UNITED STATES | ||
SECURITIES AND EXCHANGE COMMISSION | ||
Washington, D.C. 20549 | ||
FORM 8-K | ||
CURRENT REPORT | ||
Pursuant to Section 13 or 15(d) of The | ||
Securities Exchange Act of 1934 | ||
Date of Report (Date of earliest event reported): August 10, 2017 | ||
MACY’S, INC. | ||
7 West Seventh Street, Cincinnati, Ohio 45202 (513) 579-7000 | ||
-and- | ||
151 West 34th Street, New York, New York 10001 (212) 494-1602 | ||
Delaware | 1-13536 | 13-3324058 |
(State of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | ||
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | ||
Emerging growth company □ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ||
□ |
Item 2.02. | Results of Operations and Financial Condition. |
On August 10, 2017, Macy’s, Inc. ("Macy’s") issued a press release announcing Macy’s financial condition, results of operations and cash flows as of and for the 13 and 26 weeks ended July 29, 2017. The full text of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. Macy’s reports its financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). The press release referred to above contains non-GAAP financial measures of changes in comparable sales on an owned plus licensed basis, operating income and diluted earnings per share attributable to Macy’s shareholders, excluding certain items, and cash flow from operating activities net of cash used in investing activities. The excluded items consist of asset impairment charges and other costs, settlement charges related to Macy's defined benefit retirement plans and net premiums and other fees related to the early retirement of debt. Macy's licenses third parties to operate certain departments in its stores and online and receives commissions from these third parties based on a percentage of their net sales. In its financial statements prepared in conformity with GAAP, Macy's includes these commissions (rather than sales of the departments licensed to third parties) in its net sales. Macy's does not, however, include any amounts with respect to licensed department sales (or any commissions earned on such sales) in its comparable sales calculation on an owned basis. Management believes that the amounts of commissions earned on sales of departments licensed to third parties are not material to its results of operations for the periods presented. 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 Macy's ability to generate sales growth, whether through owned businesses or departments licensed to third parties, and in evaluating the impact of changes in the manner in which certain departments are operated. The reconciliation of the forward-looking 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) is in the same manner as illustrated in the press release, where the impact of growth in comparable sales of departments licensed to third parties is the only reconciling item. Management believes that excluding certain items from operating income and diluted earnings per share attributable to Macy's, Inc. shareholders that are not associated with Macy's core operations and that may vary substantially in frequency and magnitude period-to-period provides useful supplemental measures that assist in evaluating Macy's ability to generate earnings and leverage sales and to more readily compare these metrics between past and future periods. Macy’s does not provide the most directly comparable forward-looking GAAP measure of diluted earnings per share attributable to Macy’s shareholders because the timing and amount of excluded items (e.g., asset impairment charges and other costs, retirement plan settlement charges and net premiums on the early retirement of debt) are unreasonably difficult to fully and accurately estimate. Further, providing cash flow from operating activities net of cash used in investing activities is a useful measure in evaluating Macy’s ability to generate cash from operations after giving effect to cash used by investing activities. The reader is cautioned that any non-GAAP financial measures provided by Macy's are provided in addition to, and not as alternatives for, Macy's reported results prepared in accordance with GAAP. Certain items that may have a significant impact on Macy's financial position, results of operations or cash flows must be considered when assessing Macy's actual and future financial condition and performance regardless of whether these items are included in these non-GAAP financial measures. In addition, you should note that the amounts received by Macy's on sales of departments licensed to third parties are limited to commissions received on such sales. The methods used by Macy's 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 provided by Macy's may not be comparable to similar measures provided by other companies. |
