Market Overview

Macy's, Inc. Reports Fourth Quarter and FY 2017 Earnings and Provides 2018 Guidance

Share:

Reports positive 4Q comparable sales; exceeds FY17 earnings and
comparable sales guidance

Company plans to return to comparable sales growth in 2018

Macy's, Inc. (NYSE:M) today reported fourth quarter and fiscal 2017
results and is providing guidance for fiscal 2018 that reflects the
company's plan to return to comparable sales growth.

"We are committed to returning Macy's, Inc. to comparable sales growth
in 2018 and will build on the momentum we created in the fourth quarter
of 2017. Macy's, Inc. had a solid fourth quarter, including strong
performance in January, and the full year exceeded our expectations for
annual comparable sales and adjusted earnings per diluted share. We are
encouraged to see a trend improvement in our brick & mortar business,
and we had the 34th consecutive quarter of double-digit growth in our
digital business," said Jeff Gennette, Macy's, Inc. chairman and chief
executive officer. "Consumer spending was strong in the fourth quarter,
and we were ready with improved execution and great products across all
categories. We were disciplined with our promotional cadence and
maintained a good inventory position. We head into 2018 with an improved
base business, healthy inventories, a focused and engaged organization
and a clear path to return Macy's to growth."

"In 2017, we tested and iterated a number of merchandising and strategic
initiatives as part of our North Star Strategy. These initiatives
contributed to our fourth quarter performance, and in 2018 we are ready
to scale as well as test additional revenue-driving initiatives. We are
also encouraged by customer response to our new Star Rewards loyalty
program," said Gennette. "On the path to growth in 2018, we will
continue to improve our execution, strengthen our product offerings and
make the necessary investments to be competitive with today's demanding
consumer."

Sales

Sales in the fourth quarter of 2017 totaled $8.666 billion, an increase
of 1.8 percent, compared with sales of $8.515 billion in the fourth
quarter of 2016. Comparable sales on an owned basis were up 1.3 percent
in the fourth quarter and up 1.4 percent on an owned plus licensed
basis. Total sales in the fourth quarter of 2017 reflect a 14th
week of sales, whereas comparable sales are on the same 13-week basis as
fiscal 2016.

Sales in fiscal 2017 totaled $24.837 billion, down 3.7 percent from
total sales of $25.778 billion in fiscal 2016. Comparable sales on an
owned basis declined 2.2 percent in fiscal 2017. Comparable sales on an
owned plus licensed basis declined by 1.9 percent in fiscal 2017. Total
sales for fiscal 2017 reflect a 53rd week of sales, whereas
comparable sales are on the same 52-week basis as fiscal 2016.

Earnings Per Share

Fourth quarter 2017 earnings per diluted share were $4.31 compared to
$1.54 per share in the fourth quarter of 2016. Fiscal 2017 earnings per
diluted share were $5.04 compared to $1.99 per share in fiscal 2016.

The following chart shows fourth quarter and fiscal 2017 earnings per
diluted share excluding restructuring and other costs, non-cash
retirement plan settlement charges, net premiums on the early retirement
of debt and the impact of federal tax reform on the company's deferred
taxes. Results for 2016 exclude restructuring and other costs and
non-cash retirement plan settlement charges.

Fourth quarter and fiscal 2017 adjusted earnings per diluted share were
positively impacted by 7 cents due to the change in the effective annual
tax rate due to federal tax reform.

Fourth Quarter and Fiscal-Year 2017 Adjusted Diluted Earnings Per
Share (EPS) Results

     
Fourth Quarter   Fiscal
      2017   2016   2017   2016
Diluted EPS     $4.31   $1.54   $5.04   $1.99
Exclude after-tax impact of restructuring, other costs, non-cash
retirement plan settlement charges and net premiums on the early
retirement of debt
    $0.37   $0.48   $0.59   $1.12
Deduct impact of federal tax reform on deferred taxes     $(1.86)   $0.00   $(1.86)   $0.00
Adjusted diluted EPS excluding certain items identified above     $2.82   $2.02   $3.77   $3.11
   

