Macy’s, Inc. Reports Fourth Quarter and FY2016 Results

Diluted 2016 EPS is $1.99, or $3.11 as adjusted; Company provides
2017 sales and earnings guidance

CINCINNATI–(BUSINESS WIRE)–Macy’s, Inc. (NYSE:M) today reported fiscal 2016 earnings per diluted
share of $1.99, or $3.11 per diluted share excluding certain items
discussed below.

“While 2016 was not the year we expected, we made significant progress
on key initiatives that are starting to bear fruit. These include
continued improvement in our digital platforms, the rollout of our new
approach to fine jewelry and women’s shoes, an increase in exclusive
merchandise and the refinement of our clearance and off-price strategy.
We also took a big step forward in rightsizing our physical footprint
and restructuring our entire organization. The combination of these
initiatives will help us gain market share, return to growth and drive
enhanced value for our shareholders over time,” said Terry J. Lundgren,
Macy’s chairman and chief executive officer.

“We will be investing for the future in 2017. Looking at the continued
challenges in the retail environment and changing consumer shopping
behaviors, we know we must evolve our strategy and execute faster,”
Lundgren said. “Key to this is enhancing the customer experience in our
stores where we are developing and testing concepts that feature new
merchandise and entertainment options alongside enhanced technology to
make shopping simpler. Additional initiatives that we believe will
improve sales trends in 2017 include continued omnichannel improvements,
an updated marketing strategy and a simplified pricing structure.”

“We continued to make progress on the execution of our real estate
strategy in the fourth quarter of 2016 and will carry that momentum into
2017. Overall, real estate transactions in fiscal 2016 generated cash
proceeds of approximately $675 million, which is helping to fund
continued reinvestment in the business. We also began work on deriving
value from our partnership with Brookfield Asset Management. We are
excited by the potential of our real estate strategy, and in 2017, we
will focus on advancing the Brookfield partnership and continuing to
monetize the locations that we have closed or plan to close. We are also
developing strategies that will help create value for Herald Square
while making the store an even more vibrant retail experience,” Lundgren
added.

For the full year 2016, adjusted earnings (excluding items described
below) were $3.11 per diluted share. This exceeds the company’s most
recent guidance for 2016 earnings of $2.95 to $3.10 on the same basis.
Fiscal 2016 comparable sales on an owned basis declined by 3.5 percent.
On an owned plus licensed basis, comparable sales for fiscal 2016
declined by 2.9 percent. This compares to the most recent guidance for
2016 sales on an owned plus licensed basis to be down 2.5 percent to 3.0
percent.

Sales

Sales in the fourth quarter of 2016 totaled $8.515 billion, down 4.0
percent from total sales of $8.869 billion in the fourth quarter of
2015. On an owned basis, fourth quarter comparable sales declined by 2.7
percent. Comparable sales on an owned plus licensed basis for the fourth
quarter were down 2.1 percent.

Sales in fiscal 2016 totaled $25.778 billion, down 4.8 percent from
total sales of $27.079 billion in fiscal 2015. On an owned basis, fiscal
2016 comparable sales were down 3.5 percent. Comparable sales on an
owned plus licensed basis for fiscal 2016 declined by 2.9 percent.

In fiscal 2016, the company opened 27 stores and closed 66 stores, all
as previously announced. Macy’s, Inc. plans to close an additional
approximately 34 stores over the next few years for a total of
approximately 100 stores. New stores opened in fiscal 2016 included one
Macy’s store in Kapolei, HI, 24 Bluemercury freestanding stores, one
Macy’s Backstage freestanding store in San Antonio, TX, and one
Bloomingdale’s Outlet in Orange, CA.

Operating Income

Macy’s, Inc.’s operating income totaled $815 million, or 9.6 percent of
sales, for the fourth quarter ended Jan. 28, 2017, compared with
operating income of $936 million, or 10.6 percent of sales, for the
fourth quarter of fiscal 2015.

Macy’s, Inc.’s fourth quarter 2016 operating income included $230
million of impairments, store closing and other costs. The $230
million included $38 million of asset impairment charges primarily
related to the store closings announced in January 2017, $166 million of
severance and other costs primarily associated with organizational
changes and store closings announced in January 2017 and $26 million of
other related costs and expenses. Excluding these items, as well as
non-cash settlement charges related to the company’s retirement plans of
$17 million, operating income for the fourth quarter of 2016 was $1.062
billion or 12.5 percent of sales.

Fourth quarter 2015 operating income included $177 million of
impairments, store closing and other costs. Excluding these items,
operating income for the fourth quarter of 2015 was $1.113 billion or
12.6 percent of sales.

