MACY'S, INC. For purposes of the following discussion, all references to "first quarter of 2022" and "first quarter of 2021" are to the Company's 13-week fiscal periods endedApril 30, 2022 andMay 1, 2021 , 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 2021 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 2021 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". Quarterly Overview The Company delivered solid results in the first quarter of 2022 despite a challenging operating environment. The profitable first quarter results were driven by notable shift back to occasion-based apparel, in-store shopping, and continued strength in sales of luxury goods.
Certain financial highlights are as follows:
• Comparable sales were up 12.8% on an owned basis; and up 12.4% on an owned
plus licensed basis compared to the first quarter of 2021.
• Digital sales increased 2% versus the first quarter of 2021. Digital
penetration was at 33% of net sales for the first quarter of 2022, a
4-percentage point decline from the first quarter of 2021.
• Gross margin was 39.6%, compared to 38.6% in the first quarter of 2021.
• Net credit card revenues were $191 million , up $32 million from the firstquarter of 2021.
• Selling, general and administrative ("SG&A") expense was
sales was 35.1%, an improvement of 200 basis points from the first quarter
of 2021.
• Net income was
million in the first quarter of 2021.
• The first quarter of 2022 had positive earnings before interest, taxes,
depreciation and amortization ("EBITDA") of
of
EBITDA was $684 million for the first quarter of 2022, compared to $473
million during the first quarter of 2021.
• Diluted earnings per share and adjusted diluted earnings per share were
compares to diluted earnings per share and adjusted diluted earnings per
share of $0.32 and $0.39 for the first quarter of 2021, respectively.
• Inventory was up 17% from the first quarter of 2021.
• During the first quarter of 2022, the Company took the following actions to
boost its liquidity and financial flexibility as well as return capital to
shareholders:
• On
notes was automatically released and all of the Company's long-term
debt is now unsecured.
• Using the proceeds from the issuance of
notes along with cash on hand, Macy's Inc. redeemed
approximately
billion of near-term debt that was originally maturing in 2023 and
2024. The net result
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MACY'S, INC. of the issuance and redemptions was an approximately$300 million reduction to total long-term debt. As a result, the Company does not have any material debt maturities for the next five years. • The Company amended its asset-based credit facility, including extending the maturity of the$3 billion facility toMarch 2027 . • The Company repurchased$600 million of shares under its newly authorized$2 billion share repurchase program, which does not have an expiration date, and paid$45 million in dividends to
shareholders.
During the first quarter of 2022, the Company continued to execute its Polaris strategy and these actions impacted its operating results for the period, notably:
• Win With Fashion and Style: By offering a wide assortment of categories,
products and brands from off-price to luxury, the Company was able to reach
a broad and diverse range of customers during the first quarter. In
merchandise, strengths shifted away from pandemic-driven products such as
casual, activewear, and soft home, and into occasion-based categories, such
as dresses, women's shoes, accessories and men's tailored. This shift
contributed to an increase in store foot-traffic and the Company's balanced
assortment allowed it to meet demand and capture sales. Additionally, during
the first quarter of 2022, the Company launched Own Your Style, a new
multiyear creative brand platform and tagline celebrating individuality and
placing customers at the center of communication and Mission Every One, a
social purpose platform in which
products and programs to create a more equitable and sustainable future.
Finally, the Company is in the early stages of reinventing its private brand
portfolio.
• Deliver Clear Value: The Company is leveraging data analytics and pricing
tools to efficiently plan, place and price inventory, including location
level pricing and point-of -sale ("POS") pricing work. The Company's POS
pricing optimization contributed to lower promotional markdowns on regular
priced goods which contributed to higher average unit retail and improved
gross margin performance during the first quarter. Additionally, higher
ticket prices and category mix benefited average unit retail during the
quarter. These collective activities have resulted in higher average unit
retail prices and gross margin performance. In addition, inventory turn for
the trailing 12 months has improved by 9% over 2021.
