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Macy's, Inc. Reports Third Quarter Results, Reaffirms 2008 Sales and Earnings Guidance

CINCINNATI--(BUSINESS WIRE)--Nov. 12, 2008--Macy's, Inc. (NYSE: M) today reported a loss of 10 cents per diluted share for the third quarter of 2008, ended Nov. 1, 2008, compared with diluted earnings per share of 8 cents for the same 13-week period last year. Excluding division consolidation costs of $16 million ($10 million after tax or 2 cents per diluted share), the third quarter 2008 loss was 8 cents per diluted share. The third quarter of 2007 included May Company merger integration costs of $17 million ($10 million after tax or 2 cents per diluted share). Excluding these items, diluted earnings per share from continuing operations were 10 cents for the third quarter of 2007.

The company also reiterated its guidance for fiscal 2008 earnings to be in the range of $1.30 to $1.50 per diluted share ($1.10 to $1.30 per diluted share in the fourth quarter), excluding one-time division consolidation costs and asset impairment charges. Same-store sales in the fourth quarter are expected to be in the range of down 1 to 6 percent. If deteriorating sales trends from the latter half of the third quarter continue through the fourth quarter, sales and earnings are expected to be toward the lower end of the guidance range.

Terry J. Lundgren, Macy's, Inc. chairman, president and chief executive officer, said, "Within this poor economic environment, Macy's, Inc. continues to outperform most of our major competitors in same-store sales. This gives us confidence in our strategies for gaining market share, particularly as the My Macy's localization initiative is yielding promising early results and in that we expect My Macy's to have a more profound impact in 2009. Thus we are staying focused on our priorities for offering unique and differentiated merchandise assortments, delivering great value and service to our customers, and reaching out with creative marketing that positions Macy's and Bloomingdale's as preferred shopping destinations for the holidays. This includes our distinctive 'Believe' campaign for Macy's and our 'Oh What Fun' campaign for Bloomingdale's.

"Macy's, Inc. remains financially healthy, with strong cash flow, a solid balance sheet and ample borrowing capacity. We are committed to continuing to aggressively manage expenses and inventories consistent with planned sales levels. In recognition of the weak economy, we reduced our budget for 2009 capital expenditures from approximately $1 billion to a range of $550 million to $600 million, compared with approximately $950 million in 2008," Lundgren said.

For the first three quarters of 2008, Macy's, Inc. reported a loss from continuing operations of 7 cents per diluted share, compared with earnings of 35 cents per share in the first three quarters of 2007. Results for the first three quarters of 2008 include two unusual items (described below) that negatively impacted earnings by 27 cents per diluted share. Excluding these items, the company earned 20 cents per diluted share from continuing operations in the first three quarters of 2008.

The first unusual item relates to the consolidation of three Macy's divisions announced in February 2008, which is expected to save approximately $100 million per year beginning in 2009 (approximately $60 million in savings for the partial year in 2008). In the first three quarters of 2008, the company booked consolidation costs of $129 million ($81 million after tax or 19 cents per diluted share). Year-to-date 2008 results also include non-cash asset impairment charges of $50 million ($31 million after tax or 8 cents per diluted share) related to private brand tradenames acquired in the merger with The May Department Stores Company in 2005.

In the first three quarters of 2007, Macy's, Inc. earned 55 cents per diluted share from continuing operations, excluding May Company merger integration costs of $150 million ($93 million after tax or 20 cents per diluted share).

Sales

Sales in the third quarter of 2008 totaled $5.493 billion, a decrease of 7.0 percent, compared with sales of $5.906 billion in the same period last year. On a same-store basis, Macy's, Inc.'s third quarter sales were down 6.0 percent.

For the year to date, Macy's, Inc.'s sales totaled $16.958 billion, down 4.3 percent from total sales of $17.719 billion in the first 39 weeks of 2007. On a same-store basis, Macy's, Inc.'s year-to-date sales were down 3.5 percent.

In the third quarter of 2008, the company reopened a Macy's store in the New Orleans market following the effects of Hurricane Katrina, and opened a second Macy's store in the New Orleans market, a new Macy's store in Tampa, FL, and a new Macy's furniture gallery in Portland, OR. The company temporarily closed three Macy's stores in the Houston, TX, market that were damaged by Hurricane Ike.

