# Macy's, Inc.: Form 10-Q for the period ended Oct 28, 2023

- Company: [Macy's, Inc.](/companies/m.md) (CIK 794367)
- Form: 10-Q
- Filed: 2023-11-28
- Accepted by EDGAR: Nov 27, 2023, 17:33 ET
- Period: 2023-10-28
- Accession: 0001628280-23-040057
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/794367/000162828023040057/m-20231028.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/794367/000162828023040057/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-10-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-30 to 2023-10-28 | $4.86bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-29 to 2023-10-28 | $14.97bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-30 to 2023-10-28 | $2.90bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-29 to 2023-10-28 | $9.07bn | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-07-30 to 2023-10-28 | $2.04bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-29 to 2023-10-28 | $5.97bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-30 to 2023-10-28 | $86.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-29 to 2023-10-28 | $453.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-30 to 2023-10-28 | $3.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-29 to 2023-10-28 | $51.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-30 to 2023-10-28 | $43.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-29 to 2023-10-28 | $175.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-30 to 2023-10-28 | $0.15 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-29 to 2023-10-28 | $0.63 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-30 to 2023-10-28 | $0.16 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-29 to 2023-10-28 | $0.64 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-30 to 2023-10-28 | 277,600,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-29 to 2023-10-28 | 277,700,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-29 to 2023-10-28 | $158.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-29 to 2023-10-28 | $485.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-29 to 2023-10-28 | $135.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-01-29 to 2023-10-28 | $38.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-10-28 | $364.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-10-28 | $7.07bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-10-28 | $18.11bn | us-gaap:Assets |
| Current liabilities | at 2023-10-28 | $6.01bn | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-10-28 | $3.00bn | us-gaap:LongTermDebt |
| Current portion of debt | at 2023-10-28 | $160.0m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2023-10-28 | $4.14bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 42,929 characters.

For purposes of the following discussion, all references to "third quarter of 2023" and "third quarter of 2022" are to the Company's 13-week fiscal periods ended October 28, 2023 and October 29, 2022, respectively. References to "2023" and "2022" are to the Company's 39-week fiscal periods ended October 28, 2023 and October 29, 2022, respectively.

The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report, as well as the financial and other information included in the 2022 10-K. The following discussion contains forward-looking statements that reflect the Company's plans, estimates and beliefs. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed below and elsewhere in this report (particularly in "Risk Factors" and in "Forward-Looking Statements") and in the 2022 10-K (particularly in "Risk Factors" and in "Forward-Looking Statements"). This discussion includes Non-GAAP financial measures. For information about these measures, see the disclosure under the caption "Important Information Regarding Non-GAAP Financial Measures".

#### Quarterly Overview

Certain financial highlights for the third quarter of 2023 as compared to the third quarter of 2022, unless otherwise specified, are as follows:

- Macy's, Inc. comparable sales declined 7.0% on an owned basis and declined 6.3% on an owned-plus-licensed basis.
- Macy's comparable sales declined 7.6% on an owned basis and declined 6.7% on an owned-plus-licensed basis.
- Bloomingdale's comparable sales declined 3.2% on an owned basis and declined 4.4% on an owned-plus-licensed basis.
- Bluemercury comparable sales increased 2.5% on an owned basis.
- Digital sales decreased 7%. Digital penetration was 31% of net sales, which remained flat.
- Other revenues were $178 million, down $59 million.
- Gross margin rate was 40.3%, up 160 basis points.
- Selling, general and administrative ("SG&A") expense was $2,040 million, down $48 million. SG&A expense as a percent of total revenue was 40.5%, up 230 basis points.
- Net income was $43 million, compared to net income of $108 million.
- Earnings before interest, taxes, depreciation and amortization ("EBITDA") was $312 million compared to EBITDA of $392 million. On an adjusted basis, EBITDA was $334 million compared to $439 million.
- Diluted earnings per share was $0.15 compared to $0.39 and adjusted diluted earnings per share was $0.21 compared to $0.52.
- Merchandise inventories were down 6%.

