EDGAR 10-K Filing

Company CIK: 794367
Filing Year: 2021
Filename: 794367_10-K_2021_0001564590-21-016119.json

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ITEM 1. BUSINESS
Item 1.
Business.
General
The Company is a corporation organized under the laws of the State of Delaware in 1985. The Company and its predecessors have been operating department stores since 1830. The Company operates 727 store locations in 43 states, the District of Columbia, Puerto Rico and Guam. As of January 30, 2021, the Company's operations were conducted through Macy's, Macy’s Backstage, Market by Macy’s, Bloomingdale's, Bloomingdale’s The Outlet, and bluemercury. In addition, Bloomingdale's in Dubai, United Arab Emirates, and Al Zahra, Kuwait are operated under license agreements with Al Tayer Insignia, a company of Al Tayer Group, LLC.
The Company sells a wide range of merchandise, including apparel and accessories (men’s, women’s and kids'), cosmetics, home furnishings and other consumer goods. The specific assortments vary by size of store, merchandising assortments and character of customers in the trade areas. Most stores are located at urban or suburban sites, principally in densely populated areas across the United States.
Disaggregation of the Company's net sales by family of business for 2020, 2019 and 2018 were as follows:
Women’s Accessories, Intimate Apparel, Shoes, Cosmetics and
Fragrances
$
7,206
$
9,454
$
9,457
Women’s Apparel
2,909
5,411
5,642
Men’s and Kids’
3,486
5,628
5,699
Home/Other (a)
3,745
4,067
4,173
Total
$
17,346
$
24,560
$
24,971
(a)
Other primarily includes restaurant sales, allowance for merchandise returns adjustments, certain loyalty program income and breakage income from unredeemed gift cards.
In 2020, the Company’s subsidiaries provided various support functions to the Company’s retail operations on an integrated, company-wide basis.
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The Company’s wholly-owned bank subsidiary, FDS Bank, provides certain collections, customer service and credit marketing services in respect of all credit card accounts that are owned either by Department Stores National Bank (“DSNB”), a subsidiary of Citibank, N.A., or FDS Bank and that constitute a part of the credit programs of the Company’s retail operations.
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Macy’s Systems and Technology, Inc. (“MST”), a wholly-owned indirect subsidiary of the Company, provides operational electronic data processing and management information services to all of the Company’s operations other than bluemercury.
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Macy’s Merchandising Group, Inc. (“MMG”), a wholly-owned direct subsidiary of the Company, and its subsidiary Macy's Merchandising Group International, LLC, are responsible for the design, development and marketing of Macy’s private label brands and certain licensed brands. Bloomingdale’s uses MMG for a small portion of its private label merchandise. The Company believes that its private label merchandise differentiates its merchandise assortments from those of its competitors. MMG also offers its services, either directly or indirectly, to unrelated third parties.
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Macy’s Logistics and Operations (“Macy’s Logistics”), a division of a wholly-owned indirect subsidiary of the Company, provides warehousing and merchandise distribution services for the Company’s operations and digital customer fulfillment.
The Company’s principal executive office is located at 151 West 34th Street, New York, New York 10001, telephone number: (513) 579-7780.
Seasonality
The retail business is seasonal in nature with a high proportion of sales and operating income generated in the months of November and December. Working capital requirements fluctuate during the year, increasing in mid-summer in anticipation of the fall merchandising season and increasing substantially prior to the months of November and December when the Company carries significantly higher inventory levels.
Purchasing
The Company purchases merchandise from many suppliers, none of which accounted for more than 5% of the Company’s purchases during 2020. The Company has no material long-term purchase commitments with any of its suppliers, and believes that it is not dependent on any one supplier. The Company considers its relations with its suppliers to be good.
Private Label Brands and Related Trademarks
The principal private label brands currently offered by the Company include Alfani, Aqua, Bar III, Belgique, Charter Club, Club Room, Epic Threads, first impressions, Giani Bernini, Holiday Lane, Home Design, Hotel Collection, Hudson Park, Ideology, I-N-C, jenni, JM Collection, Karen Scott, lune+aster, M-61, Maison Jules, Martha Stewart Collection, Oake, Sky, Style & Co., Sun + Stone, Sutton Studio, Tasso Elba, Thalia Sodi, The Cellar, Tools of the Trade and Wild Pair.
The trademarks associated with the Company's private label brands, other than Martha Stewart Collection and Thalia Sodi, are owned by the Company. The Martha Stewart Collection and Thalia Sodi brands are owned by third parties, which license the trademarks associated with the brands to Company pursuant to agreements. The agreement for Thalia Sodi expired in January 2021, but the Company has a 180-day sell-off period, while the Martha Stewart agreement extends through 2022.
Competition
The retail industry is highly competitive. The Company’s operations compete with many retail formats on the national and local level, including department stores, specialty stores, general merchandise stores, manufacturers' outlets, off-price and discount stores, online retailers and catalogs, among others. The Company seeks to attract customers by offering compelling, high-quality products, great prices and trusted service across all channels, including its digital platforms. The Company’s stores are located in premier locations and the Company provides a superior omnichannel product experience at a variety of price points. Other retailers may compete for customers on some or all of these bases, or on other bases, and may be perceived by some potential customers as being better aligned with their particular preferences.