• Excel in Digital Shopping: While the Company experienced a deceleration in
the growth of its digital channel during the first quarter, as consumers
shifted back to in-store shopping, the Company continued to improve its
digital offerings through continued website and app updates. Digital
conversion for the quarter was 3.8%.
platform that enables business-to-business monetization of advertising
partnerships, generated
of 2022, nearly double that of the first quarter of 2021. In addition, in
marketplace. The Macy's digital marketplace is expected to launch in the
third quarter of 2022.
• Enhance Store Experience: During the first quarter of 2022, the consumer
shifted shopping channels from digital to stores as consumer comfort levels
grew along with their desire to return to in-store shopping. The Company
continues to invest in physical stores to support its digitally-led
omnichannel business model and build new capabilities to help make the
shopping experience as convenient and compelling as possible. For example,
the Company invested in its customer service experience by enhancing At Your
Service centers. The Company is in the process of adding 37 new
Backstage locations nationwide as well as 5 to 10 off-mall, smaller format
stores in 2022, a mix of Market by
and Bloomingdale's the Outlet.
• Modernize Supply Chain: The Company has continued to update its supply chain
infrastructure and network, while leveraging improved data and analytics
capabilities in fulfillment strategies to meet customers' desire for speed
and convenience and improving inventory placement. The Company is navigating
supply chain disruptions by adjusting freight strategies, diversifying ports
and working closely with international carriers and brand partners to
prioritize product. The Company is expanding and relocating distribution
centers to support business growth and serve the growing customer base. This
includes plans to open a modern, new facility in
will continue to support stores in the region as well as provide online
fulfillment. In addition, the Company plans to open a new 1.4
million-square-foot fulfillment center in
facility will be equipped with new automation technology to increase
capacity and productivity to help drive profitable digital sales growth and
will employ nearly 2,800 workers when fully operational.
• Enable Transformation: The Company has continued to modernize its technology
foundations to increase agility in reacting to customers and the market
regardless of the channel in which customers interact. These activities are
coupled with others to build out data science and analytics capabilities
with a focus on areas to provide competitive differentiation. The Company
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--------------------------------------------------------------------------------MACY'S, INC. has focused on personalization as an important growth engine and will continue to enhance its capabilities to increase engagement across all
segments. As part of the Company's ongoing initiatives to attract and retain
talent, in
and began providing a debt-free education benefit program through which
range of education programs with 100% of tuition, books and fees covered.
From a nameplate perspective,Macy's brand comparable sales were up 10.7% on an owned basis and up 10.1% on an owned-plus-licensed basis compared to the first quarter of 2021.Bloomingdale's comparable sales on an owned basis were up 28.1% and on an owned-plus-licensed basis were up 26.9% compared to the first quarter of 2021.Bluemercury comparable sales were up 25.2% on an owned and owned-plus licensed basis compared to the first quarter of 2021.
Results of Operations
First Quarter of 2022 First Quarter of 2021
% to Net % to Net
Amount Sales Amount Sales
(dollars in millions, except per share figures)
Net sales $ 5,348 Increase in comparable sales 12.8 % 62.5 % Credit card revenues, net 191 3.6 % 159 3.4 % Cost of sales (3,231 ) (60.4 )% (2,889 ) (61.4 )% Selling, general and administrative expenses (1,879 ) (35.1 )% (1,748 ) (37.1 )% Gains on sale of real estate 42 0.8 % 6 0.1 % Impairment, restructuring and other costs (8 ) (0.1 )% (19 ) (0.4 )% Operating income 463 8.7 % 216 4.6 % Diluted earnings per share$ 0.98 $ 0.32 Supplemental Financial Measures Gross margin (a)$ 2,117 39.6 %$ 1,817 38.6 % Digital sales as a percentage of net sales 33 % 37 % Supplemental Non-GAAP Financial Measures Increase in comparable sales on an owned plus licensed basis 12.4 % 63.9 % Adjusted diluted earnings per share$ 1.08 $ 0.39 EBITDA$ 676 $ 454 Adjusted EBITDA$ 684 $ 473
(a) Gross margin is defined as net sales less cost of sales.
See pages 22 to 23 for reconciliations of the supplemental non-GAAP financial measures to their most comparable GAAP financial measure and for other important information.