Operating Income

Macy's, Inc.'s operating income for the fourth quarter of 2017 totaled
$1.213 billion, or 14.0 percent of sales, compared to $815 million, or
9.6 percent of sales, for the fourth quarter of 2016. Operating income
for the fourth quarter of 2017 totaled $1.397 billion, or 16.1 percent
of sales, excluding restructuring and other costs of $152 million and
non-cash retirement plan settlement charges of $32 million. Operating
income for the fourth quarter of 2017 includes $234 million in book
gains for the sale of the Union Square Men's building (or 48 cents per
diluted share), which was sold in fiscal 2016. Operating income for the
fourth quarter of 2016 totaled $1.062 billion, or 12.5 percent of sales,
excluding $230 million of impairments, store closings and other costs
and non-cash retirement plan settlement charges of $17 million.

For fiscal 2017, Macy's, Inc.'s operating income totaled $1.807 billion,
or 7.3 percent of sales, compared with operating income of $1.315
billion, or 5.1 percent of sales, for fiscal 2016. Operating income for
fiscal 2017 totaled $2.098 billion, or 8.4 percent of sales, excluding
$186 million of restructuring and other costs and $105 million of
non-cash retirement plan settlement charges.

Macy's, Inc.'s fiscal 2016 operating income included $479 million of
impairments, store closing and other costs. 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.

Cash Flow

Net cash provided by operating activities was $1.944 billion in fiscal
2017, compared with $1.801 billion in fiscal 2016. Net cash used by
investing activities in fiscal 2017 was $373 million, compared with $187
million in fiscal 2016. Operating cash flows net of investing were
$1.571 billion in fiscal 2017, compared with operating cash flows net of
investing of $1.614 billion in fiscal 2016. During 2017, the company
demonstrated its commitment to a strong balance sheet by utilizing
excess cash to delever and reduce its debt by approximately $950 million.

Store Openings/Closings

In the fourth quarter of 2017, the company opened two new freestanding
Bluemercury beauty specialty stores for a total of 137 stores.

In fiscal 2017, the company opened 36 Bluemercury stores, two Macy's
stores, 30 Backstage off-price stores within existing Macy's stores and
one Bloomingdale's licensed location in Kuwait. The company closed 16
Macy's stores, all as previously disclosed. This includes the closure of
the Waterfront store in Homestead, PA, which was announced at the end of
the fourth quarter.

In February 2018, the company announced that it will close its Redmond
Town Center main store in Redmond, WA, in early 2019. This brings the
total to 83 of the approximately 100 store closures announced in August
2016.

Real Estate Update

In fiscal 2017, the company's asset sales totaled $411 million in cash
proceeds. These sales included stores as well as non-store real estate
such as warehouses, outparcels and parking garages. Over the last three
fiscal years, Macy's, Inc. has completed transactions totaling
approximately $1.3 billion in cash proceeds.

Heading into fiscal 2018, Macy's, Inc. continues to opportunistically
evaluate its real estate portfolio to identify opportunities where the
redevelopment value of its real estate exceeds that of non-strategic
operating locations. The company also continues to focus on creating
additional value from its flagship stores while adding vitality to the
retail experience.

In February 2018, the company signed an agreement to sell floors 8
through 14 of its State Street store in Chicago to a private real estate
fund sponsored by Brookfield Asset Management. Brookfield intends to
convert these largely unused floors into dynamic, creative office space.
As part of this transaction, Macy's, Inc. will receive a total of $30
million ($27 million of consideration and a $3 million contribution for
certain improvements), as well as upside participation in the ultimate
value creation associated with the conversion of the upper floors to
office space. This transaction will enable the company to make Macy's on
State Street a more vibrant shopping destination. The company
anticipates closing this transaction in the first half of fiscal 2018.

The company is now exploring opportunities to sell the approximately
240,000 gross square foot I. Magnin portion of the main Union Square
building in San Francisco. Macy's Union Square comprises multiple
buildings, and the former I. Magnin flagship building, situated at the
corner of Stockton and Geary Streets, is a separate structure
well-suited for development. As previously announced, Macy's sold the
Union Square Men's building and is incorporating the men's business into
the main store. The company is also making additional enhancements to
the Union Square main building through the conversion of street-level
selling space into high-end retail shops that will be leased to third
parties. The Union Square main building will remain the largest
department store in the Bay Area and will comprise approximately 700,000
gross square feet.