Operating Income

Macy's, Inc.'s operating income totaled $68 million or 1.2 percent of sales for the quarter ended Nov. 1, 2008, compared with operating income of $183 million or 3.1 percent of sales for the same period last year. Macy's, Inc.'s third quarter 2008 operating income included $16 million in division consolidation costs. Excluding these costs, operating income for the third quarter of 2008 was $84 million or 1.5 percent of sales. Third quarter 2007 operating income included $17 million in May Company integration costs. Excluding these costs, operating income for the third quarter of 2007 was $200 million or 3.4 percent of sales.

For the first three quarters of 2008, Macy's, Inc.'s operating income totaled $357 million or 2.1 percent of sales, compared to operating income of $641 million or 3.6 percent of sales for the same period last year. Macy's, Inc.'s operating income for the first three quarters of 2008 includes $129 million in division consolidation costs and $50 million in asset impairment charges. Excluding these items, operating income in the first three quarters of 2008 was $536 million or 3.2 percent of sales. Macy's, Inc.'s operating income for the first three quarters of 2007 was $791 million or 4.5 percent of sales, excluding $150 million in May Company integration costs.

Cash Flow

Net cash provided by continuing operating activities was $317 million in the first three quarters of 2008, compared with $285 million in the first nine months of last year. Net cash used by continuing investing activities in the first three quarters of 2008 was $606 million, compared with $618 million a year ago. In the first nine months of 2008, net cash used by continuing investing activities included $25 million from the disposal of property and equipment. In the first nine months of 2007, net cash used by continuing investing activities included $66 million in proceeds from the disposition of the After Hours formalwear business and $96 million from the disposal of property and equipment, primarily from the sale of duplicate facilities associated with the May Company integration. Net cash provided by continuing financing activities was $6 million in the first three quarters of 2008, compared with cash used by continuing financing activities of $602 million in the first three quarters of last year. In the second quarter of 2008, Macy's, Inc. issued $650 million in senior notes, and in the third quarter paid $650 million in matured senior notes. In the first nine months of 2007, net cash used by continuing financing activities included approximately $3 billion in stock repurchased, as well as approximately $2.9 billion in debt issued.

Looking Ahead

The company reiterates its sales and earnings guidance provided on Oct. 10, 2008, while continuing to note that the uncertain direction of the economy makes predictions of future performance difficult. Same-store sales in the fourth quarter are expected to be down in the range of 1 to 6 percent, which would result in same-store sales for the fall season (third and fourth quarters combined) down in the range of 3 to 6 percent, consistent with previous guidance. Because of a dramatic year-over-year calendar shift that resulted in a same-store sales increase of 13.4 percent in November 2007, the company expects a same-store decrease in the low double digits in November 2008 as a full week of sales shifts back into the December period.

The company currently expects earnings per share on a diluted basis of approximately $1.10 to $1.30 in the fourth quarter, excluding one-time division consolidation costs, which would calculate to $1.30 to $1.50 for fiscal 2008 as a whole, excluding one-time division consolidation costs and impairment charges. Sales and earnings are expected to track to the lower end of guidance in the fourth quarter if sales trends remain consistent with those in the latter half of the third quarter. The company expects to book approximately $20 million in division consolidation costs in the fourth quarter of 2008.

Macy's, Inc., with corporate offices in Cincinnati and New York, is one of the nation's premier retailers, with fiscal 2007 sales of $26.3 billion. The company operates more than 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macy's and Bloomingdale's. The company also operates macys.com, bloomingdales.com and Bloomingdale's By Mail. Prior to June 1, 2007, Macy's, Inc. was known as Federated Department Stores, Inc.

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 transactions, prevailing interest rates, competitive pressures from specialty stores, general merchandise stores, manufacturers' outlets, off-price and discount stores, new and established forms of home shopping (including the Internet, mail-order catalogs and television) 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.

(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 third quarter earnings call with analysts will be held beginning at 10:30 a.m. ET on Wednesday, November 12. The webcast is accessible to the media and general public either via the company's Web site at www.macysinc.com or by calling in on 1-888-684-1262 (913-312-0975 for international callers), passcode 5642242.)


                             MACY'S, INC.

