Macy's, Inc. (M) FY 2025 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition of the Company. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements (Part II, Item 8 of this Form 10-K). This section generally discusses the results of operations for 2024 compared to 2023 and 2022. The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the fiscal years ended February 1, 2025 to February 3, 2024 and January 28, 2023. For a full discussion of changes from the fiscal year ended February 3, 2024 to the fiscal year ended January 28, 2023, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (filed March 22, 2024). This section also 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 "Forward-Looking Statements."
Fiscal 2024 Overview and Company Strategy
On February 27, 2024, the Company announced its new three-year strategy, A Bold New Chapter, which firmly places energy and focus on the needs of our customer and is centered on an enhanced omni-channel shopping experience across all three of our nameplates. This strategy prioritizes improving the shopping environment and elevating the customer experience, while reallocating capital from underproductive Macy's stores to focus resources and investments on its go-forward enterprise. The Company viewed fiscal 2024 as a transition and investment year in its implementation of the three pillars within the A Bold New Chapter strategy, and has made progress as follows:
•Strengthen and Reimagine Macy's nameplate
◦Rationalize store base: The Company announced it had identified approximately 150 underproductive Macy's locations for closure (collectively, the "non-go-forward" locations). Closures are designed to allow for monetization of these non-go-forward locations and prioritization of investments in the approximately 350 remaining Macy's locations (collectively, the "go-forward" locations) where the Company believes it has the most opportunity to improve productivity. For the non-go-forward Macy's locations and distribution centers, the Company is thoughtfully and strategically approaching monetization to execute accretive transactions and is encouraged by the pace and quality of deal activity to date. As a result, the Company closed 64 underproductive locations in fiscal 2024 versus its original expectations of roughly 50.
◦Launch First 50 Locations: The First 50 locations are a key component of the A Bold New Chapter strategy. They served as pilots to test ideas with staffing initiatives, enhanced merchandising, visual presentation and eventing.
▪The First 50 achieved its fourth consecutive quarter of comparable sales growth led by ready-to-wear, beauty and women's shoes which outperformed the rest of the fleet by about 320 basis points. Since the Fall, the Company tested staffing in women's shoes and/or handbags in roughly 100 additional go-forward Macy's locations, and these locations continued to outperform locations without similar investments during 2024. Performance of both the First 50 and 100 test doors illustrate that when investments are made in the customer experience, the Company can grow sales.
◦Revitalize assortment: The merchandising team continued its assortment matrix evolution, including: ongoing private brand enhancements; adding more relevant national brands; scaling other brands to additional doors; and editing brands that no longer serve our customer.
◦Grow digital: Digital continues to serve as both a gateway to the Macy's nameplate and a source of commerce and omni engagement. Macy's improved its site navigation, search engine optimization and introduced a more competitive pricing algorithm and continues to focus on providing customers a better mobile experience.
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•Accelerate luxury growth
◦Bloomingdale's: Bloomingdale's achieved the strongest fourth quarter comparable sales growth in its history, contributing to the strong fiscal 2024 comparable sales increase of 2.5%. The Company had an exclusive Wicked partnership in the fourth quarter, garnering roughly 15 billion media impressions, which was three times higher than last year’s Holiday marketing campaign. This partnership, along with the From Italy with Love store-wide campaign in the Fall, are prime examples of customers response to Bloomingdale's unique product curation. Two Bloomingdale's the Outlet locations and one Bloomie's location opened in 2024, bringing the total Bloomingdale's small format count to 27.
◦Bluemercury: Bluemercury achieved its 16th consecutive quarter and fourth consecutive year of comparable sales growth. It opened 17 new locations and completed seven remodels in fiscal 2024. In September, Bluemercury began its 25th anniversary celebration with a revamped website and the introduction of an updated store prototype. The new and remodeled stores elevate Bluemercury's service model and product mix curation.
•Simplify and modernize end-to-end operations
◦The Company is actively advancing on solutions to reduce organizational complexity and generate cost savings to fund growth investments. To achieve these goals, the Company is focused on outsourcing opportunities, process simplification, automation and applying emerging technologies, including predictive analytics, machine learning, and Artificial Intelligence ("AI") and Generative AI, into our business.
◦The Company is also phasing out legacy technology across the organization to deliver an improved customer experience. In fiscal 2024, the Company realized a 400 basis point increase to the percent of orders delivered in five days or less and shortened the amount of days between when an order is placed to when it is shipped by 1,100 basis points. Finally, it improved product availability by over 400 basis points.