Available Information
The Company makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") available free of charge through its internet website at https://www.macysinc.com as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC; the address of that site is https://www.sec.gov. In addition, the Company has made the following available free of charge through its website at https://www.macysinc.com:
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Charters of the Audit Committee, Compensation and Management Development Committee, Finance Committee, and Nominating and Corporate Governance Committee,
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Corporate Governance Principles,
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Lead Independent Director Policy,
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Non-Employee Director Code of Business Conduct and Ethics,
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Code of Conduct,
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Standards for Director Independence,
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Related Person Transactions Policy,
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Method to Facilitate Receipt, Retention and Treatment of Communications, and
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Proxy Access By-Laws.
Any of these items are also available in print to any shareholder who requests them. Requests should be sent to the Corporate Secretary of Macy’s, Inc. at 151 West 34th Street, New York, New York 10001.
Human Capital
Culture & Engagement
At Macy’s culture is about relationships-how the Company serves and supports its customers, communities and employees (called colleagues). The Company’s workplace is rooted in equity and guided by its values of acceptance, respect, integrity and giving back.
The Company gathers colleague feedback at key times throughout the colleague lifecycle from onboarding to offboarding, providing regular venues for colleagues to ask questions and share their opinions, such as Ask Me Anything sessions, town halls and employee resource groups. The Company formally solicits feedback from all colleagues twice a year through an enterprise-wide Culture Pulse Survey. The results are shared across the organization to provide visibility to both managers (called people leaders) and colleagues and help create an opportunity for open and constructive discussions among teams.
Diversity & Inclusion
Macy’s commitment to diversity and inclusion is guided by its values and starts from within by building a workforce that accurately represents the communities it serves at all levels and by cultivating a culture of belonging. The Company seeks to empower colleagues to harness and unleash the power of their individuality to help drive better business decisions for customers and shareholders.
The Company actively promotes an inclusive and welcoming environment for all customers and is focused on diversity and inclusion beyond the organization-working to support and develop diverse suppliers; investing in economic and workforce development; contributing to organizations fighting for social justice; and awarding scholarships to cultivate future leaders.
One of the Company’s measures to advance the diversity of its leadership at the senior director level and above is the MOSAIC program, a one-year professional development program launched in 2019 for its top talent at the manager and director levels who self-identify as ethnically diverse. From 2019 to 2020, approximately 61% of program participants were promoted or moved into a new role, with approximately 18% promoted to senior director level. The Company is currently at 24% ethnic diversity at the senior director level and above, with a goal to reach 25% in 2021 and 30% by 2025.
Macy’s believes people leaders play an important role in driving performance and an inclusive culture. In 2020, the Company incorporated People Leader Commitments (which were launched in 2019) and diversity and inclusion (D&I) into the performance review process. In 2021, the Company has included standardized D&I goals into annual reviews at the director level and above.
Company-sponsored, employee-led resource groups (ERGs) provide an opportunity for colleagues to experience connection, achieve belonging and build community. ERGs expanded from 51 to 94 chapters across Macy’s and Bloomingdale’s in 2020 and continue to be a resource for attracting and retaining talent.
Macy’s D&I focus areas extend beyond its colleagues and include community, customers, marketing and suppliers. For example:
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In 2020, the Company allocated $1 million to organizations promoting social justice, sourced new partners, and committed two colleagues to the work of CEO Action for Racial Equity Taskforce-the mission of the taskforce is to identify, develop and promote scalable and sustainable public policies and corporate engagement strategies that will address systemic racism, social justice and improve societal well-being.
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In 2019, the Company launched a Customer Bill of Rights across all Macy’s and Bloomingdale’s stores as a new standard of how the Company will treat everyone who engages with its brands.
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The Company is advancing representation in its advertising to reflect its customers by gender, gender identity, ethnicity, age, size and people with disabilities.
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In 2020, the Company increased brand assortment by adding 100 new, diverse-owned businesses online and in stores. Overall, minority and diverse suppliers (retail and non-retail) accounted for 3.5% of the Company’s total spend in 2020, with a goal to increase to 4% in 2021.
Future of Work
The workplace is evolving and so is Macy’s. The Company believes the future of work is about allowing colleagues to do their best work safely, flexibly and in an environment that inspires collaboration and connection and reflects their core values. Through investments in technology, new and updated policies and procedures, and listening to the needs of its colleagues, Macy’s is evolving with them. Because no matter where colleagues work, behind a desk or behind a screen, in stores or in distribution centers, the Company believes they are guided by their strong sense of culture and what it means to be part of the Macy’s family.
The Company has taken enhanced safety measures to help mitigate the spread of COVID-19 to colleagues and customers including requiring all customers to wear face masks in stores, enforcing social distancing guidelines, increasing safety equipment in stores, offering contactless shopping opportunities, providing company-supplied personal protection equipment and wellness checks for colleagues, and performing enhanced cleaning.
Learning & Development
Macy’s believes that learning goes hand in hand with career growth, personal satisfaction and outstanding results. The Company aspires to create a learning culture where colleagues actively learn, apply what they have learned to address business challenges and share their knowledge, including their mistakes, to help others grow. Learning is accessible through Ignite (powered by Degreed), the Company’s self-directed learning experience platform as well as through technology, social learning and meaningful experiences and exposures with colleagues.
The Company makes investments in its people leaders and future leaders. Macy’s and Bloomingdale’s Executive Development Programs offer immersive, hands-on learning experiences for recent college graduates from top universities across the U.S. to jump start a career in retail, with specialization in technology, digital, stores, merchandising, planning, human resources and credit and customer service. Macy’s and Bloomingdale’s offer internships for college students and Bloomindale’s offers an early immersion program focused on providing experiential learning and career exposure to those who identify with underrepresented groups. Bluemercury’s Shooting Stars is a six-month mentorship program that empowers mentees to own their journey by creating a development plan, becoming an inclusive leader and leveraging resources to support their career aspirations. In 2019, Macy’s partnered with Parsons School of Design to launch Macy’s Fashion Academy - a custom executive education program designed to offer best-in-class development across all disciplines of its merchant talent.