Comparison of the First Quarter of 2022 and the First Quarter of 2021
First Quarter First Quarter
of 2022 of 2021
Net sales $ 5,348 $ 4,706
Increase in comparable sales 12.8 % 62.5 %
Increase in comparable sales on an owned plus
licensed basis 12.4 % 63.9 %
Digital sales as a percent of net sales 33 % 37 %
Net sales for the first quarter of 2022 improved across all three brands -
Macy's , Bloomingdale's and bluemercury. During the quarter, consumer shopping
behavior shifted more towards occasion-based apparel, with strength in dresses,
women's and men's shoes, accessories, men's tailored and luggage. Categories
such as casual, activewear and soft home, including textiles and housewares,
underperformed the prior year as a result of the shift in consumer behavior.
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MACY'S , INC. First Quarter of First Quarter of 2022 2021 Credit card revenues, net $ 191 $ 159 Proprietary credit card sales penetration 43.1 % 42.0 % The increase in net credit card revenues was driven by the continuation of the strong credit health of the credit card portfolio's customers leading to lower levels of bad debt, higher credit sales and higher spending on the co-brand credit card. First Quarter of 2022 First Quarter of 2021 Cost of sales $ (3,231 ) $ (2,889 ) As a percent to net sales 60.4 % 61.4 % Gross margin $ 2,117 $ 1,817 As a percent to net sales 39.6 % 38.6 % The increase in the gross margin rate was primarily driven by higher average unit retail driven by effective POS pricing optimization efforts driving lower promotions particularly on regular priced merchandise, higher ticket prices and category mix. Inventory was up 17% year-over-year, impacted by the downshift in consumer demand from active/casual and soft home categories to accelerated demand at occasion-based apparel, coupled with the loosening in supply chain constraints resulting in a higher percentage of receipts than expected. First Quarter of 2022 First Quarter of 2021 SG&A expenses $ (1,879 ) $ (1,748 ) As a percent to net sales 35.1 %
37.1 %
SG&A expenses increased in the first quarter of 2022 but decreased as a percent
to net sales. The increase in SG&A expense dollars corresponds with higher net
sales as well as the Company lapping a significant number of open positions in
the prior year. However, the improvement in the SG&A expense rate benefited from
expense leverage in conjunction with growing sales driven by disciplined expense
management.
First Quarter of 2022 First Quarter of 2021
Gains on sale of real estate $ 42 $ 6
The first quarter of 2022 asset sale gains mainly consist of gains from the sale
of three properties.
First Quarter of
First Quarter of 2022 2021
Impairment, restructuring and other costs $ (8 ) $ (19 )
Impairment, restructuring and other costs in the first quarter of 2021 primarily related to the write-off of investment assets.
First Quarter of First Quarter of
2022 2021
Losses on early retirement of debt $ (31 ) $ (11 )
In the first quarter of 2022, losses on early retirement of debt were recognized
due to the early payment of $1.1 billion senior notes and debentures. In the
first quarter of 2021, losses on early retirement of debt were recognized due to
the $500 million tender offer.
First Quarter of 2022 First Quarter of 2021
Net interest expense $ (47 ) $ (79 )
The decrease in net interest expense, excluding losses on early retirement of
debt, was primarily driven by interest savings associated with the redemption of
the Company's $1.3 billion aggregate principal amount of 8.375% Senior Secured
Notes due 2025 in August 2021 .
First Quarter of 2022 First Quarter of 2021
Effective tax rate 27.1 % 26.3 %
Federal income statutory rate 21 % 21 %
The Company's effective tax rate varies from the federal income tax statutory
rate of 21% in both periods, primarily driven by the impact of state and local
taxes and the realization of deferred tax assets associated with the vesting and
cancellation of certain stock-based compensation awards.
18
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MACY'S, INC. Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the asset-based credit facility described below. Material contractual obligations arising in the normal course of business primarily consist of long-term debt and related interest payments, lease obligations, merchandise purchase obligations, retirement plan benefits, and self-insurance reserves.
Merchandise purchase obligations represent future merchandise payables for inventory purchased from various suppliers through contractual arrangements and are expected to be funded through cash from operations.