Comparable sales highlights for 2024 versus 2023 related to components of the A Bold New Chapter strategy are as follows:
•Macy's, Inc. comparable sales were down 2.0% on an owned basis and down 0.9% on an owned-plus-licensed-plus-marketplace basis.
◦Macy's, Inc. go-forward business comparable sales, inclusive of go-forward locations and digital across nameplates, were down 1.7% on an owned basis and down 0.6% on an owned-plus-licensed-plus-marketplace basis.
•Company's nameplate highlights include:
◦Macy's comparable sales were down 2.6% on an owned basis and down 1.6% on an owned-plus-licensed-plus-marketplace basis. Macy's go-forward business comparable sales, inclusive of Macy’s go-forward locations and digital, were down 2.4% on an owned basis and down 1.3% on an owned-plus-licensed-plus-marketplace basis.
•First 50 locations comparable sales, included within go-forward locations comparable sales, were up 1.6% on an owned basis and up 1.8% on an owned-plus-licensed basis.
◦Bloomingdale's comparable sales were up 1.7% on an owned basis and up 2.5% on an owned-plus-licensed-plus-marketplace basis.
◦Bluemercury comparable sales were up 4.0% on an owned basis.
See pages 29 to 31 for reconciliations of the non-GAAP financial measures presented above to the most comparable U.S. generally accepted accounting principles (GAAP) financial measures and other important information.
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Analysis of Results of Operations
| 2024 | 2023 | 2022 | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amount | % to Net Sales | % to Total Revenue | Amount | % to Net Sales | % to Total Revenue | Amount | % to Net Sales | % to Total Revenue | |||||||||||||||||||
| (dollars in millions, except per share figures) | |||||||||||||||||||||||||||
| Net sales | $ | 22,293 | $ | 23,092 | $ | 24,442 | |||||||||||||||||||||
| Other revenue | 713 | 3.2 | % | 774 | 3.4 | % | 1,007 | 4.1 | % | ||||||||||||||||||
| Total revenue | 23,006 | 23,866 | 25,449 | ||||||||||||||||||||||||
| Cost of sales | (13,740) | (61.6) | % | (14,224) | (61.6) | % | (15,347) | (62.8) | % | ||||||||||||||||||
| Selling, general and administrative expenses | (8,330) | (36.2) | % | (8,375) | (35.1) | % | (8,461) | (33.2) | % | ||||||||||||||||||
| Gains on sale of real estate | 144 | 0.6 | % | 61 | 0.3 | % | 89 | 0.3 | % | ||||||||||||||||||
| Impairment, restructuring and other costs | (171) | (0.7) | % | (1,027) | (4.3) | % | (41) | (0.2) | % | ||||||||||||||||||
| Operating income | $ | 909 | 4.0 | % | $ | 301 | 1.3 | % | $ | 1,689 | 6.6 | % | |||||||||||||||
| Net Income | $ | 582 | $ | 45 | $ | 1,146 | |||||||||||||||||||||
| Diluted earnings per share | $ | 2.07 | $ | 0.16 | $ | 4.08 | |||||||||||||||||||||
| Supplemental Financial Measure | |||||||||||||||||||||||||||
| Gross margin | $ | 8,553 | 38.4 | % | $ | 8,868 | 38.4 | % | $ | 9,095 | 37.2 | % | |||||||||||||||
| Digital sales as a percent of net sales | 33 | % | 33 | % | 33 | % | |||||||||||||||||||||
| Increase (decrease) in comparable sales | (2.0) | % | (6.9) | % | 0.3 | % | |||||||||||||||||||||
| Supplemental Non-GAAP Financial Measures | |||||||||||||||||||||||||||
| Increase (decrease) in comparable sales on an owned-plus-licensed-plus-marketplace basis | (0.9) | % | (6.0) | % | 0.6 | % | |||||||||||||||||||||
| Adjusted diluted earnings per share | $ | 2.64 | $ | 3.28 | $ | 4.36 | |||||||||||||||||||||
| EBITDA | $ | 1,760 | $ | 1,075 | $ | 2,527 | |||||||||||||||||||||
| Adjusted EBITDA | $ | 1,977 | $ | 2,236 | $ | 2,607 |
See pages 29 to 31 for reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measure and for other important information.