Macy's, Inc. continues to work with Brookfield as part of its strategic
alliance. The companies have agreed to certain terms on nine assets (of
the approximately 50-asset portfolio), which Brookfield will redevelop
once it has received the necessary approvals. Upon the completion of
certain approvals, Macy's, Inc. will either sell its interests in the
individual assets to Brookfield or contribute them to individual joint
ventures. If sold, the cumulative value is estimated to be approximately
$50 million. Additionally, Macy's, Inc. would be entitled to an
increased purchase price if certain financial targets are achieved for
the three largest assets. The company expects that these developments
will add vibrancy and desirability to the vicinity, enhancing the retail
experience in these locations.

Looking Ahead

The company is strategically investing to accelerate the rollout of a
number of near-term growth initiatives impacting stores, technology and
merchandising. The company has also developed an employee incentive
program to drive results and engagement with associates at every level
of the organization, with an emphasis on its hourly associates. These
investments are expected to support the company's return to comparable
sales growth in fiscal 2018.

Guidance for fiscal 2018 reflects the new accounting standards related
to revenue recognition and retirement benefits. Macy's, Inc. has recast
its quarterly preliminary and unaudited income statements and balance
sheets for 2016 and 2017, which can be found on the investor relations
page at www.macysinc.com.

For fiscal 2018, the company expects comparable sales on both an owned
and an owned plus licensed basis to be flat to up 1 percent. Total sales
are expected to be down between 0.5 percent and 2 percent in fiscal
2018. Adjusted earnings per diluted share of $3.55 to $3.75 are expected
in fiscal 2018, excluding anticipated settlement charges related to the
company's defined benefit plans. Adjusted earnings per diluted share
include anticipated asset sale gains of $300 million to $325 million in
fiscal 2018, compared to $544 million in asset sale gains for fiscal
2017. The company anticipates an effective annual tax rate of 23.25
percent for fiscal 2018.

Total sales guidance is provided on a 52-week basis in 2018 compared to
a 53-week basis in 2017. Comparable sales guidance is provided on a
52-week basis in both 2018 and 2017.

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.

Macy's, Inc. is one of the nation's premier retailers. With fiscal 2017
sales of $24.837 billion and approximately 130,000 employees, the
company operates more than 690 department stores under the nameplates
Macy's and Bloomingdale's, and approximately 160 specialty stores that
include Bloomingdale's The Outlet, Bluemercury and Macy's Backstage.
Macy's, Inc. operates stores in 44 states, the District of Columbia,
Guam and Puerto Rico, as well as macys.com, bloomingdales.com
and bluemercury.com. Bloomingdale's stores
in Dubai and Kuwait are operated by Al Tayer Group LLC under license
agreements. Macy's, Inc. has corporate offices in Cincinnati, Ohio, and
New York, New York.

All statements in this press release that are not statements of
historical fact are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are
based upon the current beliefs and expectations of Macy's management and
are subject to significant risks and uncertainties. Actual results could
differ materially from those expressed in or implied by the
forward-looking statements contained in this release because of a
variety of factors, including conditions to, or changes in the timing
of, proposed real estate and other transactions, prevailing interest
rates and non-recurring charges, the effect of federal tax reform, store
closings, competitive pressures from specialty stores, general
merchandise stores, off-price and discount stores, manufacturers'
outlets, the Internet, mail-order catalogs and television shopping and
general consumer spending levels, including the impact of the
availability and level of consumer debt, the effect of weather and other
factors identified in documents filed by the company with the Securities
and Exchange Commission. Macy's disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required by law.

NOTE: Additional information on Macy's, Inc., including past news
releases, is available at www.macysinc.com/pressroom.
A webcast of Macy's, Inc.'s call with analysts and investors will be
held today (February 27) at 10:00 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 800-263-0877, passcode 5302609. A
replay of the conference call can be accessed on the website or by
calling 888-203-1112, passcode 5302609, about two hours after the
conclusion of the call.