Capital Allocation
The Company's capital allocation goals include maintaining a healthy balance sheet and investment-grade credit metrics, followed by investing in growth initiatives and returning capital to shareholders through modest yet predictable dividends and meaningful share repurchases. The Company ended the first quarter of 2022 with a cash and cash equivalents balance of$672 million , a decrease from$1,798 million at the end of the first quarter of 2021. The Company is party to the New ABL Credit Facility with certain financial institutions providing for a$3 billion asset-based credit facility. 2022 2021
Net cash provided by operating activities
(194 ) (74 )
Net cash used by financing activities (1,094 ) (300 )
Operating Activities
The decrease in net cash provided by operating activities was driven by the decrease in accounts payable and accrued liabilities due to the timing of payments and a lower net inflow from the increase in merchandise accounts payable and merchandise inventories.
Investing Activities
The Company's first quarter of 2022 capital expenditures were
Financing Activities Dividends The Company paid dividends totaling$45 million in the first quarter of 2022. The Board of Directors declared regular quarterly dividend of15.75 cents per share on the Company's common stock, which was paid onApril 1, 2022 , toMacy's shareholders of record at the close of business onMarch 15, 2022 . OnMay 20, 2022 , the Company's Board of Directors declared a regular quarterly dividend of15.75 cents per share on its common stock, payableJuly 1, 2022 , to shareholders of record at the close of business onJune 15, 2022 . Subsequent dividends will be subject to approval of the Board of Directors, which will depend on market and other conditions.
Stock Repurchases
OnFebruary 22, 2022 , the Company's announced that its Board of Directors authorized a new$2.0 billion share repurchase program, which does not have an expiration date. During the first quarter of 2022, the Company repurchased approximately 24.0 million shares of its common stock at an average cost of$24.98 per share. As ofApril 30, 2022 ,$1.4 billion of shares remained available for repurchase. Repurchases may be made from time to time in the open market or through privately negotiated transactions in accordance with applicable securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, on terms determined by the Company.
Debt Transactions
OnMarch 3, 2022 ,Macy's Inventory Funding LLC (the "ABL Borrower"), an indirect subsidiary of the Company, andMacy's Inventory Holdings LLC (the "ABL Parent"), a direct subsidiary ofMacy's and the direct parent of the ABL Borrower, entered into an amendment (the "Amendment") to the credit agreement governing the existing$2.941 billion asset-based credit facility (the "Existing ABL Credit Facility"), which was set to expire inMay 2024 . The Amendment provides for a new revolving credit facility of$3.0 billion , including a swingline sub-facility and a letter of credit sub-facility (the "New ABL Credit Facility"). The ABL Borrowermay 19 --------------------------------------------------------------------------------MACY'S, INC. request increases in the size of the New ABL Credit Facility up to an additional aggregate principal amount of$750 million . The New ABL Credit Facility replaces the Existing ABL Credit Facility, with similar collateral support, but reduced interest and unused facility fees. The New ABL Credit Facility matures inMarch 2027 . The New 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 guarantees the ABL Borrower's obligations under the New ABL Credit Facility. The New ABL Credit Facility contains customary borrowing conditions including a borrowing base equal to the sum of (i) 90% of the net orderly liquidation percentage of eligible inventory, minus (ii) customary reserves. Amounts borrowed under the New ABL Credit Facility are subject to interest at a rate per annum equal to, at the ABL Borrower's option, either (i) adjusted SOFR (calculated to include a 0.10% credit adjustment spread) plus a margin of 1.25% to 1.50% or (ii) a base rate plus a margin of 0.25% to 0.50%, in each case depending on revolving line utilization. The New 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. The New ABL Credit Facility also requires 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 if (i) certain events of default have occurred and are continuing or (ii) Availability plus Suppressed Availability (each as defined in the New ABL Credit Facility) is less than the greater of (a) 10% of the Loan Cap (as defined in the New ABL Credit Facility) and (b)$250 million , in each case, as of the end of such fiscal quarter. As ofApril 30, 2022 , the Company had$65 million of standby letters of credit outstanding under the