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits |
99.1 | Press Release of Macy’s dated August 10, 2017 |
MACY’S, INC. |
SIGNATURE |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. |
MACY’S, INC. | |
Dated: August 10, 2017 | By: /s/ Elisa D. Garcia |
Name: Elisa D. Garcia | |
Title: Chief Legal Officer and Secretary | |
Index to Exhibits |
Index Number | ||
99.1 | Press Release of Macy’s dated August 10, 2017. |
13 Weeks Ended | 13 Weeks Ended | |||||||
July 29, 2017 | July 30, 2016 | |||||||
$ | % to Net sales | $ | % to Net sales | |||||
Net sales | $ | 5,552 | $ | 5,866 | ||||
Cost of sales (Note 2) | 3,313 | 59.7% | 3,468 | 59.1% | ||||
Gross margin | 2,239 | 40.3% | 2,398 | 40.9% | ||||
Selling, general and administrative expenses | (1,934) | (34.8%) | (2,026) | (34.5%) | ||||
Impairments and other costs (Note 3) | - | -% | (249) | (4.3%) | ||||
Settlement charges (Note 4) | (51) | (0.9%) | (6) | (0.1%) | ||||
Operating income | 254 | 4.6% | 117 | 2.0% | ||||
Interest expense – net | (79) | (97) | ||||||
Net premiums on early retirement of debt (Note 5) | 2 | - | ||||||
Income before income taxes | 177 | 20 | ||||||
Federal, state and local income tax expense (Note 6) | (64) | (11) | ||||||
Net income | 113 | 9 | ||||||
Net loss attributable to noncontrolling interest | 3 | 2 | ||||||
Net income attributable to Macy’s, Inc. shareholders | $ | 116 | $ | 11 | ||||
Basic earnings per share attributable to Macy’s, Inc. shareholders | $ | 0.38 | $ | 0.03 | ||||
Diluted earnings per share attributable to Macy’s, Inc. shareholders | $ | 0.38 | $ | 0.03 | ||||
Average common shares: | ||||||||
Basic | 305.5 | 309.4 | ||||||
Diluted | 306.5 | 311.3 | ||||||
End of period common shares outstanding | 304.6 | 308.5 | ||||||
Depreciation and amortization expense | $ | 244 | $ | 260 |
(1) | Because of the seasonal nature of the retail business, the results of operations for the 13 weeks ended July 29, 2017 and July 30, 2016 (which do not 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 July 29, 2017 and July 30, 2016. |
(3) | For the 13 weeks ended July 30, 2016, impairments and other costs amounted to $249 million on a pre-tax basis, $154 million after tax or $.49 per diluted share attributable to Macy’s, Inc. These charges primarily relate to store closings. |
(4) | For the 13 weeks ended July 29, 2017 and July 30, 2016, non-cash settlement charges of $51 million and $6 million, respectively, were recognized on a pre-tax basis. The after tax effect of these charges during the 13 weeks ended July 29, 2017 was $32 million, or $.10 per diluted share attributable to Macy’s, Inc. The after tax effect of these charges during the 13 weeks ended July 30, 2016 was $3 million, or $.02 per diluted share attributable to Macy’s, Inc. These charges result from an increase in lump sum distributions from the Company’s defined benefit retirement plans and are associated with store closings, a voluntary separation program and organizational restructuring, in addition to periodic distribution activity. |
(5) | The 13 weeks ended July 29, 2017 include income associated with the early retirement of debt of approximately $2 million on a pre-tax basis, $1 million after tax, related to premium amortization net of expenses and fees. |
(6) | 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 as well as the recognition of approximately $1 million of net tax deficiencies associated with share-based payment awards due to the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting. Historically, the Company had recognized such amounts as an offset to accumulated excess tax benefits previously recognized in additional paid-in capital. |
26 Weeks Ended | 26 Weeks Ended | |||||||
July 29, 2017 | July 30, 2016 | |||||||
$ | % to Net sales | $ | % to Net sales | |||||
Net sales | $ | 10,890 | $ | 11,637 | ||||
Cost of sales (Note 2) | 6,619 | 60.8% | 6,984 | 60.0% | ||||
Gross margin | 4,271 | 39.2% | 4,653 | 40.0% | ||||
Selling, general and administrative expenses | (3,746) | (34.3%) | (3,992) | (34.3%) | ||||
Impairments and other costs (Note 3) | - | -% | (249) | (2.1%) | ||||