Macy's, Inc. is scheduled to present at the Bank of America Merrill
Lynch Global Consumer & Retail Technology Conference at 8:00 a.m. ET on
Tuesday, March 13, in New York City. Macy's, Inc. is scheduled to
present at the Telsey Advisory Group Spring 2018 Consumer Conference at
2:05 p.m. ET on Tuesday, March 20, in New York City. Media and investors
may access a live audio webcast of the presentations at www.macysinc.com/ir.
A replay of the webcasts will be available on the company's website.

Moving forward, please note that the company will report financial
results on Wednesdays and hold its call with analysts and investors at
9:30 a.m. ET. First quarter 2018 earnings will be announced on May 16,
2018.

       

MACY'S, INC.

Consolidated Statements of Income (Unaudited)

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

 
14 weeks ended 13 weeks ended
February 3, 2018 January 28, 2017
$   % to

Net sales

$   % to

Net sales

 
Net sales $ 8,666 $ 8,515
 
Cost of sales 5,358   61.8 % 5,251   61.7 %
 
Gross margin 3,308 38.2 % 3,264 38.3 %
 
Selling, general and administrative expenses (2,279 ) (26.2 %) (2,335 ) (27.4 %)
 
Gains on sale of real estate (Note 1) 368 4.2 % 133 1.6 %
 
Restructuring, impairment, store closing and other costs (Note 2) (152 ) (1.8 %) (230 ) (2.7 %)
 
Settlement charges (Note 3) (32 ) (0.4 %) (17 ) (0.2 %)
 
Operating income 1,213 14.0 % 815 9.6 %
 
Interest expense – net (73 ) (87 )
 
Net premiums on early retirement of debt (Note 4) 11    
 
Income before income taxes 1,151 728
 
Federal, state and local income tax benefit (expense) (Note 5) 170   (256 )
 
Net income 1,321 472
 
Net loss attributable to noncontrolling interest 4   3  
 
Net income attributable to Macy's, Inc. shareholders $ 1,325   $ 475  
 
Basic earnings per share attributable to

Macy's, Inc. shareholders

$ 4.34   $ 1.56  
 
Diluted earnings per share attributable to
Macy's, Inc.
shareholders
$ 4.31   $ 1.54  
 
Average common shares:
Basic 305.6 305.5
Diluted 307.4 307.8
 
End of period common shares outstanding 304.8 304.1
 
Depreciation and amortization expense $ 250 $ 271
 

MACY'S, INC.

Consolidated Statements of Income (Unaudited)

Notes:

(1) For the 14 weeks ended February 3, 2018, gains on sale of real
estate included $234 million, $148 million after tax or $.48 per diluted
share attributable to Macy's, Inc., associated with the fiscal 2016 sale
of the company's Union Square Men's building in San Francisco.

(2) For the 14 weeks ended February 3, 2018 and 13 weeks ended
January 28, 2017, restructuring, impairment, store closing and other
costs amounted to $152 million and $230 million, respectively, on a
pre-tax basis. The after tax effect of these charges during the 14 weeks
ended February 3, 2018 were $99 million after tax or $.32 per diluted
share attributable to Macy's, Inc. These costs included $91 million of
severance and other human resource-related costs associated with
organization changes and store closings, $50 million of asset impairment
charges, and $11 million of other related costs and expenses. The after
tax effect of these charges during the 13 weeks ended January 28, 2017
were $137 million after tax or $.45 per diluted share attributable to
Macy's, Inc. These costs included $166 million of severance and other
human resource-related costs associated with the organization changes
and store closings announced in January 2017, $38 million of asset
impairment charges primarily related to the store closings announced in
January 2017 and $26 million of other related costs and expenses.

(3) For the 14 weeks ended February 3, 2018 and 13 weeks ended
January 28, 2017, non-cash settlement charges of $32 million and $17
million, respectively, were recognized on a pre-tax basis. The after tax
effect of these charges during the 14 weeks ended February 3, 2018 was
$21 million, or $.07 per diluted share attributable to Macy's, Inc. The
after tax effect of these charges during the 13 weeks ended January 28,
2017 was $10 million, or $.03 per diluted share attributable to Macy's,
Inc. These charges resulted 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.