For fiscal 2016, Macy’s, Inc.’s operating income totaled $1.315
billion, or 5.1 percent of sales, compared with operating income
of $2.039 billion, or 7.5 percent of sales, for fiscal 2015.

Macy’s, Inc.’s fiscal 2016 operating income included $479 million of
impairments, store closing and other costs. The $479
million included $265 million of asset impairment charges primarily
related to the store closings announced in January 2017, $168 million of
severance and other costs primarily associated with organizational
changes and store closings announced in January 2017 and $46 million of
other related costs and expenses. Excluding these items, as well as
non-cash settlement charges related to the company’s retirement plans of
$98 million, operating income for fiscal 2016 was $1.892 billion or 7.3
percent of sales.

Macy’s, Inc.’s fiscal 2015 operating income included $288 million of
impairments, store closing and other costs. Excluding these items,
operating income for fiscal 2015 was $2.327 billion or 8.6 percent of
sales.

Earnings Per Share

Fourth quarter 2016 earnings per diluted share were $1.54. Excluding
impairments, store closing, settlement charges and other costs of $247
million ($147 million after tax or 48 cents per diluted share), earnings
per diluted share on an adjusted basis were $2.02 for the fourth quarter
of 2016.

In 2015, fourth quarter earnings per diluted share were $1.73. Excluding
impairments, store closing and other costs of $177 million ($115
million after tax or 36 cents per diluted share), earnings per diluted
share on an adjusted basis were $2.09 for the fourth quarter of 2015.

Earnings per diluted share were $1.99 for fiscal 2016. Excluding
impairments, store closing, settlement charges and other costs of $577
million ($349 million after tax or $1.12 per diluted share), earnings
per diluted share on an adjusted basis were $3.11 for fiscal 2016.

In fiscal 2015, earnings per diluted share were $3.22. Excluding
impairments, store closing and other costs of $288 million ($184
million after tax or 55 cents per diluted share), earnings per diluted
share on an adjusted basis were $3.77 for fiscal 2015.

Cash Flow

Net cash provided by operating activities was $1.801 billion in fiscal
2016, compared with $1.984 billion in fiscal 2015. Net cash used by
investing activities in fiscal 2016 was $187 million, compared
with $1.092 billion in the previous year. Operating cash flows net of
investing were $1.614 billion in fiscal 2016, compared with $892
million in fiscal 2015.

In fiscal 2016, the company repurchased approximately 7.9 million shares
of its common stock for approximately $316 million. As of Jan. 28, 2017,
the company had remaining authorization to repurchase up to
approximately $1.716 billion of its common stock.

Real Estate Update

In fiscal 2016, the company’s asset sales totaled $673 million in cash
proceeds ($209 million in book gains).

Macy’s, Inc. continues to harvest real estate value opportunistically
where the value of the real estate as a redevelopment exceeds that of
non-strategic operating locations. In addition, the company is closing
less productive stores and selling the associated real estate.

As an example of these actions, Macy’s, Inc. completed the previously
announced sale of its Union Square Men’s building in San Francisco for
$250 million in gross proceeds. The Men’s Store will be incorporated
into the Union Square Main building. The company also anticipates
additional enhancements to its Union Square Main building through the
conversion of street-level selling space into high-end luxury retail
shops that will be leased to third parties. Likewise, Macy’s, Inc. is
exploring strategies that will help create value and further improve the
customer experience at its Herald Square store in New York City. The
company also expects to close shortly on the previously announced sale
of its downtown Minneapolis store.

To further create value from its real estate portfolio, the company
continues to work with its strategic partner, Brookfield Asset
Management, on approximately 50 identified assets. Brookfield’s
expertise will be invaluable in accelerating redevelopment and
maximizing the value of these properties. Contemplated developments
include retail, as well as alternative uses, such as multifamily
housing, hotels and offices. The projects range from the complete
ground-up redevelopment of a building to the development of parcels in a
parking area, while maintaining a store presence.

CEO Transition

Macy’s, Inc. also announced today that its previously announced CEO
transition will occur on March 23, 2017. As noted in the company’s June
23, 2016, announcement, Jeff Gennette, president of Macy’s, Inc., will
assume the CEO role and Terry Lundgren will continue as executive
chairman of the company.

