Macy's, Inc. Reports Second Quarter 2022 Results and Updates Guidance

Macy's, Inc. Reports Second Quarter 2022 Results and Updates Guidance.

Highlights:

* Quarterly net sales and earnings exceeded expectations

* Comparable sales down 1.5% on an owned basis and down 1.6% on an owned-plus-licensed basis

* Diluted EPS of $0.99 and Adjusted diluted EPS of $1.00

* Lowers full-year sales and EPS guidance to incorporate risks related to increased macroeconomic pressures

NEW YORK - Macy's, Inc. (NYSE: M) today reported financial results for the second quarter of 2022 and updated its annual guidance.

'During the second quarter, we delivered solid results, despite the challenging environment,' said Jeff Gennette, chairman and chief executive officer of Macy's, Inc. 'Our teams have consistently responded to the dynamic landscape with disciplined, data-driven actions to ensure the health and stability of our business. We believe that we are well positioned to respond to changing consumer behaviors. Despite inflationary pressures, consumers continued to shop Macy's as a style source and leading gifting destination. Additionally, Bloomingdale's and Bluemercury captured demand for luxury brands, resulting in both nameplates outperforming in the quarter.'

'Over the past two years, our Polaris strategy has made us faster and more agile, which has been essential to navigate rapidly changing consumer trends and macro conditions. We expect to come out of this uncertain period in a strong position with a healthy balance sheet, new capabilities and a talented team ready to capture renewed demand,' Gennette continued.

Second Quarter Highlights

Comparisons are to second quarter 2021 unless noted otherwise. Comparisons to 2019 are provided, where appropriate, to benchmark performance given the impact of the pandemic.

Diluted earnings per share of $0.99 and Adjusted diluted earnings per share of $1.00.

This compares to diluted earnings per share of $1.08 and Adjusted diluted earnings per share of $1.29 in the second quarter of 2021.

This compares to diluted earnings per share and Adjusted diluted earnings per share of $0.28 in the second quarter of 2019.

Comparable sales down 1.5% on an owned basis and down 1.6% on an owned-plus-licensed basis; up 4.3% and 4.4%, respectively, versus the second quarter of 2019.

Digital sales decreased 5% year-over-year while increasing 37% versus the second quarter of 2019.

Digital penetration was 30% of net sales, a 2-percentage point decline from the second quarter of 2021, but 8-percentage points higher than the second quarter of 2019.

Highlights of the company's nameplates include:

Macy's comparable sales were down 2.9% on an owned basis and down 2.8%, on an owned-plus-licensed basis.

43.9 million active customers shopped the Macy's brand, on a trailing twelve-month basis, a 7% increase compared to the prior year.

Star Rewards program members made up approximately 70% of the total Macy's brand owned-plus-licensed sales on a trailing twelve-month basis, up approximately 5 percentage points versus the prior year.

The company continued to see strength in occasion-based categories, including career and tailored sportswear, fragrances, shoes, dresses and luggage.

Bloomingdale's comparable sales on an owned basis were up 8.8% and on an owned-plus-licensed basis were up 5.8%.

4.0 million active customers shopped the Bloomingdale's brand, on a trailing twelve-month basis, a 14% increase over the prior year.

Results were driven by strength across women's, men's and kid's contemporary and dressy apparel as well as luggage.

Bluemercury comparable sales were up 7.6% on an owned and owned-plus-licensed basis.

Approximately 700,000 active customers shopped the Bluemercury brand, on a trailing twelve-month basis, a 9% increase over the prior year.

Inventory turnover, on a trailing twelve-month basis, was relatively flat to 2021 and improved 15% over 2019.

Inventory was up 7% year-over-year and down 8% versus 2019, reflecting disciplined inventory management in an environment of continued supply chain volatility. Where it had flexibility, the company cut receipts to manage inventory levels in line with consumer demand. However, in certain categories inventory levels remain elevated due to reduced year-over-year sell-throughs since Father's Day driven by the industry-wide levels of excess inventory and a slowdown in consumer discretionary spend.