ABL Credit Facility, which reduced the available borrowing capacity to$2,935 million . The Company had no outstanding borrowings under the ABL Credit Facility as ofApril 30, 2022 andMay 1, 2021 . OnMarch 8, 2022 ,Macy's Retail Holdings, LLC ("MRH"), a direct, wholly owned subsidiary ofMacy's, Inc. , completed a tender offer and purchased approximately$8 million in aggregate principal amount of certain senior secured debentures (collectively, the "Second Lien Notes"). The purchased Second Lien Notes included$2 million of 6.65% Senior Secured Debentures due 2024,$1 million of 6.7% Senior Secured Debentures due 2028,$10,000 of 7.875% Senior Secured Debentures due 2030,$4 million of 6.9% Senior Secured Debentures due 2032, and$2 million of 6.7% Senior Secured Debentures due 2034. The total cash cost for the tender offer was approximately$8 million . Pursuant to the indenture governing the Second Lien Notes, the liens upon the collateral securing the Second Lien Notes that remained outstanding after the tender offer were automatically released onMarch 8, 2022 . As of such date, such collateral no longer secures such Second Lien Notes or any obligations under the indenture with respect to such Second Lien Notes, and the right of the holders of the Second Lien Notes and such obligations to the benefits and proceeds of any such liens on the collateral terminated and were discharged automatically and unconditionally with respect to such Second Lien Notes. OnMarch 10, 2022 , MRH issued$850 million in aggregate principal amount of senior notes in two separate tranches, one representing$425 million in aggregate principal amount of 5.875% senior notes dueMarch 15, 2030 (the "2030 Notes") and the other representing$425 million in aggregate principal amount of 6.125% senior notes dueMarch 15, 2032 (the "2032 Notes"), in a private offering. Each of the 2030 Notes and 2032 Notes are senior unsecured obligations of MRH and are unconditionally guaranteed on an unsecured basis byMacy's, Inc. Proceeds from the issuance, together with cash on hand, were used to redeem certain of MRH's outstanding senior notes and pay fees and expenses therewith and in connection with the offering. The Company recognized$31 million of losses related to the early retirement of debt on the Consolidated Statements of Income during the first quarter of 2022.
Contractual Obligations
As ofApril 30, 2022 , other than the financing transactions discussed above and in Note 4 to the accompanying Consolidated Financial Statements, there were no material changes to our contractual obligations and commitments outside the ordinary course of business sinceJanuary 29, 2022 , as reported in the Company's 2021 Form 10-K. 20 --------------------------------------------------------------------------------MACY'S, INC.
Guarantor Summarized Financial Information
The Company had$3,007 million and$2,935 million aggregate principal amount of senior unsecured notes and senior unsecured debentures (collectively the "Unsecured Notes") outstanding as ofApril 30, 2022 andJanuary 29, 2022 , respectively, with maturities ranging from 2023 to 2043. The Unsecured Notes constitute debt obligations of MRH ("Subsidiary Issuer"), a 100%-owned subsidiary ofMacy's, Inc. ("Parent" and together with the "Subsidiary Issuer," the "Obligor Group "), and are fully and unconditionally guaranteed on a senior unsecured basis by Parent. The Unsecured Notes rank equally in right of payment with all of the Company's existing and future senior unsecured obligations, senior to any of the Company's future subordinated indebtedness, and are structurally subordinated to all existing and future obligations of each of the Company's subsidiaries that do not guarantee the Unsecured Notes. Holders of the Company's secured indebtedness, including the Notes and any borrowings under the ABL Credit Facility, will have a priority claim on the assets that secure such secured indebtedness; therefore, the Unsecured Notes and the related guarantee are effectively subordinated to all of the Subsidiary Issuer's and Parent and their subsidiaries' existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness. The following tables include combined financial information of theObligor Group . Investments in subsidiaries of$8,263 million and$7,975 million as ofApril 30, 2022 andJanuary 29, 2022 , respectively, have been excluded from the Summarized Balance Sheets. Equity in earnings of non-Guarantor subsidiaries of$504 million for the 13-weeks endedApril 30, 2022 have been excluded from the Summarized Statement of Operations. The combined financial information of theObligor Group is presented on a combined basis with intercompany balances and transactions within theObligor Group eliminated.
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