Looking Ahead

In fiscal 2017, the company expects comparable sales on an owned basis
to decline between 2.2 percent and 3.3 percent, with comparable sales on
an owned plus licensed basis to decline between 2.0 percent and 3.0
percent. Total sales are expected to be down between 3.2 percent and 4.3
percent in fiscal 2017, reflecting the 66 stores closed in 2016. Total
sales for fiscal 2017 reflect a 53rd week of sales, whereas
comparable sales are on a 52-week basis. Adjusted diluted earnings per
share of between $3.37 and $3.62 are expected in 2017, excluding the
impact of the anticipated settlement charges related to the company’s
defined benefit plans. Excluding the impact of the anticipated fourth
quarter gain on the sale of the Union Square Men’s building in San
Francisco and the anticipated settlement charges related to the
company’s defined benefit plans, adjusted diluted earnings per share of
$2.90 to $3.15 are expected in 2017.

Capital expenditures for 2017 are expected to be approximately $900
million.

In fiscal 2017, the company expects to open Macy’s stores in Westfield
Century City, Los Angeles, CA, and Fashion Place, Murray, UT, as well as
approximately 30 additional Bluemercury locations and approximately 30
Macy’s Backstage locations inside Macy’s stores. Announced new stores in
future years include Bloomingdale’s in San Jose, CA (2019), and Norwalk,
CT (2019). In addition, under license agreements with Al Tayer Group, a
new Bloomingdale’s store is planned to open in 360 Mall in Al Zahra,
Kuwait in spring 2017 and new Macy’s and Bloomingdale’s stores are
planned to open in Al Maryah Central in Abu Dhabi, United Arab Emirates
in 2018.

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.

Investor Conferences

Macy’s, Inc. will present at the UBS Global Consumer & Retail Conference
at 10:30 a.m. ET on Wednesday, March 8, 2017, in Boston. Media and
investors may access the live webcast of the presentation at www.macysinc.com/ir
at the appointed time. The webcast will be available for replay.

Macy’s, Inc. will present at the Bank of America Merrill Lynch 2017
Consumer & Retail Technology Conference at 8 a.m. ET on Tuesday, March
14, 2017, in New York City. Media and investors may access the live
webcast of the presentation at www.macysinc.com/ir
at the appointed time. The webcast will be available for replay.

Macy’s, Inc., with corporate offices in Cincinnati and New York, is one
of the nation’s premier retailers, with fiscal 2016 sales of $25.778
billion. The company operates more than 700 department stores under the
nameplates Macy’s and Bloomingdale’s, and approximately 125 specialty
stores that include Bloomingdale’s Outlet, Bluemercury and Macy’s
Backstage, in 45 states, the District of Columbia, Guam and Puerto Rico,
as well as the macys.com, bloomingdales.com and bluemercury.com
websites. Bloomingdale’s in Dubai is operated by Al Tayer Group LLC
under a license agreement.

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, 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 (Feb. 21) at 10 a.m. ET. The webcast is accessible to the media
and general public via the company’s website at www.macysinc.com.
Analysts and investors may call in on 1-888-599-8686, passcode 4375466.
A replay of the conference call can be accessed on the website or by
calling 1-888 203-1112 (same passcode) about two hours after the
conclusion of the call.)

       
MACY’S, INC.
 

Consolidated Statements of Income
(Unaudited) (Note 1)

 

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

 
13 Weeks Ended 13 Weeks Ended
January 28, 2017 January 30, 2016

$

   

% to
Net sales

$

   

% to
Net sales

 
Net sales $ 8,515 $ 8,869
 
Cost of sales (Note 2)   5,251   61.7 %   5,549   62.6 %
 
Gross margin 3,264 38.3 % 3,320 37.4 %
 
Selling, general and administrative expenses (2,202 ) (25.8 %) (2,207 ) (24.8 %)
 
Impairments, store closing and other costs (Note 3) (230 ) (2.7 %) (177 ) (2.0 %)
 
Settlement charges (Note 4)   (17 ) (0.2 %)      
 
Operating income 815 9.6 % 936 10.6 %
 
Interest expense – net   (87 )   (93 )
 
Income before income taxes 728 843
 
Federal, state and local income tax expense (Note 5)   (256 )   (300 )
 
Net income 472 543
 
Net loss attributable to non-controlling interest   3     1  
 
Net income attributable to Macy’s, Inc. shareholders $ 475   $ 544  
 

Basic earnings per share attributable to Macy’s, Inc. shareholders

$ 1.56   $ 1.74  
 

Diluted earnings per share attributable to Macy’s, Inc.
shareholders

$ 1.54   $ 1.73  
 
Average common shares:
Basic 305.5 312.2
Diluted 307.8 314.8
 
End of period common shares outstanding 304.1 310.3
 
Depreciation and amortization expense $ 271 $ 270
 

MACY’S, INC.