During the third quarter of 2023, the Company continued to invest in its five growth vectors that represent strategic investments designed to target future long-term profitable sales growth:

- Macy's private brand reimagination - designed to drive customer loyalty, be a differentiator for the business, complement its national brands matrix and benefit gross margin. In August 2023, Macy's launched On 34th, its first new private brand under the reimagination, with a strong customer response. In September 2023, Macy's rolled out the next phase of I.N.C.'s refresh, further elevating the design strategy and fashion offering. Through 2025, the Company expects to refresh or replace all existing brands in its private brand portfolio, and plans to introduce four new private brands in total, including On 34th.
- Macy's and Bloomie's small formats - play an integral role in supporting the omnichannel ecosystem. The portfolio of small-format stores continues to generate year-over-year comparable owned plus licensed sales growth. From August 2023 through November 2023, the Company opened four additional Macy's small format locations and one additional Bloomie's location. This brings the total of Macy's small format stores to 12 and Bloomie's to three. The Company expects to open up to 30 additional Macy's small format locations through the Fall of 2025 and is committed to expanding Bloomie's locations as well.
- Digital marketplace - extending Macy's and Bloomingdale's category offerings with no inventory risk to deliver the best experience for customers and sellers. As of the end of the third quarter of 2023, the Macy's digital marketplace offered over 1,500 brands compared to 500 brands as of the end of the fourth quarter of 2022 and grew its gross merchandise value by approximately 22% on a consecutive quarter basis. The Company also launched a Bloomingdale's marketplace in the second quarter of 2023 with 55 curated brands available at the end of the third quarter of 2023. Across both marketplaces, the Company is experiencing healthy cross-shopping, resulting in higher average order value and increased units per order.
- Luxury - attracting and retaining luxury customers through differentiated products, services and experiences at Bloomingdale's, Bluemercury and beauty at Macy's. The Company views Bloomingdale’s as being strongly positioned for multi-branded, upscale retail. Bluemercury is establishing itself as a premier destination for skincare with a leading assortment of cutting-edge dermatological products and services. The third quarter of 2023 marked Bluemercury's eleventh consecutive quarter of comparable sales growth, and active customer count on a trailing twelve-month basis increased 6%, driven primarily by new customers. Finally, Macy’s Beauty is an accessible luxury beauty destination with the power to scale elevated brands. The Company views its positioning and offerings across all three nameplates as a competitive advantage as the luxury market continues to grow.
- Personalized offers and communication - presents an opportunity to build loyalty, grow customer lifetime value and protect margins by creating tailored and intimate customer experiences. Digital and technology teams have been testing and learning throughout the year, including the recent launch of several multi-touch communications, which have shown positive signals. The Company anticipates to move from testing in 2023 to scaling in 2024.

### Results of Operations

*(dollars in millions, except per share figures)*

|  | Third Quarter of 2023 Amount | % to Net Sales | % to Total Revenue | Third Quarter of 2022 Amount | % to Net Sales | % to Total Revenue |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $4,860 |  |  | $5,230 |  |  |
| Other revenue | 178 | 3.7% |  | 237 | 4.5% |  |
| Total revenue | 5,038 |  |  | 5,467 |  |  |
| Cost of sales | (2,902) | (59.7)% |  | (3,204) | (61.3)% |  |
| Selling, general and administrative expenses | (2,040) |  | (40.5)% | (2,088) |  | (38.2)% |
| Gains on sale of real estate | 5 |  | 0.1% | 32 |  | 0.6% |
| Impairment, restructuring and other costs | (15) |  | (0.3)% | (15) |  | (0.3)% |
| Operating income | 86 |  | 1.7% | 192 |  | 3.5% |
| Diluted earnings per share | $0.15 |  |  | $0.39 |  |  |
| Supplemental Financial Measures |  |  |  |  |  |  |
| Gross margin (a) | $1,958 | 40.3% |  | $2,026 | 38.7% |  |
| Digital sales as a percentage of net sales | 31% |  |  | 31% |  |  |
| Decrease in comparable sales | (7.0)% |  |  | (3.1)% |  |  |
| Supplemental Non-GAAP Financial Measures |  |  |  |  |  |  |
| Decrease in comparable sales on an owned-plus-licensed basis | (6.3)% |  |  | (2.7)% |  |  |
| Adjusted diluted earnings per share | $0.21 |  |  | $0.52 |  |  |
| EBITDA | $312 |  |  | $392 |  |  |
| Adjusted EBITDA | $334 |  |  | $439 |  |  |

(a) Gross margin is defined as net sales less cost of sales.