The company is targeting appropriate inventory levels by the end of the year and will continue to flow fresh product in those categories in which customers are signaling demand. Simultaneously, the company is taking the required markdowns to clear aged inventory, in seasonal goods, private brand merchandise and pandemic-related categories, such as active, casual sportswear, sleepwear, and soft home.

Gross margin for the quarter was 38.9%, down from 40.6% in the second quarter of 2021.

Merchandise margin degradation was driven by a year-over-year increase in permanent markdowns within the Macy's brand, largely driven by pandemic-related categories, seasonal goods and private brand merchandise.

Delivery expense as a percent of net sales increased 10 basis points, driven largely by higher fuel costs.

Selling, general and administrative ('SG&A') expense of $1.98 billion, a $83 million increase.

SG&A expense as a percent of sales was 35.4%, a deterioration of 180 basis points compared to the second quarter of 2021 and an improvement of 390 basis points compared to the second quarter of 2019. The improvement versus 2019 is a result of the cost savings achieved through the 2020 Polaris restructurings.

The prior year quarter benefited from a significant number of open positions due to the tight labor market. The positions have since largely been filled.

As of May 1, 2022, all store and distribution colleagues are now at a minimum wage base of $15 or above. The company is adjusting colleague compensation to remain a competitive and attractive employer of choice, while simultaneously remaining disciplined in its SG&A productivity efforts.

Net credit card revenue of $204 million, up $7 million.

Represented 3.6% of sales, 10 basis points higher than the prior year period.

Performance driven by better-than-expected bad debt levels, larger balances within the portfolio as well as higher than expected spend on co-brand credit cards.

Financial Highlights

All amounts in millions except percentages and per share figures

Second Quarter				2022	2021

Net sales				$5,600		$5,647

Comparable Sales

Owned					(1.5%)

Owned plus licensed			(1.6%)

Net Income				$275		$345

Earnings before interest, taxes, depreciation and amortization (EBITDA)

$614		$753

Diluted earnings per share (EPS)	$0.99		$1.08

Adjusted Net income			$277		$411

Adjusted EBITDA			$616		$836

Adjusted Diluted EPS			$1.00		$1.29

2022 Guidance

The company's lower outlook for the remainder of the year incorporates the risk it sees in the continued deterioration of consumer discretionary spending in some of its categories and the level of inventory within the industry, as well as risks associated with a more pronounced macro downturn. This outlook reflects a careful view of the impacts of the pressures faced by the consumer and those placed on the business given the weakening macroenvironment. Additionally, the company's outlook incorporates the markdowns and promotions it anticipates needing to liquidate aged inventory and further reduce the merchandise category stock to sales imbalances by the end of the year. The full update to guidance can be found in the presentation posted to macysinc.com/investors.

Guidance as of	August 23, 2022

Guidance as of	May 26, 2022

Net sales			$24,340 million to $24,580 million

$24,460 million to $24,700 million

Adjusted EBITDA as a percent of sales

Approximately 10.5%			11.2% - 11.7%

Adjusted diluted earnings per share*	$4.00 - $4.20	$4.53 - $4.95

Adjusted diluted EPS does not consider the impact of any potential future share repurchases associated with the company's current share repurchase authorization.

Conference Call and Webcasts

A webcast of Macy's, Inc.'s call with analysts and investors to report its second quarter 2022 sales and earnings will be held today (August 23, 2022) at 8:00 a.m. EDT. Macy's, Inc.'s webcast, along with the associated presentation, is accessible to the media and general public via the company's website at www.macysinc.com/investors. Analysts and investors may call in on 1-800-458-4121, passcode 7131743. A replay of the conference call and slides can be accessed on the website or by calling 1-888-203-1112 (same passcode) about two hours after the conclusion of the call. Additional information on Macy's, Inc., including past news releases, is available at www.macysinc.com/pressroom.

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.

About Macy's, Inc.

