Market Overview

Macy's, Inc. Reports Second Quarter 2018 Earnings

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Strong second quarter and first half 2018 driven by improved
performance in stores and continued growth of digital.

Company raises annual sales and earnings guidance.

Macy's, Inc. (NYSE:M) today reported results for the second quarter of
2018 and provided updated annual sales and earnings guidance for fiscal
2018.

For the second quarter, the company achieved earnings per diluted share
of $0.53, or $0.70 excluding impairment and other costs, settlement
charges and losses on the early retirement of debt. This compares to
$0.36 per share in the second quarter of 2017, or $0.46 excluding
settlement charges and gains on the early retirement of debt. When also
excluding asset sale gains, earnings per diluted share were $0.59 in the
second quarter of 2018, compared to $0.37 per share in the second
quarter of 2017.

The company reported comparable sales on an owned basis that were flat
in the second quarter of 2018 compared to the second quarter of 2017. On
an owned plus licensed basis, comparable sales were up 0.5 percent for
the second quarter of 2018. Due to the 53-week calendar in fiscal 2017,
there have been some timing adjustments in the company's typical
promotional calendar, including the shift in the spring Friends & Family
promotion. As reported earlier, this shift caused a positive impact in
the first quarter of 2018 of approximately 250 basis points. The shift
also caused a negative impact of approximately 240 basis points in the
second quarter, as compared to 2017. Adjusting for this shift, the
company estimates that comparable sales on an owned plus licensed basis
were up 2.9 percent for the second quarter.

When looking at the first half of 2018, comparable sales on an owned
basis were up 1.9 percent compared to the first half of 2017. On an
owned plus licensed basis, comparable sales were up 2.3 percent for the
first half of 2018.

"Macy's, Inc. delivered strong performance in the first half of the
year, and we are pleased to report our third consecutive quarter of
comparable sales growth. Macy's, Bloomingdale's and Bluemercury all
performed well. It is encouraging to see the continued strengthening of
our brick & mortar business where we saw trend improvements across the
portfolio, led by our Growth50 stores. The combination of healthy
stores, robust e-commerce and a great mobile experience is Macy's recipe
for success. We are focused on improving our customer journey every step
of the way because we know that our customers expect a great experience
whenever and wherever they engage with our brands," said Jeff Gennette,
Macy's, Inc. chairman and chief executive officer. "We also continue to
be disciplined with inventory management, which allows us to give our
customers more fashion and freshness, while increasing sales and
improving gross margin."

"Our strategic initiatives are gaining traction. They contributed to our
first half results and will continue to have a positive impact on our
performance in the back half of the year. This, combined with continued
strong execution and a healthy consumer spending environment, gives us
confidence to raise sales and earnings guidance for fiscal 2018,"
continued Gennette. "We have momentum in the business, powered by our
130,000 colleagues who are focused on how best to serve our customers
every day."

Sales

Net sales in the second quarter of 2018 totaled $5.572 billion, a
decrease of 1.1 percent, compared with net sales of $5.636 billion in
the second quarter of 2017.

For the first half of 2018, Macy's, Inc. net sales totaled $11.112
billion, up 1.1 percent from net sales of $10.986 billion in the first
half of 2017.

Operating Income and Net Income

Macy's, Inc. operating income for the second quarter of 2018 totaled
$303 million, or 5.4 percent of sales, compared to $282 million, or 5.0
percent of sales, for the second quarter of 2017. Excluding impairment
and other costs of $17 million, operating income for the second quarter
of 2018 totaled $320 million, or 5.7 percent of sales. There were no
impairment and other costs in the second quarter of 2017.

For the first half of 2018, Macy's, Inc. operating income totaled $541
million, or 4.9 percent of sales, compared to $501 million, or 4.6
percent of sales, for the first half of 2017. Excluding impairment and
other costs of $36 million, operating income for the first half of 2018
totaled $577 million, or 5.2 percent of sales. There were no impairment
and other costs in the first half of 2017.