See pages 25 to 28 for reconciliations of the supplemental non-GAAP financial measures to their most comparable GAAP financial measure and for other important information.

#### Comparison of the Third Quarter of 2023 and the Third Quarter of 2022

|  | Third Quarter of 2023 | Third Quarter of 2022 |
| --- | ---: | ---: |
| Net sales | $4,860 | $5,230 |
| Decrease in comparable sales | (7.0)% | (3.1)% |
| Decrease in comparable sales on an owned-plus-licensed basis | (6.3)% | (2.7)% |
| Digital sales as a percent of net sales | 31% | 31% |

Net sales for the third quarter of 2023 decreased for Macy’s and Bloomingdale’s, but grew for Bluemercury. During the quarter, net sales were impacted by macroeconomic conditions as consumer spending in discretionary categories continued to be under pressure as expected. Macy's experienced strength in categories that included beauty, particularly fragrances and prestige cosmetics, women's career sportswear, and men's tailored. Women's casual sportswear, big ticket, and handbag categories continued to underperform. Owned average unit retail ("AUR") increased 5.2% from the third quarter of 2022 primarily driven by changes in product and category mix.

### MACY'S, INC.

|  | Third Quarter of 2023 $% to Net Sales |  | Third Quarter of 2022 $% to Net Sales |  |
| --- | ---: | ---: | ---: | ---: |
| Credit card revenues, net | $142 | 2.9% | $206 | 3.9% |
| Macy's Media Network, net | 36 | 0.7% | 31 | 0.6% |
| Other revenue | $178 | 3.7% | $237 | 4.5% |
| Proprietary credit card sales penetration | 44.2% |  | 44.5% |  |

The decrease in other revenues was primarily driven by a $64 million decrease in credit card revenues. This decrease was primarily driven by increased portfolio funding costs and higher estimated credit losses. Macy's Media Network grew $5 million, or 16% from the third quarter of 2022.

|  | Third Quarter of 2023 | Third Quarter of 2022 |
| --- | ---: | ---: |
| Cost of sales | $(2,902) | (3,204) |
| As a percent to net sales | 59.7% | 61.3% |
| Gross margin | $1,958 | $2,026 |
| As a percent to net sales | 40.3% | 38.7% |

Gross margin rate and merchandise margin rate increased 160 basis points and 110 basis points, respectively, in the third quarter of 2023 compared to the third quarter of 2022. The increase in merchandise margin was primarily driven by lower permanent markdowns and improved inbound freight costs. Partially offsetting these benefits were anticipated changes in category mix, inclusive of the transitional impacts of the private brand reimagination as the Company exits brands, and an increase in estimated shortage due to a higher annual shortage rate. Delivery expense as a percent of net sales decreased 50 basis points from the third quarter of 2022 primarily reflecting improvements in merchandise allocation resulting in reductions in packages per order and distance traveled. Finally, inventory declined 6% year-over-year and trailing twelve-month inventory turn was up 1%, driven by the Company's continued inventory discipline.

|  | Third Quarter of 2023 | Third Quarter of 2022 |
| --- | ---: | ---: |
| SG&A expenses | $(2,040) | $(2,088) |
| As a percent to total revenue | 40.5% | 38.2% |

SG&A expenses decreased 2% in the third quarter of 2023 compared to the third quarter of 2022 due to effective implementation of cost saving initiatives and ongoing expense discipline. The increase in SG&A expenses as a percent to total revenue in the third quarter of 2023 was due to a decline in total revenue compared to the third quarter of 2022.

|  | Third Quarter of 2023 | Third Quarter of 2022 |
| --- | ---: | ---: |
| Settlement charges | $(7) | $(32) |

The Company recognized non-cash settlement charges of $7 million and $32 million during the third quarter of 2023 and the third quarter of 2022, respectively, which relate to the pro-rata recognition of net actuarial losses associated with the Company's Pension Plan and are the result of an increase in lump sum distributions associated with the retiree distribution elections.

|  | Third Quarter of 2023 | Third Quarter of 2022 |
| --- | ---: | ---: |
| Net interest expense | $(35) | $(42) |

The decrease in net interest expense in the third quarter of 2023 compared to the third quarter of 2022 was primarily driven by an increase in interest income as well as a decrease in interest expense due to lower borrowings under the ABL Credit Facility.