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Comparison of 2024 and 2023
| 2024 | 2023 | ||||
|---|---|---|---|---|---|
| Net sales | $ | 22,293 | $ | 23,092 | |
| Change in comparable sales | (2.0) | % | (6.9) | % | |
| Change in comparable sales on an owned plus licensed plus marketplace basis | (0.9) | % | (6.0) | % | |
| Digital sales as a percent of net sales | 33 | % | 33 | % |
Net sales for 2024 were down $799 million, or 3.5%, compared to 2023. Net sales were impacted by ongoing macroeconomic conditions as well as the occurrence of a 53rd week in 2023, which contributed $252 million to 2023. Comparable sales on an owned-plus-licensed-plus-marketplace basis decreased 0.9%. Comparable sales growth at Macy’s First 50 locations, Bloomingdale’s, and Bluemercury was offset primarily by weakness in Macy’s non-First 50 locations and the digital channel.
| 2024 | 2023 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ | % to Net Sales | $ | % to Net Sales | ||||||||||
| Credit card revenues, net | $ | 537 | 2.4 | % | $ | 619 | 2.7 | % | |||||
| Macy's Media Network, net | 176 | 0.8 | % | 155 | 0.7 | % | |||||||
| Other revenue | $ | 713 | 3.2 | % | $ | 774 | 3.4 | % | |||||
| Proprietary credit card sales penetration | 41.6 | % | 42.9 | % |
The decrease in other revenues from 2023 to 2024 was driven by a $82 million, or 13% decrease, in credit card revenues. This decrease was primarily driven by higher net credit losses as compared to 2023. Macy Media Network grew $21 million, or 14% from 2023 due to increased vendor engagement and higher advertiser and campaign counts.
| 2024 | 2023 | ||||
|---|---|---|---|---|---|
| Cost of sales | $ | (13,740) | $ | (14,224) | |
| As a percent to net sales | 61.6 | % | 61.6 | % | |
| Gross margin | $ | 8,553 | $ | 8,868 | |
| As a percent to net sales | 38.4 | % | 38.4 | % |
Gross margin rate remained flat from 2023 to 2024. Merchandise margin1 declined 10 basis points from 2023 to 2024, primarily due to product mix and the impact from the conversion to cost accounting which were partially offset by favorable shortage due to the Company's asset protection work and liquidations.
| 2024 | 2023 | ||||
|---|---|---|---|---|---|
| SG&A expenses | $ | (8,330) | $ | (8,375) | |
| As a percent to total revenue | 36.2 | % | 35.1 | % |
SG&A expenses decreased $45 million, or 1%, from 2023 to 2024 due to the Company's cost controls while it also protected customer-facing investments, particularly in the First 50 locations. The increase in SG&A expense as a percent to total revenue in 2024 was driven by the decline in total revenue compared to 2023.
| 2024 | 2023 | ||||
|---|---|---|---|---|---|
| Gains on sale of real estate | $ | 144 | $ | 61 |
Asset sale gains in 2024 relate to the monetization of non-go-forward assets as part of the Company’s Bold New Chapter strategy while 2023 asset sale gains primarily relate to the sale of a distribution center and other properties.
1 Merchandise margin is defined as net sales less cost of sales less net delivery expense.
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| 2024 | 2023 | ||||
|---|---|---|---|---|---|
| Impairment, restructuring and other costs | $ | (171) | $ | (1,027) |
The $171 million and $1.0 billion of impairment, restructuring and other costs recognized in 2024 and 2023, respectively, primarily relate to actions that align with the Company's A Bold New Chapter strategy. The primary costs consist of $88 million and $957 million non-cash asset impairment charges and $44 million and $55 million of restructuring charges recognized in 2024 and 2023, respectively. The impairment charges recognized in fiscal 2024 and 2023 primarily relate to the approximately 150 locations planned for closure as part of the A Bold New Chapter Strategy and the remaining amount is associated with corporate and other assets. The restructuring charges recognized in fiscal 2024 and 2023 consisted primarily of cash expenditures related to employee termination and severance charges.
| 2024 | 2023 | ||||
|---|---|---|---|---|---|
| Benefit plan income, net | $ | 16 | $ | 11 |
The Company recorded non-cash net benefit plan income related to the Company's defined benefit plans. This income includes the net amount of interest cost, expected return on plan assets and amortization of prior service costs or credits and actuarial gains and losses. The increase in benefit plan income from 2023 to 2024 was mainly driven by an increase in discount rates as a result of market conditions.