Net income attributable to Macy's, Inc. shareholders for the second
quarter of 2018 totaled $166 million, or 3.0 percent of sales, compared
to $111 million, or 2.0 percent of sales, for the second quarter of
2017. Excluding impairment and other costs, settlement charges and
losses on the early retirement of debt, net income for the second
quarter of 2018 totaled $219 million, or 3.9 percent of sales. Excluding
settlement charges and gains on the early retirement of debt, net income
for the second quarter of 2017 totaled $141 million, or 2.5 percent of
sales. When also excluding asset sale gains, net income for the second
quarter of 2018 totaled $185 million, or 3.3 percent of sales, compared
to $114 million, or 2.0 percent of sales, in the second quarter of 2017.

For the first half of 2018, Macy's, Inc. net income totaled $306
million, or 2.8 percent of sales, compared to $189 million, or 1.7
percent of sales for the first half of 2017. Excluding impairment and
other costs, settlement charges and losses on the early retirement of
debt, net income for the first half of 2018 totaled $369 million, or 3.3
percent of sales. Excluding settlement charges and losses on the early
retirement of debt, net income for the first half of 2017 totaled $221
million, or 2.0 percent of sales. When also excluding asset sale gains,
net income for the first half of 2018 totaled $316 million, or 2.8
percent of sales, compared to $152 million or 1.4 percent of sales, in
the first half of 2017.

Cash Flow

Net cash provided by operating activities was $544 million in the first
half of 2018, compared with $546 million in the first half of 2017. Net
cash used by investing activities in the first half of 2018 was $312
million, compared with $210 million in the first half of 2017. Operating
cash flows net of investing were $232 million in the first half of 2018,
compared with $336 million in the first half of 2017.

The company repurchased approximately $344 million face value of senior
notes and debentures in the second quarter of 2018. The debt repurchases
were made in the open market for a total cost of approximately $354
million, including premium expenses and other fees related to the
transactions.

In the first half of 2018, the company's asset sales totaled $88 million
in cash proceeds, compared with $150 million in the first half of 2017.

Looking Ahead - Raising Earnings and Sales Guidance

Macy's, Inc. is updating its guidance for fiscal 2018. The company now
expects adjusted earnings per diluted share of $3.95 to $4.15 in fiscal
2018, excluding anticipated settlement charges related to the company's
defined benefit plans as well as impairment and other costs.

Total sales are expected to range from flat to a 0.7 percent increase in
fiscal 2018. Comparable sales on an owned plus licensed basis are
expected to increase between 2.0 and 2.5 percent for the second half of
2018, which translates to an annual increase of between 2.1 and 2.5
percent. Comparable sales on an owned basis are expected to be 20-30
basis points below comparable sales on an owned plus licensed basis in
fiscal 2018, which is consistent with prior guidance.

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.

The company's 2018 results, 2017 results and guidance for fiscal 2018
reflect the new accounting standards related to revenue recognition and
retirement benefits. Macy's, Inc. has recast its quarterly income
statements and balance sheets for 2016 and 2017 to reflect adoption of
these new standards. These documents can be found on the investor
relations page at www.macysinc.com.

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 approximately 690 department stores under the
nameplates Macy's and Bloomingdale's, and more than 170 specialty stores
that include Bloomingdale's The Outlet, Bluemercury, Macy's Backstage
and STORY. 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 (August 15, 2018) at 9:30 a.m. ET. The webcast is accessible
to the media and general public via the company's website at www.macysinc.com.
Analysts and investors may call in on 1-800-239-9838, passcode 1925865.
A replay of the conference call can be accessed on the website or by
calling 1-888-203-1112 (same passcode), about two hours after the
conclusion of the call.

Macy's, Inc. is scheduled to present at the Goldman Sachs Annual Global
Retailing Conference at 8:05 a.m. ET on Thursday, September 6, 2018, in
New York City. Media and investors may access a live audio webcast of
the presentation at www.macysinc.com/ir
on September 6, 2018. A replay of the webcast will be available on the
company's website.