### MACY'S, INC.

|  | Third Quarter of 2023 | Third Quarter of 2022 |
| --- | ---: | ---: |
| Effective tax rate | 6.5% | 13.6% |
| Federal income statutory rate | 21% | 21% |

Income tax expense decreased $14 million in the third quarter of 2023 compared to the third quarter of 2022 due to lower income before income taxes. Additionally, the effective tax rates for both periods reflect a different effective tax rate as compared to the Company’s Federal income tax statutory rate of 21% primarily due to the recognition of return-to-provision adjustments associated with the filings of the Company’s 2022 and 2021 U.S. Federal income tax returns during each respective period.

*(dollars in millions, except per share figures)*

|  | 39 Weeks Ended October 28, 2023 Amount | % to Net Sales | % to Total Revenue | 39 Weeks Ended October 29, 2022 Amount | % to Net Sales | % to Total Revenue |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $14,972 |  |  | $16,178 |  |  |
| Other revenue | 519 | 3.5% |  | 688 | 4.3% |  |
| Total revenue | 15,491 |  |  | 16,866 |  |  |
| Cost of sales | (9,067) | (60.6)% |  | (9,856) | (60.9)% |  |
| Selling, general and administrative expenses | (5,970) |  | (38.5)% | (6,005) |  | (35.6)% |
| Gains on sale of real estate | 20 |  | 0.1% | 74 |  | 0.4% |
| Impairment, restructuring and other costs | (21) |  | (0.1)% | (25) |  | (0.1)% |
| Operating income | $453 |  | 2.9% | $1,054 |  | 6.2% |
| Diluted earnings per share | $0.63 |  |  | $2.37 |  |  |
| Supplemental Financial Measures |  |  |  |  |  |  |
| Gross margin (a) | $5,905 | 39.4% |  | $6,322 | 39.1% |  |
| Digital sales as a percentage of net sales | 31% |  |  | 31% |  |  |
| Increase (decrease) in comparable sales | (7.7)% |  |  | 2.3% |  |  |
| Supplemental Non-GAAP Financial Measures |  |  |  |  |  |  |
| Increase (decrease) in comparable sales on an owned-plus-licensed basis | (6.9)% |  |  | 2.3% |  |  |
| Adjusted diluted earnings per share | $1.03 |  |  | $2.60 |  |  |
| EBITDA | $999 |  |  | $1,681 |  |  |
| Adjusted EBITDA | $1,149 |  |  | $1,738 |  |  |

(b) Gross margin is defined as net sales less cost of sales.

See pages 25 to 28 for reconciliations of the supplemental non-GAAP financial measures to their most comparable GAAP financial measure and for other important information.

#### Comparison of the 39 Weeks Ended October 28, 2023 and October 29, 2022

|  | 2023 | 2022 |
| --- | ---: | ---: |
| Net sales | $14,972 | $16,178 |
| Increase (decrease) in comparable sales | (7.7)% | 2.3% |
| Increase (decrease) in comparable sales on an owned-plus-licensed basis | (6.9)% | 2.3% |
| Digital sales as a percent of net sales | 31% | 31% |

Net sales for 2023 decreased for Macy’s and Bloomingdale’s but improved for Bluemercury as compared to 2022. Net sales were impacted by macroeconomic conditions as consumer spending in discretionary categories continued to be under pressure as expected. Macy's experienced strength in categories that included beauty, particularly fragrances and prestige cosmetics, women's career sportswear, and men’s tailored. Categories such as women's casual sportswear, active, and big ticket underperformed the prior year. Owned AUR increased 4.9% compared to 2022 due to ticket increases and category mix.

|  | 2023 $% to Net Sales |  | 2022 $% to Net Sales |  |
| --- | ---: | ---: | ---: | ---: |
| Credit card revenues, net | $424 | 2.8% | $601 | 3.7% |
| Macy's Media Network, net | 95 | 0.6% | 87 | 0.5% |
| Other revenue | $519 | 3.5% | $688 | 4.3% |
| Proprietary credit card sales penetration | 43.6% |  | 43.6% |  |

The decrease in other revenues was driven by a $177 million decrease in credit card revenues. This decrease was primarily driven by increased portfolio funding costs and higher estimated credit losses. Macy's Media Network grew $8 million, or 9%, compared to 2022.