| 2024 | 2023 | ||||
|---|---|---|---|---|---|
| Settlement charges | $ | (46) | $ | (134) |
Settlement charges in 2024 were primarily related to the pro-rata recognition of net actuarial losses associated with the Company's defined benefit retirement plans as the result of lump sum distributions associated with retiree distribution elections. Settlement charges in 2023 were higher than 2024 as they primarily related to the transfer of fully funded pension obligations for certain retirees and beneficiaries through the purchase of a group annuity contract with an insurance company, which occurred in the second quarter of 2023.
| 2024 | 2023 | ||||
|---|---|---|---|---|---|
| Net interest expense | $ | (115) | $ | (135) |
The 15% decrease in net interest expense, excluding losses on early retirement of debt, from 2023 to 2024 was primarily driven by an increase in interest income on investments.
| 2024 | 2023 | |||
|---|---|---|---|---|
| Effective tax rate | 23.7 | % | (4.7) | % |
| Federal income statutory rate | 21 | % | 21 | % |
In 2024, income tax expense of $181 million, or 23.7% of pretax income, reflects a different effective tax rate as compared to the Company's federal income tax statutory rate of 21% driven primarily by the impact of state and local taxes. In 2023, income tax benefit of $2 million, or 4.7% of pretax income, reflects a different effective tax rate as compared to the company's federal income tax statutory rate of 21% driven primarily by the reduced pretax income as a result of the impairment charges and state and local taxes.
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. See Notes 4, 6 and 9 to the Consolidated Financial Statements included in Item 8 of this Report for amounts outstanding on February 1, 2025, related to leases, debt, and retirement plans, respectively. 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.
We believe that our available cash, together with expected future cash generated from operations, the amount available under our credit facility, and credit available in the market will be sufficient to satisfy our anticipated needs for working capital, capital expenditures, and cash dividends for at least the next 12 months and the foreseeable future thereafter.
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Capital Allocation
The Company's capital allocation goals include maintaining a healthy balance sheet and investment-grade credit metrics to be best-positioned for access to bank and capital market funding under all economic scenarios, followed by investing in the business through initiatives to drive long-term profitable growth and returning capital to shareholders through dividends and share repurchases.
The Company ended the year with a cash and cash equivalents balance of $1,306 million, an increase from $1,034 million in 2023. Also, the Company is party to the ABL Credit Facility with certain financial institutions providing for a $3,000 million Revolving ABL Facility. As of February 1, 2025, borrowing capacity of the ABL Credit Facility was $2,856 million, which reflects a $144 million reduction due to standby letters of credit outstanding and borrowing availability was $2,459 million, which considers a further $397 million reduction due to inventory levels and its impact on the ABL borrowing base.
| 2024 | 2023 | 2022 | ||||||
|---|---|---|---|---|---|---|---|---|
| Net cash provided by operating activities | $ | 1,278 | $ | 1,305 | $ | 1,615 | ||
| Net cash used by investing activities | (592) | (913) | (1,169) | |||||
| Net cash used by financing activities | (413) | (220) | (1,296) |
Operating Activities
Net cash provided by operating activities was $1,278 million in 2024 compared to $1,305 million in 2023. The decrease was primarily driven by lower earnings after excluding the non-cash adjustments, partially offset by working capital changes.
The Company's future material contractual obligations and commitments as it relates to operating activities as of February 1, 2025 are approximately $6.3 billion of operating lease obligations primarily due after 2029 and $2.9 billion of other obligations, the majority consisting of merchandise purchase obligations due in less than one year. Note 4 and Note 14 to the Financial Statements provide additional information on operating leases and other obligations, respectively.
Investing Activities
The Company's 2024 capital expenditures were $882 million, mainly driven by digital and technology investments as well as omni-channel capabilities. The Company also opened 32 new stores in 2024 across nameplates and formats and continued to invest in its current stores. The net cash used by investing activities were offset by $283 million of net proceeds from the disposition of assets.
The Company expects capital expenditures to be approximately $800 million during 2025. The Company's spend will be primarily focused on initiatives that will continue to support the A Bold New Chapter, including digital and technology investments, investments in our remaining go-forward locations, small format store openings and omni-channel capabilities. These expenditures are expected to be financed with cash from operations and existing cash and cash equivalents. There can be no assurance that current expectations will be realized and plans are subject to change upon further review of capital expenditure needs or based on the current economic environment.