Settlement charges (Note 4) | (51) | (0.5%) | (19) | (0.2%) | ||||
Operating income | 474 | 4.4% | 393 | 3.4% | ||||
Interest expense – net | (163) | (195) | ||||||
Net premiums on early retirement of debt (Note 5) | (1) | - | ||||||
Income before income taxes | 310 | 198 | ||||||
Federal, state and local income tax expense (Note 6) | (127) | (74) | ||||||
Net income | 183 | 124 | ||||||
Net loss attributable to noncontrolling interest | 4 | 3 | ||||||
Net income attributable to Macy’s, Inc. shareholders | $ | 187 | $ | 127 | ||||
Basic earnings per share attributable to Macy’s, Inc. shareholders | $ | 0.61 | $ | 0.41 | ||||
Diluted earnings per share attributable to Macy’s, Inc. shareholders | $ | 0.61 | $ | 0.41 | ||||
Average common shares: | ||||||||
Basic | 305.2 | 310.0 | ||||||
Diluted | 306.7 | 312.4 | ||||||
End of period common shares outstanding | 304.6 | 308.5 | ||||||
Depreciation and amortization expense | $ | 487 | $ | 520 |
(1) | Because of the seasonal nature of the retail business, the results of operations for the 26 weeks ended July 29, 2017 and July 30, 2016 (which do not 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 26 weeks ended July 29, 2017 and July 30, 2016. |
(3) | For the 26 weeks ended July 30, 2016, impairments and other costs amounted to $249 million on a pre-tax basis, $154 million after tax or $.49 per diluted share attributable to Macy’s, Inc. These charges primarily relate to store closings. |
(4) | For the 26 weeks ended July 29, 2017 and July 30, 2016, non-cash settlement charges of $51 million and $19 million, respectively, were recognized on a pre-tax basis. The after tax effect of these charges during the 26 weeks ended July 29, 2017 was $32 million, or $.10 per diluted share attributable to Macy’s, Inc. The after tax effect of these charges during the 26 weeks ended July 30, 2016 was $12 million, or $.04 per diluted share attributable to Macy’s, Inc. These charges result from an increase in lump sum distributions from the Company’s defined benefit retirement plans and are associated with store closings, a voluntary separation program and organizational restructuring, in addition to periodic distribution activity. |
(5) | The 26 weeks ended July 29, 2017 include expense associated with the early retirement of debt of approximately $1 million on a pre-tax basis. |
(6) | 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 as well as the recognition of approximately $12 million of net tax deficiencies associated with share-based payment awards due to the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting. Historically, the Company had recognized such amounts as an offset to accumulated excess tax benefits previously recognized in additional paid-in capital. |
July 29, | January 28, | July 30, | |||||||
2017 | 2017 | 2016 | |||||||
ASSETS: | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 783 | $ | 1,297 | $ 1,000 | ||||
Receivables | 382 | 522 | 423 | ||||||
Merchandise inventories | 4,980 | 5,399 | 5,322 | ||||||
Prepaid expenses and other current assets | 412 | 408 | 471 | ||||||
Total Current Assets | 6,557 | 7,626 | 7,216 | ||||||
Property and Equipment – net | 6,822 | 7,017 | 7,187 | ||||||
Goodwill | 3,897 | 3,897 | 3,897 | ||||||
Other Intangible Assets – net | 493 | 498 | 502 | ||||||
Other Assets | 810 | 813 | 904 | ||||||
Total Assets | $ | 18,579 | $ | 19,851 | $19,706 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY: | |||||||||
Current Liabilities: | |||||||||
Short-term debt | $ 16 | $ 309 | $ 1,063 | ||||||
Merchandise accounts payable | 1,669 | 1,423 | 1,877 | ||||||
Accounts payable and accrued liabilities | 2,873 | 3,563 | 2,514 | ||||||
Income taxes | 52 | 352 | 23 | ||||||
Total Current Liabilities | 4,610 | 5,647 | 5,477 | ||||||
Long-Term Debt | 6,301 | 6,562 | 6,567 | ||||||
Deferred Income Taxes | 1,512 | 1,443 | 1,448 | ||||||
Other Liabilities | 1,773 | 1,877 | 2,164 | ||||||
Shareholders’ Equity: | |||||||||
Macy’s, Inc. | 4,388 | 4,323 | 4,046 | ||||||
Noncontrolling interest | (5) | (1) | 4 | ||||||
Total Shareholders’ Equity | 4,383 | 4,322 | 4,050 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 18,579 | $ | 19,851 | $19,706 |
26 Weeks Ended July 29, 2017 | 26 Weeks Ended July 30, 2016 | |||||
Cash flows from operating activities: | ||||||
Net income | $ 183 | $ 124 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Impairment and other costs | - | 249 | ||||
Settlement charges | 51 | 19 | ||||