|  | 2023 | 2022 |
| --- | ---: | ---: |
| Cost of sales | $(9,067) | $(9,856) |
| As a percent to net sales | 60.6% | 60.9% |
| Gross margin | $5,905 | $6,322 |
| As a percent to net sales | 39.4% | 39.1% |

Gross margin rate increased 30 basis points and merchandise margin rate decreased approximately 20 basis points, respectively, in 2023 compared to 2022. The decrease in merchandise margin was primarily driven by planned changes in Macy’s category mix, partially offset by lower permanent markdowns. Delivery expense as a percent of net sales decreased 50 basis points from 2022 primarily due to improved carrier rates from contract renegotiations and improvements in merchandise allocation resulting in reductions in packages per order and distance traveled. Inventory declined 6% year-over-year driven by the Company's continued inventory discipline.

|  | 2023 | 2022 |
| --- | ---: | ---: |
| SG&A expenses | $(5,970) | $(6,005) |
| As a percent to total revenue | 38.5% | 35.6% |

SG&A expenses decreased less than 1% in 2023 compared to 2022 due to effective implementation of cost saving initiatives and ongoing expense discipline. The increase in SG&A expenses as a percent to total revenue in 2023 was due to a decline in total revenue compared to 2022.

|  | 2023 | 2022 |
| --- | ---: | ---: |
| Gains on sale of real estate | $20 | $74 |

Asset sale gains in 2023 mainly relate to the sale of the Company's Cheshire distribution center in the first quarter of 2023 along with the sale of two other properties, while 2022 mainly consisted of gains from the sale of four properties.

### MACY'S, INC.

|  | 2023 | 2022 |
| --- | ---: | ---: |
| Impairment, restructuring and other costs | $(21) | $(25) |

Impairment, restructuring and other costs in 2023 were primarily related to employee severance and asset impairments while in 2022, these charges were primarily related to the write-off of capital software assets.

|  | 2023 | 2022 |
| --- | ---: | ---: |
| Settlement charges | $(129) | $(32) |

During 2023, the Company recognized a non-cash settlement charge of $129 million associated primarily with 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. In 2022, the Company recognized a non-cash settlement charge of $32 million primarily driven by an increase in lump sum distributions associated with retiree distribution elections.

|  | 2023 | 2022 |
| --- | ---: | ---: |
| Net interest expense | $(108) | $(131) |

The decrease in net interest expense in 2023 compared to 2022 was driven by an increase in interest income and interest savings associated with the financing activities completed in the first quarter of 2022 as well as lower ABL Credit Facility borrowings in 2023 compared to 2022.

|  | 2023 | 2022 |
| --- | ---: | ---: |
| Losses on early retirement of debt | $— | $(31) |

In 2022, losses on early retirement of debt were recognized due to the early payment of $1.1 billion senior notes and debentures in March 2022.

|  | 2023 | 2022 |
| --- | ---: | ---: |
| Effective tax rate | 22.6% | 24.2% |
| Federal income statutory rate | 21% | 21% |

Income tax expense decreased $162 million in 2023 compared to 2022 due to lower income before income taxes. Additionally, the effective tax rates in 2023 and 2022 were 22.6% and 24.2%, respectively, and reflect a different effective tax rate as compared to the Company’s Federal income tax statutory rate of 21% primarily due to the impact of state and local taxes.

### Liquidity and Capital Resources

The Company's principal sources of liquidity are cash from operations, cash on hand and the ABL Credit Facility (as defined 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. The Company believes that, assuming no change in its current business plan, its available cash, together with expected future cash generated from operations, the amount available under the ABL Credit Facility, and credit available in the market, will be sufficient to satisfy its anticipated needs for working capital, capital expenditures, and cash dividends for at least the next twelve months and the foreseeable future thereafter.

Merchandise purchase obligations represent future merchandise payables for inventory purchased from various suppliers through contractual arrangements and are expected to be funded through cash from operations.

#### Capital Allocation

The Company's capital allocation goals include maintaining a healthy balance sheet and investment-grade credit metrics, followed by investing in growth initiatives and returning capital to shareholders through predictable dividends and share repurchases with excess cash.