Financing Activities
Dividends
The Company paid dividends totaling $192 million in 2024 and $181 million in 2023. The Board of Directors declared regular quarterly dividends of 17.37 cents per share on the Company's common stock, paid on April 1, 2024, July 1, 2024, October 1, 2024 and January 2, 2025, to Macy's, Inc. shareholders of record at the close of business on March 15, 2024, June 14, 2024, September 13, 2024 and December 13, 2024, respectively.
On February 28, 2025, the Company's Board of Directors declared a regular quarterly dividend of 18.24 cents per share on its common stock, payable April 1, 2025, to shareholders of record at the close of business on March 14, 2025. Subsequent dividends will be subject to approval of the Board of Directors, which will depend on market and other conditions.
Stock Repurchases
On February 22, 2022, the Company announced that its Board of Directors authorized a new $2.0 billion share repurchase program, which does not have an expiration date. During 2024, the Company did not repurchase any shares of its common stock on the open market. During 2023, the Company repurchased 1.4 million shares of its common stock at an average cost of $17.57 per share for $25 million. As of February 1, 2025, $1.4 billion remained available under the authorization. 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.
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Debt Transactions
The Company completed the following debt transactions in 2024:
•On September 18, 2024, the Company completed a tender offer in which $221 million of certain senior notes and debentures were tendered for early settlement. The total cash cost for the tender offer was $225 million and was funded using cash on hand.
•The Company borrowed and repaid $301 million under the ABL Credit Facility in 2024. The Company had no outstanding borrowings under the ABL Credit Facility as of February 1, 2025.
At February 1, 2025, no notes or debentures contained provisions requiring acceleration of payment upon a debt rating downgrade. However, the terms of approximately $2,235 million in aggregate principal amount of the Company's senior notes outstanding at that date require the Company to offer to purchase such notes at a price equal to 101% of their principal amount plus accrued and unpaid interest if there is both a change of control (as defined in the applicable indenture) of the Company and the notes are rated by specified rating agencies at a level below investment grade.
The Company's future contractual obligations and commitments as it relates to financing activities as of February 1, 2025 are $2.8 billion of long-term debt obligations, including the current portion of long-term debt of $6 million, and $1.4 billion of related interest, $144 million of standby letters of credit and $23 million of finance lease obligations. Note 6 and Note 4 to the Financial Statements provide additional information on debt and finance leases, respectively.
As of February 1, 2025, the Company's credit rating and outlook were as described in the table below:
| Moody's | Standard & Poor's | Fitch | |||
|---|---|---|---|---|---|
| Long-term debt | Ba1 | BB+ | BBB- | ||
| Outlook | Stable | Stable | Stable |
The Company may at any time and from time to time purchase, redeem, prepay, refinance, or otherwise retire any amount of outstanding indebtedness pursuant to the terms of such indebtedness, in open market or negotiated transactions, via tender offer or otherwise, including through the incurrence of new indebtedness, as the Company considers appropriate in light of market conditions and other relevant factors.
Guarantor Summarized Financial Information
The Company has senior unsecured notes and senior unsecured debentures (collectively the Unsecured Notes) outstanding with an aggregate principal amount of $2,785 million outstanding as of February 1, 2025, with maturities ranging from 2025 to 2043. The Unsecured Notes constitute debt obligations of Macy's Retail Holdings, LLC (MRH, or Subsidiary Issuer), a 100%-owned subsidiary of Macy's, Inc. (Parent together with the Subsidiary Issuer are 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 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 the Obligor Group. Investments in subsidiaries of $9,905 million as of February 1, 2025 have been excluded from the Summarized Balance Sheets. Equity in the earnings of non-Guarantor subsidiaries of $1,689 million have been excluded from the Summarized Statement of Operations. The combined financial information of the Obligor Group is presented on a combined basis with intercompany balances and transactions within the Obligor Group eliminated.