Approximately 81% of colleagues completed unconscious bias training in 2019 and approximately 96% of professional colleagues have utilized Ignite for personal and professional development. People leaders invest a minimum of 40 hours of leadership development each year. Professional colleagues participate in a 90-day onboarding experience with performance milestones, support resources and role-specific training.
Data Analytics
Macy’s is embedding data and analytics into its human capital management. Below are examples of how the Company leverages data-driven insights to support key business decisions.
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Career development: Allow colleagues to access their data and share their skills/career aspirations with the enterprise
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Culture: Consistently assess the health of its culture, its team’s performance and its talent pipelines
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Human resources: Standardized its employment and compensation practices across all business groups
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Leadership development: Leading technology solutions support people leaders with workforce management, including immediate access to performance, talent and compensation information for their total teams
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Talent recruitment and retention: Plan, recruit and retain talent, allowing it to co-locate teams critical to company growth and staff them with highly engaged top talent
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Workplace structure: Create multi-year strategies and prioritize workplace changes that align with customer and colleagues’ need
Talent
Macy’s employs approximately 90,000 full-time, part-time and seasonal colleagues nationwide across a variety of functions and roles. The Company is committed to having the best talent in retail - encouraging the continuous upskilling of its colleagues and empowering them to chart their own career paths, while staying focused on acquiring the best and brightest to inject fresh thinking.
Total Rewards
Macy’s offers comprehensive benefits and an awards strategy that recognizes performance and talent development. Eligible colleagues have varied medical plan options to meet individual needs. The Company’s commitment to colleagues’ well-being expanded during the pandemic in 2020, as it covered 100% of insurance premiums for colleagues while on furlough, including coverage for dependents. The Company provides paid time-off, parental leave and holiday pay as well as a company 401(k) plan and match, dependent care flexible spending account, colleague merchandise discount and tuition reimbursement for eligible colleagues.
The Company believes that pay equity is fundamental to its culture and D&I strategy. Compensation is based on job position, responsibilities, experience and performance with incentive opportunities that allow all colleagues to share in the Company’s success.
In 2021, the Company expects to achieve greater than 99% pay equity across gender and race. In terms of both base pay and total compensation, the Company expects to pay female colleagues at greater than 99% of what it pays male colleagues, and it expects that minorities will be paid at greater than 99% of what it pays non-minorities in the U.S.
The Company informs its compensation approach through market surveys and pay ranges to ensure pay is competitive and fair and has a robust process to assess internal pay levels for consistency and fairness. The Company’s incentive programs reward colleagues across all levels and functions for achievements in driving business results and upholding its shared culture and values, including annual cash incentives for corporate colleagues based on performance, Path to Growth quarterly incentive program for frontline colleagues, spot bonuses and commissions for store colleagues, and annual equity grants to eligible senior management.
Number of Employees
As of January 30, 2021, excluding seasonal employees, Macy’s had 75,711 full-time and part-time employees. Because of the seasonal nature of the retail business, the number of employees peaks in the holiday season. Approximately 7% of employees are represented by unions.
Macy’s, Inc.’s Human Capital Report was released in March 2021 and is available at https://macys.learn.taleo.net/files/upload/hcr/index_ORIG.html#/lessons/MQA5eF65af1i3n8XU_BME3xQTsmGcmHE. The contents of the Human Capital Report are not incorporated by reference into this Annual Report on Form 10-K.
Information about our Executive Officers
The following table sets forth certain information as of March 25, 2021 regarding the Executive Officers of the Company:
Name
Age
Position with the Company
Jeff Gennette
Chief Executive Officer, Chairman of the Board and Director
Adrian V. Mitchell
Executive Vice President and Chief Financial Officer
Elisa D. Garcia
Executive Vice President, Chief Legal Officer and Secretary
John T. Harper
Executive Vice President and Chief Operations Officer
Danielle L. Kirgan
Executive Vice President and Chief Transformation and Human Resources Officer
Paul Griscom
Senior Vice President and Controller
Executive Officer Biographies
Jeff Gennette has been Chief Executive Officer of the Company since March 2017 and Chairman of the Board since January 2018; prior thereto he was President from March 2014 to August 2017, Chief Merchandising Officer from
February 2009 to March 2014, Chairman and Chief Executive Officer of Macy’s West in San Francisco from February 2008 to February 2009 and Chairman and Chief Executive Officer of Seattle-based Macy’s Northwest from February 2006 through February 2008.
Adrian V. Mitchell has been Executive Vice President and Chief Financial Officer of the Company since November 2020; prior thereto he served as a Managing Director and Partner in the DigitalBCG and Consumer Practices of Boston Consulting Group from 2017 to 2020, Chief Executive Officer of Arhaus LLC from 2016 to 2017, executive positions at Crate and Barrel Holdings, Inc. from 2010 to 2015 including interim CEO, Chief Operating & Chief Financial Officer and Chief Financial Officer, and management positions at Target Corporation from 2007 to 2010 including Director of Strategy & Interactive Design for target.com and Director of Innovation & Productivity leading enterprise-wide projects for Target Corporation.
