The New Notes will be MRH's and Macy's general, senior obligations and
will be secured by a second-priority lien on the same collateral securing the
Notes.

In addition, MRH is soliciting consents from holders of each series of Old Notes
(each, a "Consent Solicitation" and, collectively, the "Consent Solicitations")
pursuant to the separate Consent Solicitation Statement (as defined below) to
adopt certain proposed amendments to the indenture governing the Old Notes (the
"Existing Indenture") to conform certain provisions in the negative pledge
covenant in the Existing Indenture to the provisions of the negative pledge
covenant in MRH's most recent indenture (the "Proposed Amendments").

The Exchange Offers are scheduled to expire on July 24, 2020, with an early tender date of July 10, 2020. The Consent Solicitations also expire on July 10, 2020.






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                                  MACY'S, INC.

Important Information Regarding Non-GAAP Financial Measures
The Company reports its financial results in accordance with U.S. 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 from net income (loss) and diluted earnings (loss) per share 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.
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. 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.
Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) Per Share
The following is a tabular reconciliation of the non-GAAP financial measures of
net income (loss) and diluted earnings (loss) per share, excluding certain items
identified below, to GAAP net income (loss) and diluted earnings (loss) per
share, which the Company believes to be the most directly comparable GAAP
measures.
                                                 First Quarter of 2020                   First Quarter of 2019

                                                               Diluted Earnings                      Diluted Earnings
                                         Net Income (Loss)     (Loss) Per Share      Net Income         Per Share
As reported                             $         (3,581 )    $     (11.53 )       $         136     $         0.44
Impairment, restructuring and other
costs                                              3,184             10.25                     1                  -
Income tax impact of certain items
noted above                                         (233 )           (0.75 )                   -                  -
As adjusted                             $           (630 )    $      (2.03 )       $         137     $         0.44



Critical Accounting Policies
Goodwill and Intangible Assets
The Company reviews the carrying value of its goodwill and other intangible
assets with indefinite lives at least annually, as of the end of fiscal May, or
more frequently if an event occurs or circumstances change, for possible
impairment in accordance with ASC Topic 350, Intangibles - Goodwill and Other.
For impairment testing, goodwill has been assigned to reporting units which
consist of the Company's retail operating divisions. Macy's and bluemercury are
the only reporting units with goodwill as of May 2, 2020, and 98% of the
Company's goodwill is allocated to the Macy's reporting unit.
U.S. GAAP Accounting Methodologies
The Company may elect to evaluate qualitative factors to determine if it is more
likely than not that the fair value of a reporting unit or fair value of
indefinite lived intangible assets is less than its carrying value. If the
qualitative evaluation indicates that it is more likely than not that the fair
value of a reporting unit or indefinite lived intangible asset is less than its
carrying amount, a quantitative impairment test is required. Alternatively, the
Company may bypass the qualitative assessment for a reporting unit or indefinite
lived intangible asset and directly perform the quantitative assessment. This
determination can be made on an individual reporting unit or asset basis, and
performance of the qualitative assessment may resume in a subsequent period.
The quantitative impairment test involves estimating the fair value of each
reporting unit and indefinite lived intangible asset and comparing these
estimated fair values with the respective reporting unit or indefinite lived
intangible asset carrying value. If the carrying value of a reporting unit
exceeds its fair value, an impairment loss will be recognized in an amount equal
to such excess, limited to the total amount of goodwill allocated to the
reporting unit. If the carrying value of an individual indefinite lived
intangible asset exceeds its fair value, such individual indefinite lived
intangible asset is written down by an amount equal to such excess.

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                                  MACY'S, INC.

Estimating the fair values of reporting units and indefinite lived intangible
assets involves the use of significant assumptions, estimates and judgments with
respect to a variety of factors, including sales, gross margin and SG&A rates,
capital expenditures, cash flows and the selection and use of an appropriate
discount rate and market values and multiples of earnings and revenues of
similar public companies. Projected sales, gross margin and SG&A expense rate
assumptions and capital expenditures are based on the Company's annual business
plan or other forecasted results. Discount rates reflect market-based estimates
of the risks associated with the projected cash flows of the reporting unit or
indefinite lived intangible asset.
The use of different assumptions, estimates or judgments in the goodwill
impairment testing process, including with respect to the estimated future cash
flows of the Company's reporting units, the discount rate used to discount such
estimated cash flows to their net present value, and the reasonableness of the
resultant implied control premium relative to the Company's market
capitalization, could materially increase or decrease the fair value of the
reporting unit and/or its net assets and, accordingly, could materially increase
or decrease any related impairment charge.
First Quarter of 2020 Impairment Analysis
As a result of the sustained decline in the Company's market capitalization and
changes in the Company's long-term projections driven largely by the impacts of
the COVID-19 pandemic, the Company determined a triggering event had occurred
that required an interim impairment assessment for all of its reporting units
and indefinite lived intangible assets. The Company determined the fair value of
each of its reporting units using a market approach, an income approach, or a
combination of both, where appropriate. Relative to the prior assessment, as
part of this current assessment, it was determined that an increase in the
discount rate applied in the valuation was required to align with market-based
assumptions and company-specific risk. This higher discount rate, in conjunction
with revised long-term projection resulted in lower fair values of the reporting
units. As a result, the Company recognized $2,972 million and $98 million of
goodwill impairment for the Macy's and bluemercury reporting units during the
first quarter of 2020.

As of May 2, 2020, the Company elected to perform a qualitative impairment test
on its intangible assets with indefinite lives and concluded that it is more
likely than not that the fair values exceeded the carrying values and the
intangible assets with indefinite lives were not impaired.
The Company continues to monitor the key inputs to the fair values of its
reporting units. A continued decline in market capitalization or future declines
in macroeconomic factors or business conditions may result in additional
impairment charges in future periods.

New Pronouncements
Accounting Pronouncements Recently Adopted
See Part I, Item 1, "Financial Statements - Note 1 - Organization and Summary of
Significant Accounting Policies."

                                       33
--------------------------------------------------------------------------------

                                  MACY'S, INC.

© Edgar Online, source Glimpses

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