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Summarized Balance Sheet
| February 1, 2025 | ||
|---|---|---|
| (in millions) | ||
| ASSETS | ||
| Current Assets | $ | 1,160 |
| Noncurrent Assets | 5,727 | |
| LIABILITIES | ||
| Current Liabilities | $ | 1,744 |
| Noncurrent Liabilities (a) | 6,493 |
a)Includes net amounts due to non-Guarantor subsidiaries of $1 million
Summarized Statement of Operations
| 2024 | ||
|---|---|---|
| (in millions) | ||
| Net Sales | $ | 908 |
| Consignment commission income (a) | 3,452 | |
| Other revenue | 163 | |
| Cost of sales | (418) | |
| Operating loss | (1,212) | |
| Loss before income taxes (b) | (731) | |
| Net loss | (357) |
a)Income pertains to transactions with ABL Borrower, a non-Guarantor subsidiary
b)Includes $750 million of dividend income from non-Guarantor subsidiaries
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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 and an owned-plus-licensed-plus-marketplace basis, which includes the impact of growth in comparable sales of departments licensed to third parties and marketplace sales, as applicable, assists in evaluating the Company's ability to generate sales growth, whether through owned businesses, departments licensed to third parties or marketplace sales, on a comparable basis, 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 that are not associated with the Company's core operations and that may vary substantially in frequency and magnitude from period-to-period from net income (loss), diluted earnings (loss) per share and EBITDA provide useful supplemental measures that assist in evaluating the Company's ability to generate earnings and leverage sales, respectively, and to more readily compare these metrics between past and future periods. Management also believes that EBITDA and Adjusted EBITDA are frequently used by investors and securities analysts in their evaluations of companies, and that such supplemental measures facilitate comparisons between companies that have different capital and financing structures and/or tax rates. The Company uses certain non-GAAP financial measures as performance measures for components of executive compensation.
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 and marketplace sales 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.
Changes in Comparable Sales
The following is a tabular reconciliation of the non-GAAP financial measure of changes in comparable sales on an owned-plus-licensed-plus-marketplace basis, to GAAP comparable sales (i.e., on an owned basis), which the Company believes to be the most directly comparable GAAP financial measure.
| Fiscal 2024 vs. Fiscal 2023 | Fiscal 2023 vs. Fiscal 2022 | Fiscal 2022 vs. Fiscal 2021 | ||||||
|---|---|---|---|---|---|---|---|---|
| Macy's, Inc. | ||||||||
| Increase (decrease) in comparable sales on an owned basis (Note 1) | (2.0) | % | (6.9) | % | 0.3 | % | ||
| Impact of growth in comparable sales of departments licensed to third parties (Note 2) | 1.1 | % | 0.9 | % | 0.3 | % | ||
| Increase (decrease) in comparable sales on an owned-plus-licensed-plus-marketplace basis | (0.9) | % | (6.0) | % | 0.6 | % |
| 52 Weeks Ended February 1, 2025 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Macy's | Bloomingdale's | Bluemercury | ||||||
| Increase (decrease) in comparable sales on an owned basis (Note 1) | (2.6) | % | 1.7 | % | 4.0 | % | ||
| Impact of departments licensed to third parties and marketplace sales (Note 2) | 1.0 | % | 0.8 | % | — | % | ||
| Increase (decrease) in comparable sales on an owned-plus-licensed-plus-marketplace basis | (1.6) | % | 2.5 | % | 4.0 | % |
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| 52 Weeks Ended February 1, 2025 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Macy's, Inc. go forward business | Macy's go-forward business | Macy's First 50 locations | ||||||
| Increase (decrease) in comparable sales on an owned basis (Note 1) | (1.7) | % | (2.4) | % | 1.6 | % | ||
| Impact of departments licensed to third parties (Note 2) | 1.1 | % | 1.1 | % | 0.2 | % | ||
| Increase (decrease) in comparable sales on an owned-plus-licensed basis | (0.6) | % | (1.3) | % | 1.8 | % |
(1)Represents the period-to-period percentage change in net sales from stores in operation for one full fiscal year presented and the immediately preceding year, adjusting for the 53rd week in fiscal 2023. Such calculation includes all digital sales and excludes commissions from departments licensed to third parties and marketplace. Stores impacted by a natural disaster or undergoing significant expansion or shrinkage remain in the comparable sales calculation unless the store, or material portion of the store, is closed for a significant period of time. Definitions and calculations of comparable sales may differ among companies in the retail industry.