(4) The 14 weeks ended February 3, 2018 included $11 million, on a
pre-tax basis, of income related to premium amortization net of expenses
and fees associated with the tender of certain debt instruments. The
after tax income impact during the 14 weeks ended February 3, 2018 was
$7 million, or $.02 per diluted share attributable to Macy's, Inc.

(5) For the 14 weeks ended February 3, 2018, federal, state and local
income taxes differed from the company's federal income tax statutory
rate of 33.7% primarily due to federal tax reform that led to the
recognition of a non-cash tax benefit of $571 million, or $1.86 per
diluted share attributable to Macy's, Inc., associated with the
re-measurement of the company's deferred tax balances. Further, the 14
weeks ended February 3, 2018 included the recognition of approximately
$3 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.

       

MACY'S, INC.

Consolidated Statements of Income
(Unaudited) (Note 1)

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

 
53 weeks ended 52 weeks ended
February 3, 2018 January 28, 2017
$   % to
Net sales
$   % to
Net sales
 
Net sales $ 24,837 $ 25,778
 
Cost of sales 15,152   61.0 % 15,621   60.6 %
 
Gross margin 9,685 39.0 % 10,157 39.4 %
 
Selling, general and administrative expenses (8,131 ) (32.8 %) (8,474 ) (32.8 %)
 
Gains on sale of real estate (Note 2) 544 2.2 % 209 0.8 %
 
Restructuring, impairment, store closing and other costs (Note 3) (186 ) (0.7 %) (479 ) (1.9 %)
 
Settlement charges (Note 4) (105 ) (0.4 %) (98 ) (0.4 %)
 
Operating income 1,807 7.3 % 1,315 5.1 %
 
Interest expense – net (310 ) (363 )
 
Net premiums on early retirement of debt (Note 5) 10    
 
Income before income taxes 1,507 952
 
Federal, state and local income tax benefit (expense) (Note 6) 29   (341 )
 
Net income 1,536 611
 
Net loss attributable to noncontrolling interest 11   8  
 
Net income attributable to Macy's, Inc. shareholders $ 1,547   $ 619  
 
Basic earnings per share attributable to
Macy's, Inc.
shareholders
$ 5.07   $ 2.01  
 
Diluted earnings per share attributable to
Macy's, Inc.
shareholders
$ 5.04   $ 1.99  
 
Average common shares:
Basic 305.4 308.5
Diluted 306.8 310.8
 
End of period common shares outstanding 304.8 304.1
 
Depreciation and amortization expense $ 991 $ 1,058
 

MACY'S, INC.

Consolidated Statements of Income (Unaudited)

Notes:

(1) Results for fiscal 2017 and fiscal 2016 may not equal the sum of the
quarterly results for the respective periods due to rounding conventions.

(2) During fiscal 2017, gains on sale of real estate included $234
million, $148 million after tax or $.48 per diluted share attributable
to Macy's, Inc., associated with the fiscal 2016 sale of the company's
Union Square Men's building in San Francisco.

(3) During fiscal 2017 and fiscal 2016, restructuring, impairment, store
closing and other costs amounted to $186 million and $479 million,
respectively, on a pre-tax basis. The after tax effect of these charges
during fiscal 2017 was $119 million, or $.39 per diluted share
attributable to Macy's, Inc. These costs included $120 million of
severance and other human resource-related costs primarily associated
with organization changes and store closings, $53 million of asset
impairment charges and $13 million of other related costs and expenses.
The after tax effect of these charges during fiscal 2016 was $290
million after tax, or $.93 per diluted share attributable to Macy's,
Inc. These costs included $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.