Elisa D. Garcia has been Executive Vice President, Chief Legal Officer and Secretary of the Company since September 2016; prior thereto she served as Chief Legal Officer of Office Depot, Inc. from December 2013 to September 2016, Executive Vice President and Secretary from July 2007 to September 2016 and General Counsel from July 2007 to December 2013.
John T. Harper has been Executive Vice President and Chief Operations Officer of the Company since January 2020; prior thereto he served as Chief Stores Officer from September 2017 to January 2020, President of Store Operations from May 2009 to September 2017, President of Macy’s Home Store from 2007 to 2009, Vice Chairman of Macy’s Midwest from 2006 to 2007 and Chairman of Hecht’s department stores from 2004 to 2006.
Danielle L. Kirgan has been Executive Vice President and Chief Transformation and Human Resources Officer of the Company since February 2020 and Chief Human Resources Officer since October 2017; prior thereto she served as Senior Vice President, People at American Airlines Group, Inc. from October 2016 to October 2017, Chief Human Resources Officer at Darden Restaurants, Inc. from January 2015 to October 2016 and Senior Vice President from May 2010, Vice President, Global Human Resources at ACI Worldwide, Inc. from January 2009 to December 2009, and Vice President, Human Resources at Conagra Foods, Inc. from 2004 to 2008.
Paul Griscom has been Senior Vice President and Controller of the Company since August 2020; prior thereto he served as Vice President and interim Principal Accounting Officer from June to August 2020, Vice President, Financial Reporting and Accounting Services from May 2019 to August 2020, Vice President, Financial Reporting from June 2017 to April 2019, Director of Financial Reporting from July 2016 to May 2017, Director, Training & Products, GAAP Dynamics from 2012 to 2016 and held various positions at KPMG LLP from 2000 to 2012.
Recent Developments
On March 1, 2021, the Company issued a press release announcing that John T. Harper will depart the Company effective August 1, 2021. Subsequently, the role of chief operations officer will be eliminated.

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ITEM 1A. RISK FACTORS
Item 1A.
Risk Factors.
In evaluating the Company, the risks described below and the matters described in “Forward-Looking Statements” should be considered carefully. Such risks and matters are numerous and diverse, may be experienced continuously or intermittently, and may vary in intensity and effect. Although the risks are organized by heading, and each risk is described separately, many of the risks are interrelated. Any of such risks and matters, individually or in combination, could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows, as well as on the attractiveness and value of an investment in the Company’s securities.
The recent outbreak of COVID-19 has had and will continue to have a significant negative impact on the Company’s business and financial results.
In December 2019, there was an outbreak of COVID-19 in China that has since spread to the other regions of the world. The outbreak was subsequently labeled as a global pandemic by the World Health Organization in March 2020. As the pandemic continues to spread throughout the United States, businesses as well as federal, state and local governments have implemented significant actions to attempt to mitigate this public health crisis. Although the ultimate
severity of the COVID-19 outbreak is uncertain at this time, the pandemic has had and will continue to have adverse impacts on the Company’s financial condition and results of operations, including, but not limited to:
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On March 18, 2020, the Company temporarily closed all of its stores and subsequently furloughed the majority of its workforce. As different states and localities began to ease the regulations imposed to slow the spread of COVID-19, the Company began to reopen its stores and by the end of the second quarter of 2020, substantially all of the Company’s stores had reopened. As a result of the COVID-19 pandemic, and particularly with the reopening of stores, the Company implemented safety measures and health and wellness precautions across its stores and facilities to mitigate risk to its customers and colleagues. These efforts to protect the health and well-being of customers and Company colleagues have resulted in, and will continue to result in, additional selling, general and administrative (“SG&A”) expenses. Recently, pockets of resurgence and variant strains of COVID-19 have emerged in parts of the world and the U.S., which may negatively impact store performance, as consumer shopping behaviors are impacted or government officials reinstate or prolong restrictions that may include occupancy limits, curfews and closures of non-essential businesses. Outbreaks and variant strains of the COVID-19 virus may continue to emerge or grow, which could require the Company to close its stores or further limit their operations. As a result, there can be no assurance as to whether stores can remain open or whether further store closures may be required.
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During the first and second quarters of 2020, the Company experienced significant reductions and volatility in demand for its retail products as customers were not able to purchase merchandise in stores due to quarantine or government or self-imposed restrictions placed on the Company’s stores’ operations. Despite continued store recovery in the third and fourth quarters of 2020, store sales declined significantly compared to the same periods last year. Additionally, social distancing measures or changes in consumer spending behaviors due to COVID-19 have impacted and may continue to impact traffic in stores and could result in a loss of sales and profit.
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COVID-19 has had a significant impact on the economic conditions in North America as well as a significant impact on discretionary consumer spending and consumer shopping behaviors. In response to the disruption caused by the COVID-19 pandemic, the Company reconfigured its cost base through colleague reductions and reduced discretionary spending and has made investments to adapt to the changes in consumer behavior. While it is premature to accurately predict the ultimate impact of these developments, the Company expects its results of operations will be adversely impacted in a significant manner and such impacts could continue for an undetermined amount of time.
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The Company has experienced and may continue to experience temporary or long-term disruptions in its supply chain, as the outbreak has resulted in travel disruptions and has impacted manufacturing and distribution throughout the world. The receipt of products or raw material sourced from impacted areas has been and may continue to be slowed or disrupted, which could impact the Company’s private brands or the fulfillment of merchandise orders from the Company’s brand partners. Furthermore, transportation delays and cost increases, more extensive travel restrictions, closures or disruptions of businesses and facilities and social, economic, political or labor instability in the affected areas have impacted and may continue to impact the Company, its suppliers’ operations and its customers.