 
MACY'S, INC.
 

Consolidated Statements of Income
(Unaudited) (Note 1)

 

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

 
    13 Weeks Ended   13 Weeks Ended
August 4, 2018 July 29, 2017
$  

% to
Net sales

$  

% to
Net sales

 
Net sales $ 5,572 $ 5,636
 
Credit card revenues, net 186 3.3 % 167 3.0 %
 
 
Cost of sales (3,320 ) (59.6 %) (3,403 ) (60.4 %)
 
Selling, general and administrative expenses (2,164 ) (38.8 %) (2,161 ) (38.4 %)
 
Gains on sale of real estate 46 0.8 % 43 0.8 %
 
Impairment and other costs (Note 2) (17 ) (0.3 %)   %
 
Operating income 303 5.4 % 282 5.0 %
 
Benefit plan income, net 11 14
 
Settlement charges (Note 3) (50 ) (51 )
 
Interest expense, net (62 ) (79 )
 
Gains (losses) on early retirement of debt (Note 4) (5 ) 2  
 
Income before income taxes 197 168
 
Federal, state and local income tax expense (Note 5) (33 ) (60 )
 
Net income 164 108
 
Net loss attributable to noncontrolling interest 2   3  
 
Net income attributable to Macy's, Inc. shareholders $ 166   $ 111  
 
Basic earnings per share attributable to

Macy's, Inc. shareholders

$ .54   $ .36  
 
Diluted earnings per share attributable to
Macy's, Inc.
shareholders
$ .53   $ .36  
 
Average common shares:
Basic 307.7 305.5
Diluted 312.0 306.5
 
End of period common shares outstanding 307.0 304.6
 
Depreciation and amortization expense $ 235 $ 244
 

MACY'S, INC.

Consolidated Statements of Income (Unaudited)

 
Notes:
 
(1)

The 13 weeks ended July 29, 2017 have been recast to reflect the
company's retrospective adoption of Accounting Standards Update
No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers,
on February 4, 2018. Further, because of the seasonal nature of
the retail business, the results of operations for the 13 weeks
ended August 4, 2018 and July 29, 2017 (which do not include the
Christmas season) are not necessarily indicative of such results
for the fiscal year.

 
(2) For the 13 weeks ended August 4, 2018, impairment and other costs
amounted to $17 million and included costs associated with the
wind-down of Macy's China Limited. The after tax effect of these
charges was $11 million or $0.04 per diluted share attributable to
Macy's, Inc.
 
(3) Non-cash settlement charges of $50 million and $51 million,
respectively, were recognized during the 13 weeks ended August 4,
2018 and July 29, 2017. The after tax effect of these charges during
the 13 weeks ended August 4, 2018 was $38 million, or $0.12 per
diluted share attributable to Macy's, Inc. The after tax effect of
these charges during the 13 weeks ended July 29, 2017 was $32
million, or $0.10 per diluted share attributable to Macy's, Inc.
These charges are the result of an increase in lump sum
distributions associated with store closings, organizational
restructuring, a voluntary separation program, and periodic
distribution activity.
 
(4) The 13 weeks ended August 4, 2018 included losses of $5 million
associated with early retirement of debt. These losses included
repurchase expenses and fees net of the write-off of unamortized
debt premiums. The after tax effect of the losses during the 13
weeks ended August 4, 2018 was $4 million, or $0.01 per diluted
share attributable to Macy's, Inc. Debt repurchases during the 13
weeks ended July 29, 2017 resulted in gains of $2 million associated
with early retirement of debt.
 
(5) For the 13 weeks ended August 4, 2018, federal, state and local
income taxes differed from the company's federal income tax
statutory rate of 21% because of the effects of state and local
taxes, including the settlement of various tax issues and tax
examinations. Further, the 13 weeks ended August 4, 2018 and July
29, 2017 included the recognition of approximately $2 million of net
excess tax benefits and $1 million of net tax deficiencies,
respectively, associated with share-based payment awards. These
items as well as the enactment of U.S. federal tax reform in
December 2017 resulted in an effective tax rate for the 13 weeks
ended August 4, 2018 of 16.8% as compared to 35.7% for the 13 weeks
ended July 29, 2017.
 