Consolidated Statements of Income (Unaudited)

Notes:
 
(1)   Because of the seasonal nature of the retail business, the results
of operations for the 13 weeks ended January 28, 2017 and January
30, 2016 (which include the Christmas season) are not necessarily
indicative of such results for the fiscal year.
 
(2) Merchandise inventories are valued at the lower of cost or market
using the last-in, first-out (LIFO) retail inventory method.
Application of the LIFO retail inventory method did not result in
the recognition of any LIFO charges or credits affecting cost of
sales for the 13 weeks ended January 28, 2017 or January 30, 2016.
 
(3) For the 13 weeks ended January 28, 2017, impairments, store closing
and other costs amounted to $230 million on a pre-tax basis, $137
million after tax or $.45 per diluted share attributable to Macy’s,
Inc. These costs include $38 million of asset impairment charges
primarily related to the store closings announced in January 2017,
$166 million of severance and other human resource-related costs
associated with the organization changes and store closings
announced in January 2017 and $26 million of other related costs and
expenses. For the 13 weeks ended January 30, 2016, impairments,
store closing and other costs amounted to $177 million on a pre-tax
basis, $115 million after tax or $.36 per diluted share attributable
to Macy’s, Inc. These costs included $37 million of asset impairment
charges primarily related to the store closings announced in January
2016, $123 million of severance and other human resource-related
costs associated with the organization changes and store closings
announced in January 2016 and $17 million of other related costs and
expenses.
 
(4) Non-cash settlement charges of $17 million on a pre-tax basis, $10
million after tax or $.03 per diluted share attributable to Macy’s,
Inc., were recognized in the 13 weeks ended January 28, 2017. These
charges relate to the pro-rata recognition of net actuarial losses
associated with the Company’s defined benefit retirement plans and
are the result of an increase in lump sum distributions associated
with store closings, a voluntary separation program, organizational
restructuring, and periodic distribution activity.
 
(5) Federal, state and local income taxes differ from the federal income
tax statutory rate of 35%, principally because of the effect of
state and local taxes, including the settlement of various tax
issues and tax examinations.
             
MACY’S, INC.
 

Consolidated Statements of Income (Unaudited)

 

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

 

 
52 Weeks Ended 52 Weeks Ended
January 28, 2017 January 30, 2016

$

   

% to
Net sales

$

   

% to
Net sales

 
Net sales $ 25,778 $ 27,079
 
Cost of sales (Note 1)   15,621   60.6 %   16,496   60.9 %
 
Gross margin 10,157 39.4 % 10,583 39.1 %
 
Selling, general and administrative expenses (8,265 ) (32.0 %) (8,256 ) (30.5 %)
 
Impairments, store closing and other costs (Note 2) (479 ) (1.9 %) (288 ) (1.1 %)
 
Settlement charges (Note 3)   (98 ) (0.4 %)      
 
Operating income 1,315 5.1 % 2,039 7.5 %
 
Interest expense – net   (363 )   (361 )
 
Income before income taxes 952 1,678
 
Federal, state and local income tax expense (Note 4)   (341 )   (608 )
 
Net income 611 1,070
 
Net loss attributable to non-controlling interest   8     2  
 
Net income attributable to Macy’s, Inc. shareholders $ 619   $ 1,072  
 

Basic earnings per share attributable to Macy’s, Inc. shareholders

$ 2.01   $ 3.26  
 

Diluted earnings per share attributable to Macy’s, Inc.
shareholders

$ 1.99   $ 3.22  
 
Average common shares:
Basic 308.5 328.4
Diluted 310.8 333.0
 
End of period common shares outstanding 304.1 310.3
 
Depreciation and amortization expense $ 1,058 $ 1,061
 

MACY’S, INC.

Consolidated Statements of Income (Unaudited)

Notes:
 
(1)   Merchandise inventories are valued at the lower of cost or market
using the last-in, first-out (LIFO) retail inventory method.
Application of the LIFO retail inventory method did not result in
the recognition of any LIFO charges or credits affecting cost of
sales for the 52 weeks ended January 28, 2017 or January 30, 2016.
 
(2) For the 52 weeks ended January 28, 2017, impairments, store closing
and other costs amounted to $479 million on a pre-tax basis, $290
million after tax or $.93 per diluted share attributable to Macy’s,
Inc. These costs include $265 million of asset impairment charges
primarily related to the store closings announced in January 2017,
$168 million of severance and other human resource-related costs
primarily associated with the organization changes and store
closings announced in January 2017 and $46 million of other related
costs and expenses. For the 52 weeks ended January 30, 2016,
impairments, store closing and other costs amounted to $288 million
on a pre-tax basis, $184 million after tax or $.55 per diluted share
attributable to Macy’s, Inc. These costs included $148 million of
asset impairment charges primarily related to the store closings
announced in January 2016, $123 million of severance and other human
resource-related costs associated with the organization changes and
store closings announced in January 2016 and $17 million of other
related costs and expenses.
 