The Company ended the third quarter of 2023 with a cash and cash equivalents balance of $364 million, an increase of $38 million from $326 million at the end of the third quarter of 2022. The Company is party to the ABL Credit Facility with certain financial institutions providing for a $3,000 million asset-based credit facility.

|  | 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $158 | $488 |
| Net cash used by investing activities | (716) | (869) |
| Net cash provided (used) by financing activities | 60 | (1,005) |

#### Operating Activities

The decrease in net cash provided by operating activities was primarily driven by lower earnings before depreciation and amortization.

#### Investing Activities

The Company's capital expenditures were $749 million in 2023 compared to $983 million in 2022. Capital expenditures in the current year are primarily focused on digital and technology investments, data and analytics, supply chain modernization and omni-channel capabilities. The Company's proceeds from asset dispositions were also $86 million lower in 2023 compared to 2022.

#### Financing Activities

#### Dividends

The Company paid dividends totaling $135 million and $130 million in 2023 and 2022, respectively. The Board of Directors declared regular quarterly dividends of 16.54 cents per share on the Company's common stock, which were paid on April 3, 2023, July 3, 2023 and October 2, 2023, respectively to Macy's shareholders of record at the close of business on March 15, 2023, June 15, 2023 and September 15, 2023, respectively.

On October 27, 2023, the Company announced that its Board of Directors declared a regular quarterly dividend of 16.54 cents per share on its common stock, which will be paid on January 2, 2024, to Macy's shareholders of record at the close of business on December 15, 2023. 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 Board of Directors authorized a new $2,000 million share repurchase program, which does not have an expiration date. During the first quarter of 2023, the Company repurchased approximately 1.4 million shares of its common stock at an average cost of $17.57 per share on the open market under its share repurchase program. As of October 28, 2023, $1,375 million remained available under the authorization. The Company did not repurchase any shares of its common stock during the second and third quarters of 2023. 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. During the first quarter of 2023, the Company also withheld approximately $12 million of shares for tax purposes associated with the issuance of certain stock awards.

#### Debt Transactions

As of October 28, 2023 and October 29, 2022, the Company had $138 million and $65 million of standby letters of credit outstanding under its ABL Credit Facility, respectively, which reduced the available borrowing capacity to $2,862 million and $2,935 million respectively. The Company had $160 million and $183 million of outstanding borrowings under the ABL Credit Facility as of October 28, 2023 and October 29, 2022, respectively.

#### Contractual Obligations

As of October 28, 2023, other than the financing transactions discussed in Note 4 to the accompanying Consolidated Financial Statements, there were no material changes to the Company's contractual obligations and commitments outside the ordinary course of business since January 28, 2023, as reported in the Company's 2022 Form 10-K.

### Guarantor Summarized Financial Information

The Company had $3,007 million aggregate principal amount of senior unsecured notes and senior unsecured debentures (collectively the "Unsecured Notes") outstanding as of both October 28, 2023 and January 28, 2023 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" and together with the "Subsidiary Issuer," the "Obligor Group"), and are fully and unconditionally guaranteed on a senior unsecured basis by Parent. The Unsecured Notes rank equally in right of payment with all of the Company's existing and future senior unsecured obligations, senior to any of the Company's future subordinated indebtedness, and are structurally subordinated to all existing and future obligations of each of the Company's subsidiaries that do not guarantee the Unsecured Notes. Holders of the Company's secured indebtedness, including 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 guarantees 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 $8,462 million and $9,146 million as of October 28, 2023 and January 28, 2023, respectively, have been excluded from the Summarized Balance Sheets. Equity in earnings of non-Guarantor subsidiaries of $472 million and $1,180 million for the 13 and 39 weeks ended October 28, 2023, 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.

### Summarized Balance Sheets

*(in millions)*

*ASSETS*

|  | October 28, 2023 | January 28, 2023 |
| --- | ---: | ---: |
| Current Assets | $1,098 | $1,154 |
| Noncurrent Assets | 7,402 | 8,261 |
| **LIABILITIES** |  |  |
| Current Liabilities | $1,794 | $1,958 |
| Noncurrent Liabilities (a) | 11,019 | 12,517 |

(a) Includes net amounts due to non-Guarantor subsidiaries of $5,753 million and $6,784 million as of October 28, 2023 and January 28, 2023, respectively.