      Consolidated Statements of Operations (Unaudited) (Note 1)
----------------------------------------------------------------------

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

                                   13 Weeks Ended     13 Weeks Ended
                                  November 1, 2008   November 3, 2007
                                 ------------------ ------------------
                                            % to               % to
                                    $     Net sales    $     Net sales
                                 -------- --------- -------- ---------

Net sales                        $ 5,493            $ 5,906

Cost of sales (Note 2)             3,324     60.5%    3,585     60.7%
                                 -------- --------- -------- ---------

Gross margin                       2,169     39.5%    2,321     39.3%

Selling, general and
 administrative expenses          (2,085)   (38.0%)  (2,121)   (35.9%)

Division consolidation costs
 (Note 3)                            (16)    (0.3%)       -        -%

May integration costs (Note 4)         -        -%      (17)    (0.3%)
                                 -------- --------- -------- ---------

Operating income                      68      1.2%      183      3.1%

Interest expense - net              (143)              (145)
                                 --------           --------

Income (loss) before income
 taxes                               (75)                38

Federal, state and local income
 tax
benefit (expense) (Note 5)            31                 (5)
                                 --------           --------

Net income (loss)                $   (44)           $    33
                                 ========           ========

Basic earnings (loss) per share  $  (.10)           $   .08
                                 ========           ========

Diluted earnings (loss) per
 share                           $  (.10)           $   .08
                                 ========           ========

Average common shares:
      Basic                        421.3              434.2
      Diluted                      421.3              438.1

End of period common shares
 outstanding                       420.6              433.0

Depreciation and amortization
 expense                         $   320            $   321

                             MACY'S, INC.

      Consolidated Statements of Operations (Unaudited) (Note 1)
----------------------------------------------------------------------

Notes:

   (1) Because of the seasonal nature of the retail business, the
        results of operations for the 13 weeks ended November 1, 2008
        and November 3, 2007, (which do not include the Christmas
        season) are not necessarily indicative of such results for the
        fiscal year. The May Department Stores Company ("May") was
        acquired August 30, 2005.

   (2) Merchandise inventories are primarily valued at the lower of
        cost or market using the last-in, first-out (LIFO) retail
        inventory method. Application of this method did not impact
        cost of sales for the 13 weeks ended November 1, 2008 or
        November 3, 2007.

   (3) Represents costs and expenses associated with the division
        consolidation and localization initiatives, primarily
        severance and other human resource related costs. For the 13
        weeks ended November 1, 2008, division consolidation costs
        amounted to $.02 per diluted share.

   (4) Represents costs and expenses associated with the integration
        and consolidation of May's operations into Macy's operations,
        including additional costs related to closed locations, final
        system conversion costs and costs related to other operational
        consolidations. For the 13 weeks ended November 3, 2007, May
        integration costs amounted to $.02 per diluted share.

   (5) Income taxes for the 13 weeks ended November 1, 2008 and
        November 3, 2007 reflect the adjustment or settlement of
        various tax issues.

                             MACY'S, INC.

      Consolidated Statements of Operations (Unaudited) (Note 1)
----------------------------------------------------------------------

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

                                   39 Weeks Ended     39 Weeks Ended
                                  November 1, 2008   November 3, 2007
                                 ------------------ ------------------
                                            % to               % to
                                    $     Net sales    $     Net sales
                                 -------- --------- -------- ---------

Net sales                        $16,958            $17,719

Cost of sales (Note 2)            10,197     60.1%   10,656     60.1%
                                 -------- --------- -------- ---------

Gross margin                       6,761     39.9%    7,063     39.9%

Selling, general and
 administrative expenses          (6,225)   (36.7%)  (6,272)   (35.4%)

Division consolidation costs
 (Note 3)                           (129)    (0.8%)       -        -%

May integration costs (Note 4)         -        -%     (150)    (0.9%)

Asset impairment charges (Note
 5)                                  (50)    (0.3%)       -        -%
                                 -------- --------- -------- ---------

Operating income                     357      2.1%      641      3.6%

Interest expense - net              (417)              (407)
                                 --------           --------

Income (loss) from continuing
 operations
before income taxes                  (60)               234

Federal, state and local income
 tax
benefit (expense) (Note 6)            30                (75)
                                 --------           --------

Income (loss) from continuing
 operations                          (30)               159