(3) Non-cash settlement charges of $98 million on a pre-tax basis, $59
million after tax or $.19 per diluted share attributable to Macy’s,
Inc., were recognized in the 52 weeks ended January 28, 2017. These
charges relate to the pro-rata recognition of net actuarial losses
associated with the Company’s defined benefit retirement plans and
are the result of an increase in lump sum distributions associated
with store closings, a voluntary separation program, organizational
restructuring, and periodic distribution activity.
 
(4) Federal, state and local income taxes differ from the federal income
tax statutory rate of 35%, principally because of the effect of
state and local taxes, including the settlement of various tax
issues and tax examinations.
       
MACY’S, INC.
 

Consolidated Balance Sheets (Unaudited)

 

(millions)

 
January 28, January 30,
2017 2016
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,297 $ 1,109
Receivables 522 558
Merchandise inventories 5,399 5,506
Prepaid expenses and other current assets   408   479
Total Current Assets 7,626 7,652
 
Property and Equipment – net 7,017 7,616
Goodwill 3,897 3,897
Other Intangible Assets – net 498 514
Other Assets   813   897
 
Total Assets $ 19,851 $ 20,576
 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities:
Short-term debt $ 309 $ 642
Merchandise accounts payable 1,423 1,526
Accounts payable and accrued liabilities 3,563 3,333
Income taxes   352   227
Total Current Liabilities 5,647 5,728
 
Long-Term Debt 6,562 6,995
Deferred Income Taxes 1,443 1,477
Other Liabilities 1,877 2,123
Shareholders’ Equity:
Macy’s, Inc. 4,323 4,250
Non-controlling interest   (1)   3
Total Shareholders’ Equity   4,322   4,253
 
Total Liabilities and Shareholders’ Equity $ 19,851 $ 20,576
 
       
MACY’S, INC.
 

Consolidated Statements of Cash Flows
(Unaudited)

(millions)

 

 

52 Weeks Ended
January 28, 2017

52 Weeks Ended
January 30, 2016

Cash flows from operating activities:
Net income $ 611 $ 1,070

Adjustments to reconcile net income to net cash provided by
operating activities:

Impairments, store closing and other costs 479 288
Settlement charges 98
Depreciation and amortization 1,058 1,061
Stock-based compensation expense 61 65
Gains on sale of real estate (209 ) (212 )

Amortization of financing costs and premium on acquired debt

(14 ) (14 )
Changes in assets and liabilities:
Increase in receivables (1 ) (45 )
(Increase) decrease in merchandise inventories 107 (60 )
Increase in prepaid expenses and other current assets (8 )
Increase in other assets not separately identified (1 )
Decrease in merchandise accounts payable (132 ) (78 )
Increase (decrease) in accounts payable, accrued liabilities and
other items not separately identified
(162 ) 68
Increase (decrease) in current income taxes 125 (69 )
Decrease in deferred income taxes (139 ) (1 )
Decrease in other liabilities not separately identified   (73 )   (88 )
Net cash provided by operating activities   1,801     1,984  
 

Cash flows from investing activities:

Purchase of property and equipment (596 ) (777 )
Capitalized software (316 ) (336 )
Acquisition of Bluemercury, Inc., net of cash acquired (212 )
Disposition of property and equipment 673 204
Other, net   52     29  
Net cash used by investing activities   (187 )   (1,092 )
 

Cash flows from financing activities:

Debt issued 2 499
Financing costs (3 ) (4 )
Debt repaid (751 ) (152 )
Dividends paid (459 ) (456 )
Increase (decrease) in outstanding checks 61 (83 )
Acquisition of treasury stock (316 ) (2,001 )
Issuance of common stock 36 163
Proceeds from non-controlling interest   4     5  
Net cash used by financing activities   (1,426 )   (2,029 )
Net increase (decrease) in cash and cash equivalents 188 (1,137 )
Cash and cash equivalents at beginning of period   1,109     2,246  
 
Cash and cash equivalents at end of period $ 1,297   $ 1,109  
 

Contacts

Macy’s Media
Brunswick Group
Blair Fasbender, 212-333-3810
or
Macy’s
Investors
Matt Stautberg, 513-579-7780

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