(4) During fiscal 2017 and fiscal 2016, non-cash settlement charges of
$105 million and $98 million, respectively, were recognized on a pre-tax
basis. The after tax effect of these charges during fiscal 2017 was $68
million, or $.22 per diluted share attributable to Macy's, Inc. The
after tax effect of these charges during fiscal 2016 was $59 million, or
$.19 per diluted share attributable to Macy's, Inc. These charges
resulted 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) Fiscal 2017 included $10 million of income, on a pre-tax basis,
related to premium amortization net of expenses and fees associated with
the debt tender and early retirement of certain debt instruments. The
after tax income impact during fiscal 2017 was $7 million, or $.02 per
diluted share attributable to Macy's, Inc.

(6) Federal, state and local income taxes during fiscal 2017 differed
from the company's federal income tax statutory rate of 33.7% primarily
due to federal tax reform that led to the recognition of a non-cash tax
benefit of $571 million, or $1.86 per diluted share attributable to
Macy's, Inc., associated with the re-measurement of the company's
deferred tax balances. Further, fiscal 2017 included the recognition of
approximately $15 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.

       

MACY'S, INC.

Consolidated Balance Sheets (Unaudited)

(millions)

 
February 3, 2018 January 28, 2017
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,455 $ 1,297
Receivables 363 522
Merchandise inventories 5,178 5,399
Prepaid expenses and other current assets 448   408  
Total Current Assets 7,444 7,626
 
Property and Equipment – net 6,672 7,017
Goodwill 3,897 3,897
Other Intangible Assets – net 488 498
Other Assets 880   813  
 
Total Assets $ 19,381   $ 19,851  
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Short-term debt $ 22 $ 309
Merchandise accounts payable 1,590 1,423
Accounts payable and accrued liabilities 3,167 3,563
Income taxes 296   352  
Total Current Liabilities 5,075 5,647
 
Long-Term Debt 5,861 6,562
Deferred Income Taxes 1,122 1,443
Other Liabilities 1,662 1,877
Shareholders' Equity:
Macy's, Inc. 5,673 4,323
Noncontrolling interest (12 ) (1 )
Total Shareholders' Equity 5,661   4,322  
 
Total Liabilities and Shareholders' Equity $ 19,381   $ 19,851  
 

Note: Certain reclassifications were made to prior year's amounts to
conform with the classifications of such amounts in the most recent
years.

       

MACY'S, INC.

Consolidated Statements of Cash Flows
(Unaudited)

(millions)

 
53 weeks ended 52 weeks ended
February 3, 2018 January 28, 2017
Cash flows from operating activities:
Net income $ 1,536 $ 611
Adjustments to reconcile net income to net cash provided by
operating activities:
Restructuring, impairment, store closing and other costs 186 479
Settlement charges 105 98
Depreciation and amortization 991 1,058
Stock-based compensation expense 58 61
Gains on sale of real estate (544 ) (209 )
Amortization of financing costs and premium on acquired debt (45 ) (14 )
Changes in assets and liabilities:
(Increase) decrease in receivables 120 (1 )
Decrease in merchandise inventories 221 107
Increase in prepaid expenses and other current assets (14 ) (8 )
Increase (decrease) in merchandise accounts payable 162 (132 )
Decrease in accounts payable, accrued liabilities and
other
items not separately identified
(179 ) (127 )
Increase (decrease) in current income taxes (114 ) 125
Decrease in deferred income taxes (412 ) (139 )
Change in other assets and liabilities not separately identified (127 ) (108 )
Net cash provided by operating activities 1,944   1,801  
 
Cash flows from investing activities:
Purchase of property and equipment (487 ) (596 )
Capitalized software (273 ) (316 )
Disposition of property and equipment 411 673
Other, net (24 ) 52  
Net cash used by investing activities (373 ) (187 )
 
Cash flows from financing activities:
Debt repaid (954 ) (751 )
Dividends paid (461 ) (459 )
Increase (decrease) in outstanding checks (15 ) 61
Acquisition of treasury stock (1 ) (316 )
Issuance of common stock 6 36
Financing costs (1 ) (3 )
Proceeds from noncontrolling interest 13   6  
Net cash used by financing activities (1,413 ) (1,426 )
 
Net increase in cash and cash equivalents 158 188
Cash and cash equivalents beginning of period 1,297   1,109  
 
Cash and cash equivalents end of period $ 1,455   $ 1,297  
 

Note: Certain reclassifications were made to prior year's amounts to
conform with the classifications of such amounts in the most recent
years.

