Macy’s, Inc. Reports Fourth Quarter and Fiscal Year 2018 Earnings and Provides 2019 Guidance

Annual comparable sales growth of 1.7% on an owned basis; 2.0% on
an owned plus licensed basis


Annual EPS of $3.56; annual adjusted EPS of $4.18


Strategic initiatives gain traction and position company for
continued comparable sales growth


Company launches multi-year productivity program to fund
reinvestment in the business; streamlines management structure


CINCINNATI–(BUSINESS WIRE)–Macy’s, Inc. (NYSE:M) today reported results for the fourth quarter and
fiscal 2018 and provided annual sales and earnings guidance for fiscal
2019.




 


 




 




Financial Highlights


 


 


 


 


 


 


 


 


Fourth Quarter


 


Full Year


(in millions)


 


 


2018


 


2017


 


2018


 


2017


Net sales*


 


 


$


8,455


 


 


$


8,672


 


 


$


24,971


 


 


$


24,939


Comparable sales*


Owned


 


 


0.4


%


 


 


 


1.7


%


 


 


Owned plus licensed


 


 


0.7


%


 


 


 


2.0


%


 


 


53rd week shifted calendar (owned plus licensed)


 


 


2.0


%


 


 


 


2.4


%


 


 


As reported


Net income attributable to Macy’s, Inc. shareholders


 


 


$


740


 


 


$


1,347


 


 


$


1,108


 


 


$


1,566


Earnings before interest, taxes, depreciation and amortization


 


 


$


1,287


 


 


$


1,483


 


 


$


2,661


 


 


$


2,818


Diluted earnings per share


 


 


$


2.37


 


 


$


4.38


 


 


$


3.56


 


 


$


5.10


As adjusted**


Net income attributable to Macy’s, Inc. shareholders


 


 


$


850


 


 


$


876


 


 


$


1,301


 


 


$


1,162


Earnings before interest, taxes, depreciation and amortization


 


 


$


1,399


 


 


$


1,667


 


 


$


2,877


 


 


$


3,109


Diluted earnings per share


 


 


$


2.73


 


 


$


2.85


 


 


$


4.18


 


 


$


3.79


*Net sales performance is provided on a 52-week basis in 2018 compared
to a 53-week basis in 2017. Comparable sales performance is provided on
a 52-week basis in both 2018 and 2017. Comparable sales adjusted for the
impact of the 53rd week reflect a shift of the company’s 2017
calendar to align with 2018 on a like-for-like basis.**As adjusted
reflects the exclusion of certain items from the respective financial
measures. Please see the final pages of this news release for important
information regarding the nature of such excluded amounts and
calculation of the company’s non-GAAP financial measures.


“2018 was an important year for Macy’s, Inc. as we changed the
trajectory of the company and delivered positive comparable sales for
the full year. I’m pleased with the impact of our strategic initiatives,
particularly as they gained traction in the back half of the year,” said
Jeff Gennette, Macy’s, Inc. chairman & chief executive officer. “Looking
at the fourth quarter of 2018, while we delivered positive comparable
sales against what was a strong holiday season in 2017, results were
lower than our expectations. We experienced another quarter of
double-digit growth in digital. We also saw continued improvement in our
brick and mortar trends with the Growth50 stores outperforming the
fleet.”


“We know that when we listen to our customers, we win. And when we
invest in our business, we grow. In 2019, we will continue with a
balanced investment approach, and we are confident that Macy’s, Inc. is
on the right path to deliver sustainable, profitable growth,” continued
Gennette.


“The North Star Strategy is working. Macy’s is heading into 2019 a
stronger business than we were a year ago – with healthier stores, a
growing e-commerce business and a mobile experience that is resonating
with our customers. We are executing a balanced investment strategy that
supports all three of these components, with investment directed towards
areas we know have the highest returns,” said Gennette. “We are also a
more agile and flexible organization. The steps we are announcing to
further streamline our management structure will allow us to move
faster, reduce costs and be more responsive to changing customer
expectations. Importantly, these changes build the foundation we need to
achieve meaningful enterprise productivity improvements. These actions
impact colleagues who have made strong contributions to the company over
the years, and I thank them for their service.”