Depreciation and amortization | 487 | 520 | ||||
Stock-based compensation expense | 31 | 37 | ||||
Gains on sale of real estate | (111) | (35) | ||||
Amortization of financing costs and premium on acquired debt | (10) | (1) | ||||
Changes in assets and liabilities: | ||||||
Decrease in receivables | 119 | 99 | ||||
Decrease in merchandise inventories | 419 | 184 | ||||
Increase in prepaid expenses and other current assets | (13) | (40) | ||||
Increase in merchandise accounts payable | 261 | 307 | ||||
Decrease in accounts payable, accrued liabilities and other items not separately identified | (540) | (634) | ||||
Decrease in current income taxes | (301) | (204) | ||||
Increase (decrease) in deferred income taxes | 24 | (26) | ||||
Decrease in other liabilities not separately identified | (64) | (39) | ||||
Net cash provided by operating activities | 536 | 560 | ||||
Cash flows from investing activities: | ||||||
Purchase of property and equipment | (247) | (293) | ||||
Capitalized software | (125) | (151) | ||||
Disposition of property and equipment | 150 | 67 | ||||
Other, net | 9 | 39 | ||||
Net cash used by investing activities | (213) | (338) | ||||
Cash flows from financing activities: | ||||||
Debt repaid | (550) | (3) | ||||
Financing costs | - | (3) | ||||
Dividends paid | (230) | (228) | ||||
Increase (decrease) in outstanding checks | (64) | 2 | ||||
Acquisition of treasury stock | (1) | (130) | ||||
Issuance of common stock | 2 | 27 | ||||
Proceeds from noncontrolling interest | 6 | 4 | ||||
Net cash used by financing activities | (837) | (331) | ||||
Net decrease in cash and cash equivalents | (514) | (109) | ||||
Cash and cash equivalents at beginning of period | 1,297 | 1,109 | ||||
Cash and cash equivalents at end of period | $ | 783 | $ | 1,000 |
13 Weeks Ended July 29, 2017 | 26 Weeks Ended July 29, 2017 | |
Decrease in comparable sales on an owned basis (Note 1) | (2.8)% | (4.0)% |
Impact of growth in comparable sales of departments licensed to third parties (Note 2) | 0.3% | 0.4% |
Decrease in comparable sales on an owned plus licensed basis | (2.5)% | (3.6)% |
(1) | Represents the period-to-period change in net sales from stores in operation throughout the year presented and the immediately preceding year and all online sales, excluding commissions from departments licensed to third parties. |
(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 via the Internet in the calculation of comparable sales. The Company licenses third parties to operate certain departments in its stores and online and receives commissions from these third parties based on a percentage of their net sales. In its financial statements prepared in conformity with GAAP, the Company includes these commissions (rather than sales of the departments licensed to third parties) in its net sales. The Company does not, however, include any amounts with respect to licensed department sales (or any commissions earned on such sales) in its comparable sales in accordance with GAAP (i.e., on an owned basis). The Company believes that the amounts of commissions earned on sales of departments licensed to third parties are not material to its results of operations for the periods presented. |
13 Weeks Ended July 29, 2017 | 13 Weeks Ended July 30, 2016 | |||
Diluted earnings per share attributable to Macy’s, Inc. shareholders | $0.38 | $0.03 | ||
Add back the pre-tax impact of impairments and other costs | - | 0.80 | ||
Add back the pre-tax impact of settlement charges | 0.17 | 0.02 | ||
Deduct the pre-tax impact of net premiums associated with the early retirement of debt (Note 1) | - | - | ||
Deduct the income tax impact of certain items identified above | (0.07) | (0.31) | ||
Diluted earnings per share attributable to Macy’s, Inc. shareholders, excluding certain items | $0.48 | $0.54 |
26 Weeks Ended July 29, 2017 | 26 Weeks Ended July 30, 2016 | |||
Diluted earnings per share attributable to Macy’s, Inc. shareholders | $0.61 | $0.41 | ||
Add back the pre-tax impact of impairments and other costs | - | 0.80 | ||
Add back the pre-tax impact of settlement charges | 0.17 | 0.06 | ||
Add back the pre-tax impact of net premiums associated with the early retirement of debt (Note 1) | - | - | ||
Deduct the income tax impact of certain items identified above | (0.07) | (0.33) | ||
Diluted earnings per share attributable to Macy’s, Inc. shareholders, excluding certain items | $0.71 | $0.94 |
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