(2)Represents the impact of including the sales of departments licensed to third parties occurring in stores in operation throughout the year presented and the immediately preceding year and all online sales, including marketplace sales, adjusting for the 53rd week in fiscal 2023, in the calculation of comparable sales. Macy’s and Bloomingdale’s license third parties to operate certain departments in its stores and online and receive commissions from these third parties based on a percentage of their net sales, while Bluemercury does not participate in licensed or Marketplace businesses. In its financial statements prepared in conformity with GAAP, the company includes these commissions (rather than sales of the departments licensed to third parties and Marketplace) in its net sales. The company does not, however, include any amounts in respect of licensed department or Marketplace sales (or any commissions earned on such sales) in its comparable sales in accordance with GAAP (i.e., on an owned basis). The amounts of commissions earned on sales of departments licensed to third parties and from the digital Marketplace are not material to its net sales for the periods presented.
Adjusted Net Income and Adjusted Diluted Earnings Per Share
The following is a tabular reconciliation of the non-GAAP financial measures adjusted net income to GAAP net income and adjusted diluted earnings per share to GAAP diluted earnings per share, which the Company believes to be the most directly comparable GAAP measures.
| 2024 | 2023 | 2022 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Income | Diluted Earnings Per Share | Net Income | Diluted Earnings Per Share | Net Income | Diluted Earnings Per Share | |||||||||||||||||
| (millions, except per share data) | ||||||||||||||||||||||
| As reported | $ | 582 | $ | 2.07 | $ | 45 | $ | 0.16 | $ | 1,146 | $ | 4.08 | ||||||||||
| Impairment, restructuring and other costs | 171 | 0.61 | 1,027 | 3.69 | 41 | 0.15 | ||||||||||||||||
| Settlement charges | 46 | 0.16 | 134 | 0.48 | 39 | 0.14 | ||||||||||||||||
| Losses on early retirement of debt | 1 | — | — | — | 31 | 0.11 | ||||||||||||||||
| Income tax impact of certain items identified above | (55) | (0.20) | (293) | (1.05) | (29) | (0.12) | ||||||||||||||||
| As adjusted | $ | 745 | $ | 2.64 | $ | 913 | $ | 3.28 | $ | 1,228 | $ | 4.36 |
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EBITDA and Adjusted EBITDA
The following is a tabular reconciliation of the non-GAAP financial measure EBITDA and Adjusted EBITDA to GAAP net income, which the Company believes to be the most comparable GAAP measure.
| 2024 | 2023 | 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (millions) | ||||||||||
| Net income | $ | 582 | $ | 45 | $ | 1,146 | ||||
| Interest expense - net | 115 | 135 | 162 | |||||||
| Losses on early retirement of debt | 1 | — | 31 | |||||||
| Federal, state and local income tax expense (benefit) | 181 | (2) | 331 | |||||||
| Depreciation and amortization | 881 | 897 | 857 | |||||||
| EBITDA | $ | 1,760 | $ | 1,075 | $ | 2,527 | ||||
| Impairment, restructuring and other costs | 171 | 1,027 | 41 | |||||||
| Settlement charges | 46 | 134 | 39 | |||||||
| Adjusted EBITDA | $ | 1,977 | $ | 2,236 | $ | 2,607 |
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP) requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on assumptions that we believe to be reasonable, and we continue to review and evaluate these estimates. For further information on significant accounting policies, see discussion in Note 1 to the Consolidated Financial Statements included in Item 8 of this Report.
Long-Lived Asset Impairment and Restructuring Charges
The carrying values of long-lived assets, inclusive of right of use (ROU) assets, are periodically reviewed by the Company whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as historical operating losses or plans to close stores before the end of their previously estimated useful lives. Additionally, on an annual basis, the recoverability of the carrying values of individual stores is evaluated. A potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets. The estimate of cash flows includes management's assumptions of cash inflows and outflows directly resulting from the use of those assets in operations. When a potential impairment has occurred, an impairment write-down is recorded if the carrying value of the long-lived asset exceeds its fair value. In both fiscal 2024 and fiscal 2023, the Company determined impairment charges were necessary for certain of its long-lived assets as disclosed further in Note 3. If estimated cash flows significantly differ in the future, the Company may be required to record additional asset impairment write-downs.
If the Company commits to a plan to dispose of a long-lived asset before the end of its previously estimated useful life or changes its use of corporate assets, estimated cash flows are revised accordingly, and the Company may be required to record an asset impairment charge. Additionally, related liabilities arise such as severance, contractual obligations and other accruals associated with store closings from decisions to dispose of assets. The Company estimates these liabilities based on the facts and circumstances in existence for each restructuring decision. The amounts the Company will ultimately realize or disburse could differ from the amounts assumed in arriving at the asset impairment and restructuring charge recorded.