 
MACY'S, INC.
 

Consolidated Statements of Income
(Unaudited) (Note 1)

 

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

 

 
    26 weeks ended   26 weeks ended
August 4, 2018 July 29, 2017

 

$  

% to
Net sales

$  

% to
Net sales

 
Net sales $ 11,112 $ 10,986
 
Credit card revenues, net 343 3.1 % 328 3.0 %
 
 
Cost of sales (6,701 ) (60.3 %) (6,706 ) (61.0 %)
 
Selling, general and administrative expenses (4,247 ) (38.2 %) (4,218 ) (38.4 %)
 
Gains on sale of real estate 70 0.6 % 111 1.0 %
 
Impairment and other costs (Note 2) (36 ) (0.3 %)   %
 
Operating income 541 4.9 % 501 4.6 %
 
Benefit plan income, net 22 27
 
Settlement charges (50 ) (51 )
 
Interest expense, net (128 ) (163 )
 
Losses on early retirement of debt (Note 3) (5 ) (1 )
 
Income before income taxes 380 313
 
Federal, state and local income tax expense (Note 4) (84 ) (128 )
 
Net income 296 185
 
Net loss attributable to noncontrolling interest 10   4  
 
Net income attributable to Macy's, Inc. shareholders $ 306   $ 189  
 

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

$ .99   $ .62  
 

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

$ .98   $ .62  
 
Average common shares:
Basic 307.1 305.2
Diluted 310.7 306.7
 
End of period common shares outstanding 307.0 304.6
 
Depreciation and amortization expense $ 470 $ 487
 

MACY'S, INC.

Consolidated Statements of Income (Unaudited)

 
Notes:
 
(1)  

The 26 weeks ended July 29, 2017 have been recast to reflect the
company's retrospective adoption of Accounting Standards Update
No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers,
on February 4, 2018. Further, because of the seasonal nature of
the retail business, the results of operations for the 26 weeks
ended August 4, 2018 and July 29, 2017 (which do not include the
Christmas season) are not necessarily indicative of such results
for the fiscal year.

 
(2) For the 26 weeks ended August 4, 2018, impairment and other costs
amounted to $36 million and included costs associated with the
wind-down of Macy's China Limited. The after tax effect of these
charges was $21 million or $0.08 per diluted share attributable to
Macy's, Inc.
 
(3) Non-cash settlement charges of $50 million and $51 million,
respectively, were recognized during the 26 weeks ended August 4,
2018 and July 29, 2017. The after tax effect of these charges during
the 26 weeks ended August 4, 2018 was $38 million, or $0.12 per
diluted share attributable to Macy's, Inc. The after tax effect of
these charges during the 26 weeks ended July 29, 2017 was $32
million, or $0.10 per diluted share attributable to Macy's, Inc.
These charges are the result of an increase in lump sum
distributions associated with store closings, organizational
restructuring, a voluntary separation program, and periodic
distribution activity.
 
(4) The 26 weeks ended August 4, 2018 and July 29, 2017 included losses
of $5 million and $1 million, respectively, associated with the
early retirement of debt. These losses included repurchase expenses
and fees net of the write-off of unamortized debt premiums. The
after tax impact during the 26 weeks ended August 4, 2018 was $4
million, or $0.01 per diluted share attributable to Macy's, Inc.
 