### Summarized Statement of Operations

*(in millions)*

|  | 13 Weeks Ended October 28, 2023 | 39 Weeks Ended October 28, 2023 |
| --- | ---: | ---: |
| Net sales | $183 | $626 |
| Consignment commission income (a) | 771 | 2,361 |
| Other revenue | 37 | 96 |
| Cost of sales | (87) | (299) |
| Operating loss | (380) | (936) |
| Loss before income taxes (b) | (320) | (530) |
| Net loss | (299) | (305) |

(a) Income pertains to transactions with ABL Borrower, a non-Guarantor subsidiary.

(b) Includes $130 million and $700 million of dividend income from non-Guarantor subsidiaries for the 13 and 39 weeks ended October 28, 2023, respectively.

### Outlook and Recent Developments

On November 16, 2023, the Company updated its annual 2023 guidance as follows:

- Net sales are expected to be between $22.9 billion and $23.2 billion;
- Comparable sales on a 52-week owned-plus-licensed basis are expected to be down approximately 7% to 6% as compared to 2022;
- Other revenues are expected to be approximately 3.2% of net sales and credit card revenues are expected to account for approximately 81% of other revenue;
- Gross margin rate is expected to be between 38.4% and 38.5%;
- SG&A expense as a percent of total revenue and as a percent of net sales is expected to be approximately 35.2% to 35.5% and 36.4% to 36.6%, respectively;
- Asset sale gains are expected to be approximately $45 million;
- Benefit plan income is expected to be approximately $11 million;
- Depreciation and amortization is expected to be approximately $895 million;
- Adjusted EBITDA as a percent of total revenue and as a percent of net sales is expected to be approximately 8.9% to 9.1% and 9.1% to 9.4%, respectively;
- Interest expense is expected to be approximately $140 million;
- Diluted shares outstanding is expected to be approximately 278 million; and,
- Adjusted diluted EPS is expected to be between $2.88 and $3.13.

#### Important Information Regarding Non-GAAP Financial Measures

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP financial measures provide users of the Company's financial information with additional useful information in evaluating operating performance. Management believes that providing supplemental changes in comparable sales on an owned-plus-licensed basis, which includes the impact of growth in comparable sales of departments licensed to third parties, assists in evaluating the Company's ability to generate sales growth, whether through owned businesses or departments licensed to third parties, 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, diluted earnings per share attributable to Macy's, Inc. shareholders 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.

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

Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the Company's financial results prepared in accordance with GAAP. Certain of the items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the Company's financial position, results of operations or cash flows and should therefore be considered in assessing the Company's actual and future financial condition and performance. Additionally, the amounts received by the Company on account of sales of departments licensed to third parties are limited to commissions received on such sales. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.

#### 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 basis, to GAAP comparable sales (i.e., on an owned basis), which the Company believes to be the most directly comparable GAAP financial measure.

|  | 13 Weeks Ended October 28, 2023 vs. 13 Weeks Ended October 29, 2022 Macy's, Inc. | Macy's | Bloomingdale's |
| --- | ---: | ---: | ---: |
| Decrease in comparable sales on an owned basis (Note 1) | (7.0%) | (7.6%) | (3.2%) |
| Impact of departments licensed to third parties (Note 2) | 0.7% | 0.9% | (1.2%) |
| Decrease in comparable sales on an owned-plus-licensed basis | (6.3%) | (6.7%) | (4.4%) |

|  | 39 Weeks Ended October 28, 2023 vs. 39 Weeks Ended October 29, 2022 Macy's, Inc. | Macy's | Bloomingdale's |
| --- | ---: | ---: | ---: |
| Decrease in comparable sales on an owned basis (Note 1) | (7.7%) | (8.5%) | (3.3%) |
| Impact of departments licensed to third parties (Note 2) | 0.8% | 0.9% | (0.5%) |
| Decrease in comparable sales on an owned-plus-licensed basis | (6.9%) | (7.6%) | (3.8%) |

|  | Macy's, Inc. 13 Weeks Ended October 29, 2022 vs. 13 Weeks Ended October 30, 2021 | 39 Weeks Ended October 29, 2022 vs. 39 Weeks Ended October 30, 2021 |
| --- | ---: | ---: |
| Decrease in comparable sales on an owned basis (Note 1) | (3.1%) | 2.3% |
| Impact of departments licensed to third parties (Note 2) | 0.4% | (0.2%) |
| Decrease in comparable sales on an owned-plus-licensed basis | (2.7%) | 2.3% |

Notes:

(1) Represents the period-to-period percentage change in net sales from stores in operation for one full fiscal year for the 13 and 39 weeks ended October 28, 2023 and October 29, 2022. Such calculation includes all digital sales and excludes commissions from departments licensed to third parties. 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, in the calculation of comparable sales. Macy’s and Bloomingdale’s license third parties to operate certain departments in their stores and online, including Macy’s and Bloomingdale’s digital Marketplace, 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.