MACY'S, INC.

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, and in evaluating
the impact of changes in the manner in which certain departments are
operated. In addition, 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 the company's
core operations and that may vary substantially in frequency and
magnitude period-to-period provides a useful supplemental measure that
assists in evaluating the company's ability to generate earnings and to
more readily compare this metric between past and future periods.
Further, providing cash flow from operating activities net of cash used
in investing activities is a useful measure in evaluating the company's
ability to generate cash from operations after giving effect to cash
used by investing activities.

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 below, where the impact of growth in comparable sales of
departments licensed to third parties is the only reconciling item. In
addition, the company does not provide the most directly comparable
forward-looking GAAP measure of diluted earnings per share attributable
to Macy's, Inc. shareholders excluding certain items because the timing
and amount of excluded items are unreasonably difficult to fully and
accurately estimate.

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.

MACY'S, INC.



Important Information Regarding Non-GAAP
Financial Measures

Change in Comparable Sales

 

   

14 Weeks

Ended

February 3,

2018

53 Weeks

Ended

February 3,

2018

 
Increase (decrease) in comparable sales on an owned basis (Note 1) 1.3% (2.2)%
 
Impact of growth in comparable sales of departments
licensed to
third parties (Note 2)
0.1% 0.3%
 
Increase (decrease) in comparable sales on an owned plus licensed
basis
1.4% (1.9)%

Notes:

(1) Represents the period-to-period percentage change in net sales from
stores in operation throughout the year presented and the immediately
preceding year and all online sales of macys.com and bloomingdales.com,
adjusting for the 53rd week in fiscal 2017, excluding commissions from
departments licensed to third parties. Stores undergoing remodeling,
expansion or relocation remain in the comparable sales calculation
unless the store is closed for a significant period of time. Definitions
and calculations of comparable sales 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 of
macys.com and bloomingdales.com, adjusting for the 53rd week in fiscal
2017, 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 in respect of 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 amounts of
commissions earned on sales of departments licensed to third parties are
not material to its net sales for the periods presented.

         

MACY'S, INC.

Important Information Regarding Non-GAAP
Financial Measures

 

 

Diluted Earnings Per Share Attributable to
Macy's, Inc. Shareholders, Excluding Certain Items

 

 

The following is a reconciliation of the non-GAAP financial
measure of diluted earnings per share attributable
to Macy's,
Inc. shareholders, excluding certain items identified below, to
GAAP diluted earnings per share
attributable to Macy's, Inc.,
shareholders, which the company believes to be the most directly
comparable
GAAP measure.

 

14 Weeks
Ended
February 3,

2018

13 Weeks

Ended

January 28,

2017

 
Diluted earnings per share attributable to Macy's, Inc. shareholders $ 4.31 $ 1.54
Add back the pre-tax impact of restructuring, impairment, store
closing and other costs
0.50 0.75
Add back the pre-tax impact of settlement charges 0.10 0.05
Deduct the pre-tax impact of net premiums on
the early
retirement of debt
(0.03 )
Deduct the income tax impact of certain items identified above (0.20 ) (0.32 )
Deduct the deferred tax effects of federal tax reform (1.86 )  
Diluted earnings per share attributable to Macy's, Inc. shareholders,
excluding
certain items
$ 2.82   $ 2.02  
     

53 Weeks
Ended
February 3,
2018

   

52 Weeks
Ended
January 28,

2017

 
Diluted earnings per share attributable to Macy's, Inc. shareholders $ 5.04 $ 1.99
Add back the pre-tax impact of restructuring, impairment, store
closing and other costs
0.61 1.54
Add back the pre-tax impact of settlement charges 0.34 0.31
Deduct the pre-tax impact of net premiums on
the early
retirement of debt
(0.03 )
Deduct the income tax impact of certain items identified above (0.33 ) (0.73 )
Deduct the deferred tax effects of federal tax reform (1.86 )  
Diluted earnings per share attributable to Macy's, Inc. shareholders,
excluding
certain items
$ 3.77   $ 3.11  

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