(5) For the 26 weeks ended August 4, 2018, federal, state and local
income taxes differed from the company's federal income tax
statutory rate of 21% because of the effects of state and local
taxes, including the settlement of various tax issues and tax
examinations. Further, the 26 weeks ended August 4, 2018 and July
29, 2017 included the recognition of approximately $1 million and
$12 million, respectively, of net tax deficiencies associated with
share-based payment awards. These items as well as the enactment of
U.S. federal tax reform in December 2017 resulted in an effective
tax rate for the 26 weeks ended August 4, 2018 of 22.1% as compared
to 40.9% for the 26 weeks ended July 29, 2017.
 
 

MACY'S, INC.

 

Consolidated Balance Sheets (Unaudited)

 

(millions)

 
   

August 4,
2018

 

February 3,
2018

 

July 29,
2017

ASSETS:
Current Assets:
Cash and cash equivalents $ 1,068 $ 1,455 $ 783
Receivables 261 363 382
Merchandise inventories 4,956 5,178 4,980
Prepaid expenses and other current assets 580   650   571  
Total Current Assets 6,865 7,646 6,716
 
Property and Equipment – net 6,547 6,672 6,822
Goodwill 3,908 3,897 3,897
Other Intangible Assets – net 483 488 493
Other Assets 865   880   810  
 
Total Assets $ 18,668   $ 19,583   $ 18,738  
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Short-term debt $ 63 $ 22 $ 16
Merchandise accounts payable 1,795 1,590 1,669
Accounts payable and accrued liabilities 2,608 3,271 2,939
Income taxes 15   296   52  
Total Current Liabilities 4,481 5,179 4,676
 
Long-Term Debt 5,473 5,861 6,301
Deferred Income Taxes 1,194 1,148 1,549
Other Liabilities 1,626 1,662 1,773
Shareholders' Equity:
Macy's, Inc. 5,916 5,745 4,444
Noncontrolling interest (22 ) (12 ) (5 )
Total Shareholders' Equity 5,894   5,733   4,439  
 
Total Liabilities and Shareholders' Equity $ 18,668   $ 19,583   $ 18,738  
 

Note: The prior year's amounts reflect the retrospective adoption of ASU
2014-09 on February 4, 2018.

 

MACY'S, INC.

 

Consolidated Statements of Cash Flows
(Unaudited)

 

(millions)

 
   

26 Weeks
Ended

 

26 Weeks
Ended

August 4,
2018

July 29,
2017

Cash flows from operating activities:
Net income $ 296 $ 185
Adjustments to reconcile net income to net cash provided by
operating activities:
Impairment and other costs 36
Settlement charges 50 51
Depreciation and amortization 470 487
Stock-based compensation expense 31 31
Gains on sale of real estate (70 ) (111 )
Amortization of financing costs and premium on acquired debt (5 ) (10 )
Changes in assets and liabilities:
Decrease in receivables 88 119
Decrease in merchandise inventories 221 419
Decrease in prepaid expenses and other current assets 29 59
Increase in merchandise accounts payable 219 261
Decrease in accounts payable, accrued liabilities and
other
items not separately identified
(492 ) (604 )
Decrease in current income taxes (271 ) (302 )
Increase in deferred income taxes 36 26
Change in other assets and liabilities not separately identified (94 ) (65 )
Net cash provided by operating activities 544   546  
 
Cash flows from investing activities:
Purchase of property and equipment (275 ) (247 )
Capitalized software (133 ) (125 )
Disposition of property and equipment 88 150
Other, net 8   12  
Net cash used by investing activities (312 ) (210 )
 
Cash flows from financing activities:
Debt repaid (357 ) (560 )
Dividends paid (232 ) (230 )
Decrease in outstanding checks (90 ) (64 )
Acquisition of treasury stock (1 )
Issuance of common stock 38 2
Proceeds from noncontrolling interest 5   6  
Net cash used by financing activities (636 ) (847 )
 
Net decrease in cash, cash equivalents and restricted cash (404 ) (511 )
Cash, cash equivalents and restricted cash beginning of period 1,513   1,334  
 
Cash, cash equivalents and restricted cash end of period $ 1,109   $ 823  
 

Note: The prior period's amounts reflect the retrospective adoption of
ASU 2014-09, ASU 2016-18 (ASU 2016-18), Restricted Cash, and ASU
2016-15, Classification of Certain Cash Receipts and Cash Payments,
on February 4, 2018. As a result of the adoption of ASU 2016-18,
restricted cash of $41 million and $40 million have been included with
cash and cash equivalents above for the 26 weeks ended August 4, 2018
and July 29, 2017, respectively. Further, certain reclassifications were
made to the prior period's amounts to conform with the classifications
of such amounts in the most recent period.