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The Company has been and may continue to be required to change its plan for inventory receipts, which could place financial pressure on its brand partners. Such actions may negatively impact relationships with brand partners or adversely impact their financial performance and position. If this occurs, current brand partners’ ability to meet their obligations to the Company may be impacted or the Company may also be required to identify new brand partner relationships.
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The Company’s liquidity was negatively impacted by the store closures. While the Company has obtained additional financing, further actions may be required to improve the Company’s cash position, including but not limited to, monetizing Company assets, reinstituting colleague furloughs, and foregoing capital expenditures and other discretionary expenses. Failure to obtain any necessary additional financing or enhance the Company’s liquidity could lead to default on its current financing arrangements and impact the Company’s ability to meet its obligations as they come due.
The Company cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can it predict the severity and duration of its impact, how variant strains of the COVID-19 virus will impact the pandemic, or the availability and distribution of effective medical treatments or vaccines. As such, the Company will continue to assess the highly uncertain financial impacts of COVID-19. The disruption to the global economy and to the Company’s
business may lead to triggering events that may indicate that the carrying value of certain assets, including inventories, long-lived assets, intangibles, and goodwill, may not be recoverable.
The impact of COVID-19 may also exacerbate other risks included in in this section, any of which could be material. The situation is changing rapidly, and future impacts may materialize that are not yet known. Even if the COVID-19 pandemic subsides, the Company may continue to experience materially adverse impacts to the Company's business as a result of the virus' long-term economic impact, including adverse impacts on the business operations, liquidity and impacts of any recession that may occur in the future.
Strategic, Operational and Competitive Risks
Our strategic initiatives may not be successful, which could negatively affect our profitability and growth.
In February 2020, we announced the Polaris strategy, a multi-year plan designed to stabilize profitability and position the Company for sustainable, profitable growth. Over the course of the COVID-19 pandemic, we have refined the components of the Polaris strategy to focus where we believe we can drive competitive advantage and differentiation to first recover business and then drive growth, including a focus on winning with fashion and style, delivering clear value, excelling in digital shopping, enhancing store experience, modernizing supply chain and enabling transformation. Our ability to achieve sustainable, profitable growth is subject to the successful implementation of our strategic plans, including the Polaris strategy, and realization of anticipated benefits and savings. If these investments or initiatives do not perform as expected or create implementation or operational challenges, our profitability and growth could suffer.
Our sales and operating results depend on our ability to anticipate and respond to consumer preferences and manage our inventory and merchandise selection.
The fashion and retail industries are subject to sudden shifts in consumer trends and consumer spending. Our sales and operating results depend in part on our ability to predict or respond to changes in fashion trends and consumer preferences in a timely manner. We develop new retail concepts and continuously adjust our inventory position in certain major and private-label brands and product categories in an effort to attract and retain customers. Any sustained failure to anticipate, identify and respond to emerging trends in lifestyle and consumer preferences could negatively affect our business and results of operations.
Our profitability depends on our ability to manage inventory levels and merchandise selection. Overestimating customer demand for merchandise will likely result in the need to record inventory markdowns and sell excess inventory at clearance prices, which would negatively impact our gross margins and operating results. Underestimating customer demand for merchandise can lead to inventory shortages, missed sales opportunities and negative customer experiences.
The Company faces significant competition and challenges as consumers continue to migrate to online shopping and depends on its ability to differentiate itself in retail's ever-changing environment.
We conduct our retail merchandising business under highly competitive conditions. Although Macy's, Inc. is one of the nation’s largest retailers, we have numerous and varied competitors at the national and local levels, including department stores, specialty stores, general merchandise stores, manufacturers’ outlets, off-price and discount stores, online retailers and catalogs, among others. Competition is characterized by many factors, including assortment, advertising, price, quality, service, location, reputation and credit availability. Any failure by us to compete effectively could negatively affect our business and results of operations.
As consumers continue to migrate online, a trend that has accelerated with the COVID-19 pandemic, we face pressures to not only compete from a price perspective with our competitors, some of whom sell the same products, but also to differentiate Macy's, Inc. merchandise offerings, service and shopping experience to stay relevant in retail's ever-changing environment. We continue to significantly invest in our omnichannel capabilities to provide our customers with a seamless shopping experience between our store locations and our online and mobile environments and a favorable fashion experience. Insufficient, untimely or misguided investments in this area could significantly impact our profitability and growth and affect our ability to attract new customers, as well as maintain our existing ones.
In addition, a continued decline of customer store traffic and migration of sales from brick and mortar stores to digital platforms could lead to additional store closures, restructuring and other costs that could adversely impact our results of operations and cash flows.
Our ability to grow depends in part on our stores remaining relevant to customers.
We have invested in facilities and fixtures upgrades, merchandise assortment and customer service in selected stores to improve customer retention rates and overall customer satisfaction. While these investments are intended to improve the customer experience in our stores and drive traffic, realization of these benefits may not occur.
Because we rely on the ability of our physical retail locations to remain relevant to customers, providing desirable and sought-out shopping experiences is important to our financial success. Changes in consumer shopping habits, an over-malled/over-retailed environment, financial difficulties at other anchor tenants, significant mall vacancy issues, mall violence and new on- and off-mall developments could each adversely impact the traffic at current retail locations and lead to a decline in our financial condition or performance.
We may not be able to successfully execute our real estate strategy.