Asset Sale Gains


Asset sale gains for the fourth quarter of 2018 totaled $278 million
pre-tax, or $204 million after-tax and $0.65 per diluted share
attributable to Macy’s, Inc. This compares to the fourth quarter of
2017, when asset sale gains totaled $368 million pre-tax, or $230
million after-tax and $0.75 per diluted share attributable to Macy’s,
Inc.


In the fourth quarter of 2018, Macy’s, Inc. completed the sale of the
former I. Magnin building in Union Square San Francisco for $250 million
of cash proceeds and a gain of $178 million. Following the transaction,
the Macy’s Union Square store will comprise approximately 700,000 gross
square feet. Macy’s Union Square is one of the company’s flagship
properties, and this transaction is part of a multi-year plan to invest
in further enhancing the customer experience in the store.


Asset sale gains for fiscal 2018 totaled $389 million pre-tax, or $287
million after-tax and $0.92 per diluted share attributable to Macy’s,
Inc. This compares to 2017 when asset sale gains totaled $544 million
pre-tax, or $338 million after-tax and $1.10 per diluted share
attributable to Macy’s, Inc.


2018 Strategic Initiatives Update


The company’s five key strategic initiatives of the North Star Strategy
performed well for the year. Highlights include:


Loyalty: Improved benefits to Macy’s Star Rewards member
loyalty program led to increased loyalty penetration with platinum
members, with platinum spend up 10%. The company also launched a
tender-neutral option, which added more than three million new members
to the loyalty program.


Backstage: Opened Backstage, Macy’s on-mall, off-price
business, in more than 120 new locations within Macy’s stores. For all
Backstage store within a store locations, the average lift was more
than 5% in the total store.


Store Pickup: Expanded “Buy Online Pickup in Store” (BOPS),
launched “Buy Online Ship to Store” (BOSS) feature, and built “At Your
Service” centers in all stores. The company maintained approximately
25% associated sales on BOPS and BOSS orders.


Vendor Direct: Expanded vendor direct program on macys.com,
nearly doubling online SKUs.


Growth50: Implemented growth investment model in 50 Macy’s
stores, a mix of size and geography, with upgrades including
facilities, fixtures, assortment and customer service. These stores
outperformed the fleet for sales growth in fiscal 2018 and achieved
higher customer retention and brand attachment scores.


Looking Ahead


2019 Strategic Initiatives to Drive Growth


The company will carry three of its 2018 strategic initiatives forward
and add two new areas of focus in 2019:


Growth150: Expand growth investment strategy to another 100
stores.


Backstage: Add Backstage locations to 45 Macy’s stores and
deliver positive comparable sales for the Backstage stores previously
opened.


Vendor Direct: Build on the success of the 2018 launch with
continued aggressive expansion of vendors and SKUs.


Mobile: Continue ‘mobile first’ strategy. Strategically enhance
the Macy’s mobile app with new features and functions to deliver
outsized growth in mobile sales.


Destination Businesses: Invest in areas where the company
already has strong market share to drive disproportionate growth.
These categories are dresses, fine jewelry, big ticket, men’s
tailored, women’s shoes and beauty.


The company also intends to focus on innovation both through technology
and new economic models. The company will double the number of Market @
Macy’s locations, all of which will be powered by the b8ta platform. The
company will also continue to expand its virtual reality furniture
experience in 2019.


Funding Our Future


As part of the North Star strategy, Macy’s, Inc. is committed to
increased productivity to fund investment in the business. The company
has launched a comprehensive, multi-year program focused on growing its
profitability rate by improving productivity across the enterprise. The
program includes initiatives to improve margin through enhanced
inventory planning and operations, supply chain efficiencies, pricing
optimization, improved private brand sourcing and customer acquisition
and retention strategies.


As an initial step in this productivity plan, the company has announced
a restructuring that reduces the complexity of the upper management
structure to increase the speed of decision making, reduce costs and
respond to changing customer expectations. Importantly, it also allows
the company to put additional resources behind three focus areas:


Improving supply chain efficiency;


Innovating and enhancing inventory management; and


Building a larger and healthier customer base.