Discontinued operations, net of
 income taxes (Note 7)                 -                (16)
                                 --------           --------

Net income (loss)                $   (30)           $   143
                                 ========           ========

Basic earnings (loss) per share:
      Income (loss) from
       continuing operations     $  (.07)           $   .35
      Loss from discontinued
       operations                      -               (.03)
                                 --------           --------
      Net income (loss)          $  (.07)           $   .32
                                 ========           ========

Diluted earnings (loss) per
 share:
      Income (loss) from
       continuing operations     $  (.07)           $   .35
      Loss from discontinued
       operations                      -               (.04)
                                 --------           --------
      Net income (loss)          $  (.07)           $   .31
                                 ========           ========

Average common shares:
      Basic                        421.1              451.4
      Diluted                      421.1              457.4

End of period common shares
 outstanding                       420.6              433.0

Depreciation and amortization
 expense                         $   950            $   977

                             MACY'S, INC.

      Consolidated Statements of Operations (Unaudited) (Note 1)
----------------------------------------------------------------------

Notes:

   (1) Because of the seasonal nature of the retail business, the
        results of operations for the 39 weeks ended November 1, 2008
        and November 3, 2007 (which do not include the Christmas
        season) are not necessarily indicative of such results for the
        fiscal year. The May Department Stores Company ("May") was
        acquired August 30, 2005. Among other components, the
        acquisition included the Lord & Taylor division and the Bridal
        Group, consisting of David's Bridal, After Hours Formalwear
        and Priscilla of Boston. The sale of the Lord & Taylor
        division was completed in October 2006, the sale of David's
        Bridal and Priscilla of Boston was completed in January 2007
        and the sale of After Hours Formalwear was completed in April
        2007.

   (2) Merchandise inventories are primarily valued at the lower of
        cost or market using the last-in, first-out (LIFO) retail
        inventory method. Application of this method did not impact
        cost of sales for the 39 weeks ended November 1, 2008 or
        November 3, 2007.

   (3) Represents costs and expenses associated with the division
        consolidation and localization initiatives, primarily
        severance and other human resource related costs. For the 39
        weeks ended November 1, 2008, division consolidation costs
        amounted to $.19 per diluted share.

   (4) Represents costs and expenses associated with the integration
        and consolidation of May's operations into Macy's operations,
        including additional costs related to closed locations, final
        system conversion costs and costs related to other operational
        consolidations. For the 39 weeks ended November 3, 2007, May
        integration costs amounted to $.20 per diluted share.

   (5) Represents impairment charges associated with acquired
        indefinite lived private brand tradenames. For the 39 weeks
        ended November 1, 2008, impairment charges amounted to $.08
        per diluted share.

   (6) Income taxes for the 39 weeks ended November 1, 2008 and
        November 3, 2007 reflect the adjustment or settlement of
        various tax issues.

   (7) Represents the results of operations of After Hours Formalwear.
        For the 39 weeks ended November 3, 2007, discontinued
        operations included the loss on disposal of After Hours
        Formalwear of $7 million on a pre-tax and after-tax basis, or
        $.01 per diluted share.


                             MACY'S, INC.

               Consolidated Balance Sheets (Unaudited)
----------------------------------------------------------------------

                              (millions)

                                 November 1,  February 2,  November 3,
                                    2008         2008         2007
                                 -----------  -----------  -----------
ASSETS:
  Current Assets:
     Cash and cash equivalents       $   300      $   583      $   275
     Receivables                         367          463          459
     Merchandise inventories           6,915        5,060        7,012
     Income tax receivable                43            -            -
     Supplies and prepaid
      expenses                           246          218          261
                                 -----------  -----------  -----------
        Total Current Assets           7,871        6,324        8,007

  Property and Equipment - net        10,616       10,991       11,072
  Goodwill                             9,123        9,133        9,139
  Other Intangible Assets - net          747          831          842
  Other Assets                           547          510          609
                                 -----------  -----------  -----------

        Total Assets                 $28,904      $27,789      $29,669
                                 ===========  ===========  ===========

LIABILITIES AND SHAREHOLDERS'
 EQUITY:
  Current Liabilities:
     Short-term debt                 $ 1,086      $   666      $ 1,634
     Accounts payable and
      accrued liabilities              5,687        4,127        5,757
     Income taxes                          -          344            6
     Deferred income taxes               246          223          253
                                 -----------  -----------  -----------
        Total Current
         Liabilities                   7,019        5,360        7,650