We continue to explore opportunities to monetize our real estate portfolio, including sales of stores as well as non-store real estate such as warehouses, outparcels and parking garages. We also continue to evaluate our real estate portfolio to identify opportunities where the redevelopment value of our real estate exceeds the value of non-strategic operating locations. This strategy is multi-pronged and may include transactions, strategic alliances or other arrangements with mall developers or other unrelated third-parties. Due to the cyclical nature of real estate markets, the performance of our real estate strategy is inherently volatile and could have a significant impact on our results of operations or financial condition.
Our revenues and cash requirements are affected by the seasonal nature of our business.
Our business is seasonal, with a high proportion of revenues and operating cash flows generated during the second half of the year, which includes the fall and the months of November and December. A disproportionate amount of our revenues is in the fourth quarter due to this seasonality. Should sales during this period fall below our expectations, a disproportionately negative impact on our annual results of operations could occur.
We incur significant additional expenses in the period leading up to the months of November and December in anticipation of higher sales volume in those periods, including costs for additional inventory, advertising and employees. If we are not successful in executing our sales strategy during this period, we may have to sell the inventory at significantly reduced prices or may not be able to sell the inventory at all, which could have a material adverse effect on our results of operations and cash flows.
We depend on our ability to attract, train, develop and retain quality employees.
Our business is dependent upon attracting, training, developing and retaining quality employees. Macy's, Inc. has a large number of employees, many of whom are in entry level or part-time positions with historically high rates of turnover. Our ability to meet labor needs while controlling costs associated with hiring and training new employees is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation and changing demographics. Low unemployment and a competitive wage environment have impacted our ability to attract and recruit talent, particularly for science, technology, engineering and math positions. The Company operates in a highly competitive and challenging business environment and is highly dependent upon management personnel to develop and effectively execute successful business strategies and tactics. Restructurings and organizational changes can have near-term impacts on knowledge transfer and result in the loss of key subject matter experts and leaders. Any circumstances that adversely impact our ability to attract, train, develop and retain quality employees could negatively affect our business and results of operations.
Increases in labor costs and the cost of employee benefits could impact our financial results and cash flow.
Minimum wage increases by states and wage and benefit increases to attract and retain workers in a tight labor market have increased labor costs in the retail sector. These increased costs pressure our margins and could have a negative impact on our financial results, particularly if future increases are instituted by state legislatures or the federal government.
Our expenses relating to employee health benefits are significant. Unfavorable changes in the cost of such benefits could negatively affect our financial results and cash flow. Healthcare costs have risen significantly in recent years, and recent legislative and private sector initiatives regarding healthcare reform have resulted and could continue to result in significant changes to the U.S. healthcare system. Due to uncertainty regarding legislative or regulatory changes, we are not able to fully determine the impact that future healthcare reform will have on our company-sponsored medical plans.
If cash flows from our private label credit card decrease, our financial and operational results may be negatively impacted.
We previously sold most of our credit accounts and related receivables to Citibank (in its role as the issuer of our credit card). Following the sale, we share in the economic performance of the credit card program with Citibank. Deterioration in economic or political conditions could adversely affect the volume of new credit accounts, the amount of credit card program balances and the ability of credit card holders to pay their balances. These conditions could result in the Company receiving lower payments under the credit card program.
Under the terms of the credit card program, Citibank has the right to terminate the agreement prior to the end of the current term if sales decrease by more than 34% over a twelve-month period as compared to the fiscal twelve-month period from July 2006 to June 2007 (the “Benchmark Year”). Based on the results of the Company’s February 2021 fiscal period, sales for the most recent twelve-month period then ended have decreased by more than 34% as compared to the Benchmark Year. We are in on-going discussions with Citibank concerning the credit card program. We cannot assure that Citibank will not terminate the credit card program or require more favorable terms to continue the credit card program. If Citibank does terminate the credit card program, any new credit card program may be on terms less favorable to us than the current credit card program.
Credit card operations are subject to many federal and state laws that may impose certain requirements and limitations on credit card providers. Citibank and our subsidiary bank, FDS Bank, may be required to comply with regulations that may negatively impact the operation of our private label credit card. This negative impact may affect our revenue streams derived from the sale of such credit card accounts and our financial results.
Our defined benefit plan funding requirements or plan settlement expense could impact our financial results and cash flow.
Significant changes in interest rates, decreases in the fair value of plan assets and timing and amount of benefit payments could affect the funded status of our plans and could increase future funding requirements of the plans. A significant increase in future funding requirements could have a negative impact on our cash flows, financial condition or results of operations.
These plans allow eligible retiring employees to receive lump sum distributions of benefits earned. Under applicable accounting rules, if annual lump sum distributions exceed an actuarially determined threshold of the total of the annual service and interest costs, we would be required to recognize in the current period of operations a settlement expense of a portion of the unrecognized actuarial loss and could have a negative impact on our results of operations.
If our company’s reputation and brand are not maintained at a high level, our operations and financial results may suffer.
We believe our reputation and brand are partially based on the perception that we act equitably and honestly in dealing with our customers, employees, business partners and shareholders. Our reputation and brand may be deteriorated by any incident that erodes the trust or confidence of our customers or the general public, particularly if the incident results in significant adverse publicity or governmental inquiry. Information about us, whether or not true, may be instantly and easily posted on social media platforms at any time and may be adverse to our reputation or brand. The harm could be immediate without affording us an opportunity for redress or correction. If our reputation or brand is damaged, our customers may refuse to continue shopping with us, potential employees may be unwilling to work for us, business partners may be discouraged from seeking future business dealings with us and, as a result, our operations and financial results may suffer.
If we are unable to protect our intellectual property, our brands and business could be damaged.