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 adjusting for growth in comparable sales of
departments licensed to third parties and certain promotional events,
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, net 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
useful supplemental measures that assist in evaluating the company's
ability to generate earnings and to more readily compare these metrics
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, except that 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 net income and 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

 

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

 

 

Change in Comparable Sales

 

13 Weeks Ended
August 4, 2018

26 Weeks Ended
August 4, 2018

 
Increase in comparable sales on an owned basis (Note 1) 0.0% 1.9%
 
Impact of growth in comparable sales of departments licensed to
third parties (Note 2)
0.5% 0.4%
 
Increase in comparable sales on an owned plus licensed basis 0.5% 2.3%
 
Impact of quarterly timing shift associated with the Spring 2018
Friends and Family promotional event
2.4% 0.0%
 
Adjusted increase in comparable sales on an owned plus licensed basis 2.9% 2.3%
 
 
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, excluding
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 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 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

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

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

     
13 Weeks Ended 13 Weeks Ended
August 4, 2018 July 29, 2017
   

Net Income
Attributable to
Macy's, Inc.
Shareholders

Diluted
Earnings
Per Share

Net Income
Attributable to
Macy's, Inc.
Shareholders

Diluted
Earnings
Per Share

As reported (GAAP) $ 166 $ 0.53 $ 111 $ 0.36
Impairment and other costs (Note 1) 15 0.05
Settlement charges 50 0.16 51 0.17
Losses (gains) on early retirement of debt (Note 2) 5 0.02 (2 )
Income tax impact of certain items identified above (17 ) (0.06 ) (19 ) (0.07 )
As adjusted to exclude certain items identified above $ 219   $ 0.70   $ 141   $ 0.46  
 
Gains on sale of real estate (46 ) (0.15 ) (43 ) (0.14 )
Income tax impact of gains on sale of real estate 12   0.04   16   0.05  
As adjusted to exclude gains on sale of real estate and certain
other items identified above
$ 185   $ 0.59   $ 114   $ 0.37  
 
 

26 Weeks Ended

26 Weeks Ended

August 4, 2018 July 29, 2017
 

Net Income
Attributable to
Macy's, Inc.
Shareholders

Diluted
Earnings
Per Share

Net Income
Attributable to
Macy's, Inc.
Shareholders

Diluted
Earnings
Per Share

As reported (GAAP) $ 306 $ 0.98 $ 189 $ 0.62
Impairment and other costs (Note 1) 28 0.09
Settlement charges 50 0.16 51 0.17
Losses on early retirement of debt (Note 2) 5 0.02 1
Income tax impact of certain items identified above (20 ) (0.06 ) (20 ) (0.07 )
As adjusted to exclude certain items identified above $ 369   $ 1.19   $ 221   $ 0.72  
 
Gains on sale of real estate (70 ) (0.23 ) (111 ) (0.36 )
Income tax impact of gains on sale of real estate 17   0.06   42   0.14  
As adjusted to exclude gains on sale of real estate and certain
other items identified above
$ 316   $ 1.02   $ 152   $ 0.50  
 
 
Notes:
 
(1)   For the 13 and 26 weeks ended August 4, 2018, the above pre-tax
adjustments exclude impairment and other costs attributable to the
noncontrolling interest shareholder of $2 million and $8 million,
respectively.
 
(2) The impacts during the 13 and 26 weeks ended July 29, 2017 represent
values less than $0.01 per diluted share attributable to Macy's,
Inc. shareholders.
 

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