  Long-Term Debt                       8,748        9,087        9,097
  Deferred Income Taxes                1,466        1,446        1,407
  Other Liabilities                    1,981        1,989        2,045
  Shareholders' Equity                 9,690        9,907        9,470
                                 -----------  -----------  -----------

        Total Liabilities and
         Shareholders' Equity        $28,904      $27,789      $29,669
                                 ===========  ===========  ===========

Note: Certain reclassifications were made to prior period amounts to
 conform with the classifications of such amounts for the most recent
 period.


                             MACY'S, INC.

          Consolidated Statements of Cash Flows (Unaudited)
----------------------------------------------------------------------

                              (millions)

                                      39 Weeks Ended   39 Weeks Ended
                                     November 1, 2008 November 3, 2007
                                     ---------------- ----------------
Cash flows from continuing operating
 activities:
  Net income (loss)                          $   (30)         $   143
  Adjustments to reconcile net
   income (loss) to net cash
  provided by continuing operating
   activities:
     Loss from discontinued
      operations                                   -               16
     Stock-based compensation
      expense                                     32               48
     Division consolidation costs                129                -
     May integration costs                         -              150
     Asset impairment charges                     50                -
     Depreciation and amortization               950              977
     Amortization of financing costs
      and premium on acquired debt               (20)             (24)
     Changes in assets and
      liabilities:
        Decrease in receivables                   84               57
        Increase in merchandise
         inventories                          (1,855)          (1,695)
        Increase in supplies and
         prepaid expenses                        (28)             (10)
        Decrease in other assets not
         separately identified                     -                2
        Increase in accounts payable
         and accrued liabilities not
         separately identified                 1,320              948
        Decrease in current income
         taxes                                  (343)            (328)
        Increase (decrease) in
         deferred income taxes                     8              (17)
        Increase in other
         liabilities not separately
         identified                               20               18
                                     ---------------- ----------------
        Net cash provided by
         continuing operating
         activities                              317              285
                                     ---------------- ----------------

Cash flows from continuing investing
 activities:
  Purchase of property and equipment            (546)            (700)
  Capitalized software                          (104)             (81)
  Proceeds from hurricane insurance
   claims                                         19                1
  Disposition of property and
   equipment                                      25               96
  Proceeds from the disposition of
   After Hours Formalwear                          -               66
                                     ---------------- ----------------
        Net cash used by continuing
         investing activities                   (606)            (618)
                                     ---------------- ----------------

                             MACY'S, INC.

          Consolidated Statements of Cash Flows (Unaudited)
----------------------------------------------------------------------

                              (millions)

                                      39 Weeks Ended   39 Weeks Ended
                                     November 1, 2008 November 3, 2007
                                     ---------------- ----------------
Cash flows from continuing financing
 activities:
  Debt issued                                    770            2,918
  Financing costs                                 (5)             (18)
  Debt repaid                                   (663)            (647)
  Dividends paid                                (166)            (173)
  Increase in outstanding checks                  64               65
  Acquisition of treasury stock                   (1)          (3,003)
  Issuance of common stock                         7              256
                                     ---------------- ----------------
      Net cash provided (used) by
       continuing financing
       activities                                  6             (602)
                                     ---------------- ----------------

Net cash used by continuing
 operations                                     (283)            (935)

Net cash provided by discontinued
 operating activities                              -                7
Net cash used by discontinued
 investing activities                              -               (7)
Net cash used by discontinued
 financing activities                              -               (1)
                                     ---------------- ----------------
Net cash used by discontinued
 operations                                        -               (1)
                                     ---------------- ----------------

Net decrease in cash and cash
 equivalents                                    (283)            (936)
Cash and cash equivalents at
 beginning of period                             583            1,211
                                     ---------------- ----------------

Cash and cash equivalents at end of
 period                                        $ 300          $   275
                                     ================ ================

    CONTACT: Macy's, Inc.
             Media - Jim Sluzewski, 513-579-7764
             or
             Investor - Susan Robinson, 513-579-7780

    SOURCE: Macy's, Inc.

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