In addition to the expected 2019 savings, the company anticipates that
these activities will fuel the productivity plan over the next 3-5 years
and contribute significantly to profitable growth.


The areas for cost reduction in 2019 have been identified and are
reflected in guidance. Beginning in 2019, the company expects the
restructuring actions announced today to generate annual expense savings
of $100 million. For fiscal 2018, the company recorded one-time charges
of approximately $80 million pre-tax for restructuring activities.


2019 Guidance


Macy’s, Inc. is providing the following annual guidance for 2019.


 


 


 


 


 


 


 


2019 Annual Guidance


Comparable sales

(owned plus licensed)


 


 


Flat to up 1%


Comparable sales

(owned)


 


 


Flat to up 1%


Net sales


 


 


Approximately flat


Diluted EPS excluding settlement charges, impairment and other costs


 


 


$3.05 to $3.25


Asset sale gains


 


 


Approximately $100 million (or $0.25 per share)


Annual tax rate


 


 


23%




 


 




About Macy’s, Inc.


Macy’s, Inc. is one of the nation’s premier retailers, with fiscal 2018
sales of $24.971 billion and approximately 130,000 employees, the
company operates approximately 680 department stores under the
nameplates Macy’s and Bloomingdale’s, and nearly 190 specialty stores
that include Bloomingdale’s The Outlet, Bluemercury, Macy’s Backstage
and STORY. Macy’s, Inc. operates stores in 43 states, the District of
Columbia, Guam and Puerto Rico, as well as macys.com,
bloomingdales.com
and bluemercury.com.
Bloomingdale’s stores in Dubai and Kuwait are operated by Al Tayer Group
LLC under license agreements. Macy’s, Inc. has corporate offices in
Cincinnati, Ohio, and New York, New York.


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 conditions to, or changes in the timing
of, proposed real estate and other transactions, prevailing interest
rates and non-recurring charges, the effect of federal tax reform, store
closings, competitive pressures from specialty stores, general
merchandise stores, off-price and discount stores, manufacturers’
outlets, the Internet, mail-order catalogs and television shopping and
general consumer spending levels, including the impact of the
availability and level of consumer debt, the effect of weather and other
factors identified in documents filed by the company with the Securities
and Exchange Commission. 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.


NOTE: Additional information on Macy’s, Inc., including past news
releases, is available at www.macysinc.com/pressroom.
A webcast of Macy’s, Inc.’s call with analysts and investors will be
held today (February 26, 2019) at 9:30 a.m. ET. The webcast, along with
the associated presentation, is accessible to the media and general
public via the company’s website at www.macysinc.com.
Analysts and investors may call in on 800-281-7973, passcode 2586485. A
replay of the conference call and slides can be accessed on the website
or by calling 888-203-1112, passcode 2586485, about two hours after the
conclusion of the call.


Macy’s, Inc. is scheduled to present at the Bank of America Merrill
Lynch Global Consumer & Retail Technology Conference at 8:00 a.m. ET on
Tuesday, March 12, 2019, in New York City. Media and investors may
access a live audio webcast of the presentations at www.macysinc.com/investors.
A replay of the webcast will be available on the company’s website.


 


MACY’S, INC.


 


Consolidated Statements of Income
(Unaudited) (Note 1)(All amounts in millions except
percentages and per share figures)


 




 


 


13 Weeks Ended


 


14 Weeks Ended








February 2, 2019




February 3, 2018








$


 


% toNet sales




$


 


% toNet sales




















 


Net sales






$


8,455










$


8,672


























 


Credit card revenues, net






240






2.8


%




229






2.6


%




















 


Cost of sales






(5,288


)




(62.5


%)




(5,323


)




(61.4


%)




















 


Selling, general and administrative expenses






(2,538


)




(30.0


%)




(2,548


)




(29.3


%)




















 


Gains on sale of real estate






278






3.2


%




368






4.2


%




















 


Restructuring, impairment, store closing and other costs






(97


)




(1.1


%)




(152


)




(1.7


%)




















 


Operating income






1,050






12.4


%




1,246






14.4


%




















 


Benefit plan income, net






8










15


























 


Settlement charges






(15


)








(32


)
