We believe that our copyrights, trademarks, trade dress, trade secrets and similar intellectual property are important assets and key elements of our strategy, including those related to our private brand merchandise. We rely on copyright and trademark law, trade secret protection and confidentiality agreements with our employees, consultants, vendors and others to protect our proprietary rights. If the steps we take to protect our proprietary rights are inadequate, or if we are unable to protect or preserve the value of our copyrights, trademarks, trade secrets and other proprietary rights for any reason, our merchandise brands and business could be negatively affected.
Infrastructure Risks
Unforeseen disruptions in our distribution and fulfillment centers could have an adverse impact on our business and operations.
Our business depends on the orderly receipt and distribution of merchandise and effective management of our distribution and fulfillment centers. Unforeseen disruptions in operations due to fire, severe weather conditions, natural disasters, health pandemics or other catastrophic events, labor disagreements, or other shipping problems may result in the loss or unavailability of inventory and/or delays in the delivery of merchandise to our stores and customers.
A material disruption in our information technology systems could adversely affect our business or results of operations.
We rely extensively on our information technology systems to process transactions, summarize results and manage our business. Our information technology systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage errors by our employees. If our information technology systems are damaged or cease to function properly, including a material disruption in our ability to authorize and process transactions at our stores or on our online systems, we may have to make a significant investment to fix or replace them, and we may suffer loss of critical data and interruptions or delays in our operations. Any material interruption in our information technology systems could negatively affect our business and results of operations.
In addition, COVID-19 may have an adverse impact on our information technology systems, including telecommuting issues associated with our employee population working remotely or an increase in online orders due to disruptions or closures of our retail store operations.
If our technology-based e-commerce systems do not function properly, our operating results could be negatively affected.
Customers are increasingly using computers, tablets and smart phones to shop online and to do price and comparison shopping. We strive to anticipate and meet our customers’ changing expectations and are focused on building a seamless shopping experience across our omnichannel business. Any failure to provide user-friendly, secure e-commerce platforms that offer merchandise and delivery options that resonate with customers’ could place us at a competitive disadvantage, result in the loss of online and other sales, harm our reputation with customers and have a material adverse impact on the growth of our business and our operating results.
Information Security, Cybersecurity, Privacy and Data Management Risks
A breach of information technology systems could adversely affect our reputation, business partner and customer relationships and operations, and result in high costs.
Through our sales, marketing activities, and use of third-party information, we collect and store certain non-public personal information that customers provide to purchase products or services, enroll in promotional programs, register on websites, or otherwise communicate to us. This may include phone numbers, driver license numbers, contact preferences, personal information stored on electronic devices, and payment information, including credit and debit card data. We gather and retain information about employees in the normal course of business. We may share information about such persons with vendors that assist with certain aspects of our business. In addition, our online operations depend upon the transmission of confidential information over the Internet, such as information permitting cashless payments.
We employ safeguards for the protection of this information and have made significant investments to secure access to our information technology network. For instance, we have implemented authentication protocols, installed firewalls and anti-virus/anti-malware software, conducted continuous risk assessments, and established data security breach preparedness and response plans. We also employ encryption and other methods to protect our data, promote security awareness with our associates and work with business partners in an effort to create secure and compliant systems.
However, these protections may be compromised as a result of third-party security breaches, burglaries, cyberattacks, errors by employees or employees of third-party vendors, or contractors, misappropriation of data by
employees, vendors or unaffiliated third-parties, or other irregularities that may result in persons obtaining unauthorized access to company data.
Retail data frequently targeted by cybercriminals includes consumer credit card data, personally identifiable information, including social security numbers, and health care information. For retailers, point of sale and e-commerce websites are often attacked through compromised credentials, including those obtained through phishing, vishing and credential stuffing. Other methods of attack include advanced malware, the exploitation of software and operating vulnerabilities, and physical device tampering/skimming at card reader units. We believe these attack methods will continue to evolve.
Despite instituting controls for the protection of such information, no commercial or government entity can be entirely free of vulnerability to attack or compromise given that the techniques used to obtain unauthorized access, disable or degrade service change frequently. During the normal course of business, we have experienced and expect to continue to experience attempts to compromise our information systems. Unauthorized parties may attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud, trickery, or other forms of deception to employees, contractors, vendors and temporary staff. We may be unable to protect the integrity of our systems or company data. An alleged or actual unauthorized access or unauthorized disclosure of non-public personal information could:
•
materially damage our reputation and brand, negatively affect customer satisfaction and loyalty, expose us to individual claims or consumer class actions, administrative, civil or criminal investigations or actions, and infringe on proprietary information; and
•
cause us to incur substantial costs, including costs associated with remediation of information technology systems, customer protection costs and incentive payments for the maintenance of business relationships, litigation costs, lost revenues resulting from negative changes in consumer shopping patterns, unauthorized use of proprietary information or the failure to retain or attract customers following an attack. While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be unavailable or insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk.
Supply Chain and Third-Party Risks
We depend on vendors and other sources of merchandise, goods and services outside the U.S. Our business could be affected by disruptions in, or other legal, regulatory, political, economic or public health issues associated with, our supply network.
We depend on vendors for timely and efficient access to products we sell. We source the majority of our merchandise from manufacturers located outside the U.S., primarily Asia. Current economic conditions may adversely impact our vendors and they may be unable to access financing or become insolvent and unable to supply us with products. Any major changes in tax policy, such as the disallowance of tax deductions for imported merchandise could have a material adverse effect on our business, results of operations and liquidity.