#### 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 directly comparable GAAP measure.

|  | 13 Weeks Ended October 28, 2023 (millions) | 13 Weeks Ended October 29, 2022 | 39 Weeks Ended October 28, 2023 | 39 Weeks Ended October 29, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $43 | $108 | $175 | $668 |
| Interest expense - net | 35 | 42 | 108 | 131 |
| Losses on early retirement of debt | — | — | — | 31 |
| Federal, state and local income tax expense | 3 | 17 | 51 | 213 |
| Depreciation and amortization | 231 | 225 | 665 | 638 |
| EBITDA | $312 | $392 | $999 | $1,681 |
| Impairment, restructuring and other costs | 15 | 15 | 21 | 25 |
| Settlement charges | 7 | 32 | 129 | 32 |
| Adjusted EBITDA | $334 | $439 | $1,149 | $1,738 |

27

#### 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.

*(millions, except per share figures)*

|  | 13 Weeks Ended October 28, 2023 Net Income Diluted Earnings Per Share | 13 Weeks Ended October 29, 2022 Net Income Diluted Earnings Per Share |
| --- | ---: | ---: |
| As reported | $43 $0.15 | $108 $0.39 |
| Impairment, restructuring and other costs | 15 0.05 | 15 0.05 |
| Settlement charges | 7 0.03 | 32 0.12 |
| Income tax impact of certain items noted above | (6) (0.02) | (12) (0.04) |
| As adjusted to exclude certain items above | $59 $0.21 | $143 $0.52 |
|  | **39 Weeks Ended October 28, 2023** | **39 Weeks Ended October 29, 2022** |
|  | **Net Income** **Diluted Earnings Per Share** | **Net Income** **Diluted Earnings Per Share** |
|  | **(millions, except per share figures)** |  |
| As reported | $175 $0.63 | $668 $2.37 |
| Impairment, restructuring and other costs | 21 0.07 | 25 0.09 |
| Settlement charges | 129 0.46 | 32 0.11 |
| Losses on early retirement of debt | — — | 31 0.11 |
| Income tax impact of certain items noted above | (38) (0.13) | (22) (0.08) |
| As adjusted to exclude certain items above | $287 $1.03 | $734 $2.60 |

### Critical Accounting Estimates

#### 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 October 28, 2023, and 97% 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.

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 its annual goodwill impairment test as of the end of fiscal May 2023, the Company elected to perform a qualitative impairment test on its reporting units and intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceed the carrying values and the reporting units and intangible assets with indefinite lives are 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. However, the Company continues to monitor the key inputs to fair value of its reporting units. A sustained decline in market capitalization or future declines in macroeconomic factors or business conditions could result in an impairment charge in future periods.

## Market risk

As filed, 321 characters.

There have been no material changes to the Company's market risk as described in the Company's 2022 10-K. For a discussion of the Company's exposure to market risk, refer to the Company's market risk disclosures set forth in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" of the 2022 10-K.

## Controls and procedures

As filed, 1,679 characters.

The Company's Chief Executive Officer and Chief Financial Officer have carried out, as of October 28, 2023, with the participation of the Company's management, an evaluation of the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of October 28, 2023, the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports the Company files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (the "SEC") rules and forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

From time to time adoption of new accounting pronouncements, major organizational restructuring and realignment occurs for which the Company reviews its internal control over financial reporting. As a result of this review, there were no changes in the Company's internal control over financial reporting that occurred during the Company's most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

## Risk factors

As filed, 132 characters.

There have been no material changes to the Risk Factors described in Part I, Item 1A."Risk Factors" in the Company's 2022 Form 10-K.

Filed Nov 28, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-040057. Last ingested by Listed: Nov 2, 2026, 17:32 ET. No prices; not investment advice.