 


Interest expense, net






(49


)








(73


)
























 


Gains (losses) on early retirement of debt






(28


)








11


 
























 


Income before income taxes






966










1,167


























 


Federal, state and local income tax benefit (expense) (Note 2)






(226


)








176


 
























 


Net income






740










1,343


























 


Net loss attributable to noncontrolling interest






—


 








4


 
























 


Net income attributable to Macy’s, Inc. shareholders






$


740


 








$


1,347


 
























 


Basic earnings per share attributable to

Macy’s, Inc. shareholders






$


2.40


 








$


4.41


 
























 


Diluted earnings per share attributable toMacy’s, Inc.
shareholders






$


2.37


 








$


4.38


 
























 


Average common shares:




















Basic






308.4










305.6








Diluted






311.9










307.4


























 


End of period common shares outstanding






307.5










304.8


























 


Supplemental Financial Measures:




















Gross Margin (Note 3)






$


3,167






37.5


%




$


3,349






38.6


%


Depreciation and amortization expense






$


244










$


250


































 


 


MACY’S, INC.


 


Consolidated Statements of Income
(Unaudited) (Note 1)(All amounts in millions except
percentages and per share figures)


 




 


 


52 weeks ended


 


53 weeks ended








February 2, 2019




February 3, 2018








$


 


% toNet sales




$


 


% toNet sales




















 


Net sales






$


24,971










$


24,939


























 


Credit card revenues, net






768






3.1


%




702






2.8


%




















 


Cost of sales






(15,215


)




(60.9


%)




(15,181


)




(60.9


%)




















 


Selling, general and administrative expenses






(9,039


)




(36.2


%)




(8,954


)




(35.9


%)




















 


Gains on sale of real estate






389






1.5


%




544






2.2


%




















 


Restructuring, impairment, store closings and other costs






(136


)




(0.5


%)




(186


)




(0.7


%)




















 


Operating income






1,738






7.0


%




1,864






7.5


%




















 


Benefit plan income, net






39










57


























 


Settlement charges






(88


)








(105


)
























 


Interest expense, net






(236


)








(310


)
























 


Gains (losses) on early retirement of debt






(33


)








10


 
























 


Income before income taxes






1,420










1,516


























 


Federal, state and local income tax benefit (expense) (Note 2)






(322


)








39


 
























 


Net income






1,098










1,555


























 


Net loss attributable to noncontrolling interest






10


 








11


 
























 


Net income attributable to Macy’s, Inc. shareholders






$


1,108


 








$


1,566


 
























 


Basic earnings per share attributable to

Macy’s, Inc. shareholders






$


3.60


 








$


5.13


 
























 


Diluted earnings per share attributable toMacy’s, Inc.
shareholders






$


3.56


 








$


5.10


 
























 


Average common shares:




















Basic






307.7










305.4








Diluted






311.4










306.8


























 


End of period common shares outstanding






307.5










304.8


























 


Supplemental Financial Measures:




















Gross Margin (Note 3)






$


9,756






39.1


%




$


9,758






39.1


%


Depreciation and amortization expense






$


962










$


991


































 


 


MACY’S, INC.


 


Consolidated Balance Sheets (Unaudited)
(Note 1)(millions)


 




 


 


February 2, 2019


 


February 3, 2018


ASSETS:












Current Assets:












Cash and cash equivalents






$


1,162






$


1,455




Receivables






400






363




Merchandise inventories






5,263






5,178




Prepaid expenses and other current assets






620


 




650


 


Total Current Assets






7,445






7,646














 


Property and Equipment – net






6,637






6,672




Goodwill






3,908






3,897




Other Intangible Assets – net






478






488




Other Assets






726


 




880


 












 


Total Assets






$


19,194


 




$


19,583


 












 


LIABILITIES AND SHAREHOLDERS’ EQUITY:












Current Liabilities:












Short-term debt






$


43






$


22




Merchandise accounts payable






1,655






1,590




Accounts payable and accrued liabilities






3,366






3,271




Income taxes






168


 




296


 


Total Current Liabilities






5,232






5,179














 


Long-Term Debt






4,708






5,861




Deferred Income Taxes






1,238