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 February 1, 2025, and 98% of the Company's goodwill is allocated to the Macy's reporting unit.
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.
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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.
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 projected sales, gross margin and SG&A expense 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.
For the Company's annual impairment assessment as of the end of fiscal May 2024 and 2023, the Company elected to perform a qualitative impairment test on its goodwill and intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceeded the carrying values and goodwill and intangible assets with indefinite lives were not impaired.
During the third quarter of fiscal 2023, the Company observed a general decline in the market valuation of the Company’s common shares and performed an interim qualitative impairment test on its reporting units. As a result of this test, the Company concluded that it is more likely than not that the fair values of its reporting units exceeded the carrying values and goodwill is not impaired.
The Company continues to monitor the key inputs to the fair values of its reporting units. A decline in market capitalization or future declines in macroeconomic factors or business conditions may result in additional impairment charges in future periods.
Income Taxes
Income taxes are estimated based on the tax statutes, regulations and case law of the various jurisdictions in which the Company operates. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and net operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets are evaluated for recoverability based on all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. Deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized.
Pension and Supplementary Retirement Plans
The Company has a funded defined benefit pension plan (the Pension Plan) and an unfunded defined benefit supplementary retirement plan (the SERP). The Company accounts for these plans in accordance with ASC Topic 715, Compensation - Retirement Benefits. Under ASC Topic 715, an employer recognizes the funded status of a defined benefit postretirement plan as an asset or liability on the balance sheet and recognizes changes in that funded status in the year in which the changes occur through comprehensive income (loss). Additionally, pension expense is generally recognized on an accrual basis over the average remaining lifetime of participants. The pension expense calculation is generally independent of funding decisions or requirements.
The Pension Protection Act of 2006 provides the funding requirements for the Pension Plan which are different from the employer's accounting for the plan as outlined in ASC Topic 715. No funding contributions were required, and the Company made no funding contributions to the Pension Plan in 2024 and 2023. As of the date of this report, the Company does not anticipate making funding contributions to the Pension Plan in 2025.
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The calculation of pension expense and pension liabilities requires the use of a number of assumptions. Changes in these assumptions can result in different expense and liability amounts, and future actual experience may differ significantly from current expectations. The Company believes that the most critical assumptions relate to the long-term rate of return on plan assets (in the case of the Pension Plan) and the discount rate used to determine the present value of projected benefit obligations.
The Company's assumed annual long-term rate of return for the Pension Plan's assets was 5.30% for 2024 and 2023 and 4.60% for 2022 based on expected future returns on the portfolio of assets. As of February 1, 2025, the Company increased the assumed annual long-term rate of return for the Pension Plan's assets to 5.50% based on expected future returns on the portfolio of assets. The Company develops its expected long-term rate of return assumption by evaluating input from several professional advisors taking into account the asset allocation of the portfolio and long-term asset class return expectations, as well as long-term inflation assumptions. Pension expense increases or decreases as the expected rate of return on the assets of the Pension Plan decreases or increases, respectively. Lowering or raising the expected long-term rate of return assumption on the Pension Plan's assets by 0.25% would increase or decrease the estimated 2025 pension expense by approximately $5 million.
The Company discounted its future pension obligations using a weighted-average rate of 5.52% at February 1, 2025 and 5.06% at February 3, 2024 for the Pension Plan and 5.54% at February 1, 2025 and 5.08% at February 3, 2024 for the SERP. The discount rate used to determine the present value of the Company's Pension Plan and SERP obligations is based on a yield curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year's expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate for Pension Plan and SERP obligations. As the discount rate is reduced or increased, the pension liability would increase or decrease, respectively, and future pension expense would decrease or increase, respectively. Lowering the discount rates by 0.25% would increase the projected benefit obligations at February 1, 2025 by approximately $33 million and would decrease estimated 2025 pension expense by approximately $1 million. Increasing the discount rates by 0.25% would decrease the projected benefit obligations at February 1, 2025 by approximately $31 million and would increase estimated 2025 pension expense by approximately $1 million.
The Company estimates the service and interest cost components of net periodic benefit costs for the Pension Plan and SERP. This method uses a full yield curve approach in the estimation of these components of net periodic benefit costs. Under this approach, the Company applies discounting using individual spot rates from the yield curve composed of the rates of return from a portfolio of high quality corporate debt securities available at the measurement date. These spot rates align to each of the projected benefit obligation and service cost cash flows.