At Macy's, Inc. (NYSE: M), we are a trusted source for quality brands at great values from off-price to luxury. Across our iconic nameplates, including Macy's, Bloomingdale's and Bluemercury, we help our customers express their unique style and celebrate special moments, big and small. Headquartered in New York City, we operate one of retail's largest e-commerce businesses integrated with a nationwide footprint to deliver the most convenient and seamless shopping experience. Our purpose is to create a brighter future with bold representation - so we can realize the full potential of every one of us. For more information, visit macysinc.com.

Forward-Looking Statements

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 the effects of the COVID-19 pandemic on Macy's customer demand and supply chain, as well as its consolidated results of operation, financial position and cash flows, Macy's ability to successfully implement its Polaris strategy, including the ability to realize the anticipated benefits within the expected time frame or at all, conditions to, or changes in the timing of proposed real estate and other transactions, prevailing interest rates and non-recurring charges, the effect of potential changes to trade policies, store closings, competitive pressures from specialty stores, general merchandise stores, off-price and discount stores, manufacturers' outlets, the Internet and catalogs and general consumer spending levels, including the impact of the availability and level of consumer debt, possible systems failures and/or security breaches, the potential for the incurrence of charges in connection with the impairment of intangible assets, including goodwill, Macy's reliance on foreign sources of production, including risks related to the disruption of imports by labor disputes, regional or global health pandemics, and regional political and economic conditions, the effect of weather, inflation, labor shortages, the amount and timing of future dividends and share repurchases and other factors identified in documents filed by the company with the Securities and Exchange Commission, including under the captions 'Forward-Looking Statements' and 'Risk Factors' in the company's Annual Report on Form 10-K for the year ended January 29, 2022. Macy's disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

MACY'S, INC.

Consolidated Financial Statements (Unaudited)

Notes:

(1)

As a result of the seasonal nature of the retail business, the results of operations for the 13 and 26 weeks ended July 30, 2022 and July 31, 2021 (which do not include the Christmas season) are not necessarily indicative of such results for the fiscal year.

(2)

The income tax expense of $89 million and $195 million, or 24% and 26% of pretax income, for the 13 and 26 weeks ended July 30, 2022, respectively, and income tax expense of $105 million and $142 million, or 23% and 24% of pretax income, for the 13 and 26 weeks ended July 31, 2021, respectively, reflect a different effective tax rate as compared to the company's federal income tax statutory rate of 21%. The income tax effective rates for the 13 and 26 weeks ended July 30, 2022 and July 31, 2021 were impacted primarily by the effect of state and local taxes.

(3)

Gross margin is defined as net sales less cost of sales.

(4)

Prepaid expenses and other current assets as of July 31, 2021 included an income tax receivable of $520 million.

(5)

Restricted cash of $3 million and $78 million have been included with cash and cash equivalents for the 26 weeks ended July 30, 2022 and July 31, 2021, respectively.

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 providing supplemental changes in comparable sales on an owned plus licensed basis, which includes adjusting for the impact of comparable sales of departments licensed to third parties, assists in evaluating the company's ability to generate sales growth, whether through owned businesses or departments licensed to third parties, and in evaluating the impact of changes in the manner in which certain departments are operated. Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP financial measure which the company believes provides meaningful information about its operational efficiency by excluding the impact of changes in tax law and structure, debt levels and capital investment. In addition, management believes that excluding certain items from EBITDA, net income and diluted earnings per share that are not associated with the company's core operations and that may vary substantially in frequency and magnitude from period-to-period provides useful supplemental measures that assist in evaluating the company's ability to generate earnings and to more readily compare these metrics between past and future periods.

The company does not provide reconciliations of the forward-looking non-GAAP measures of adjusted EBITDA, diluted earnings per share and comparable sales on an owned plus licensed basis to the most directly comparable forward-looking GAAP measures because the timing and amount of excluded items are unreasonably difficult to fully and accurately estimate. For the same reasons, the company is unable to address the probable significance of the unavailable information, which could be material to future results.

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. 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.

MACY'S, INC.

Important Information Regarding Non-GAAP Financial Measures

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

See full results at: https://www.macysinc.com/investors/news-events/press-releases/detail/1774/macys-inc-reports-second-quarter-2022-results-and

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Investors - Mike McGuire

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Source: Macy's, Inc.

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