The procurement of all our goods and services is subject to the effects of price increases, which we may or may not be able to pass through to our customers. In addition, our procurement of goods and services from outside the U.S. is subject to risks associated with political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs, health pandemics and other factors relating to foreign trade. All of these factors may affect our ability to access suitable merchandise on acceptable terms, are beyond our control and could negatively affect our business, results of operations and liquidity.
The U.S. has been engaged in extended trade negotiations with China, which has resulted in the implementation of tariffs on a significant number of products manufactured in China and imported into the U.S. On May 10, 2019, the Trump Administration imposed a 25% tariff on approximately $200 billion worth of imports from China into the U.S. (the “Stage 3 Tariffs”), which imports include merchandise for both private-label and national brands sold in our stores. On August 1, 2019, the Trump Administration announced its intent to impose a 10% tariff on all remaining imports from China, valued at approximately $300 billion (the “Stage 4 Tariffs”), which imports also include merchandise sold in our stores. The proposed Stage 4 Tariffs were increased to 15% in August 2019 following retaliatory tariffs from China, and a portion of such 15% tariffs went into effect on September 1, 2019 (the “Stage 4A Tariffs”). Subsequently, in October 2019, the Trump Administration announced the suspension of the remaining new 15% tariffs (the “Stage 4B Tariffs”) following positive negotiations with China. On January 15, 2020, the U.S. and China signed an agreement known as the
“Phase One” trade deal, pursuant to which, among other things, the Stage 3 Tariffs remained unchanged, the Stage 4A Tariffs were reduced from 15% to 7.5%, and the Stage 4B Tariffs were indefinitely suspended.
We continue to evaluate the impact of the effective tariffs, including potential future retaliatory tariffs, as well as other recent changes in foreign trade policy and the U.S. Administration on our supply chain, costs, sales and profitability, and are actively working through strategies to mitigate such impact, including reviewing sourcing options and working with our vendors and merchants. At this time, it is unknown how long U.S. tariffs on Chinese goods will remain in effect or whether additional tariffs will be imposed. Depending upon their duration and implementation, as well as our ability to mitigate their impact, these changes in foreign trade policy and any recently enacted, proposed and future tariffs on products imported by us from China could negatively impact our business, results of operations and liquidity if they seriously disrupt the movement of products through our supply chain or increase their cost. In addition, while we may be able to shift our sourcing options, executing such a shift would be time consuming and would be difficult or impracticable for many products and may result in an increase in our manufacturing costs. The adoption and expansion of trade restrictions, retaliatory tariffs, or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and/or the U.S. economy, which in turn could adversely impact our results of operations and business.
If our vendors, or any raw material vendors on which our vendors or our private label business relies, suffer prolonged manufacturing or transportation disruptions due to public health conditions or other unforeseen events, such as the COVID-19 pandemic, our ability to source product could be adversely impacted which would adversely affect our results of operations.
Disruption of global sourcing activities and quality and other concerns over our own brands could negatively impact brand reputation and earnings.
Economic and civil unrest in areas of the world where we source products, as well as shipping and dockage issues, could adversely impact the availability or cost of our products, or both. Most of the Company’s goods imported to the U.S. arrive from Asia through ports located on the U.S. west coast and are subject to potential disruption due to labor unrest, security issues or natural disasters affecting any or all of these ports. In addition, in recent years, we have substantially increased the number and types of merchandise that are sold under the Company’s proprietary brands. While we have focused on the quality of our proprietary branded products, we rely on third-parties to manufacture these products. Such third-party manufacturers may prove to be unreliable, the quality of our globally sourced products may vary from expectations and standards, the products may not meet applicable regulatory requirements which may require us to recall these products, or the products may infringe upon the intellectual property rights of third-parties. We face challenges in seeking indemnities from manufacturers of these products, including the uncertainty of recovering on such indemnity and the lack of understanding by manufacturers of U.S. product liability laws in certain foreign jurisdictions.
We also face concerns relating to human rights, working conditions and other labor rights and conditions and environmental impact in factories or countries where merchandise that we sell is produced and concerns about transparent sourcing and supply chains. We require all vendors for both private and national brands to comply with our vendor and supplier code of conduct, which outlines minimum standards to help ensure our merchandise is produced in workplaces free of abusive, exploitative or unsafe working conditions, and to comply with applicable laws and regulations of the United States and the country of manufacture or exportation. Although we have implemented policies and procedures designed to facilitate compliance with laws and regulations relating to production of merchandise, doing business in foreign countries and importing merchandise, and to screen, train and monitor our private label vendors to ensure safe and ethical treatment of workers in our supply chain, there can be no assurance that our vendors and other third parties with whom we do business will not violate such laws and regulations or our policies, which could subject us to liability and could adversely impact our reputation, results of operations and business.
Material disruptions in relationships with third-parties with whom the Company does business could adversely affect its operations.
The Company is a party to contracts, transactions and business relationships with various third parties, including suppliers, service providers, lenders and participants in joint ventures, strategic alliances and other commercial relationships. In some cases, we depend upon such third parties to provide products, services, advertising, technology infrastructure, development and support, data analytics, logistics, other goods and services to operate our business in the ordinary course, extensions of credit, credit card accounts and related receivables, and other matters. Furthermore, third-party vendors may sell products directly to consumers in addition to, or in some cases in lieu of, traditional wholesale channels. As our business model depends on offering quality and relevant merchandise brands from third-party vendors
in addition to our own private label products, any material disruption in our relationship with such vendors, or material disruption in the products or services provided by other third parties, could adversely affect our revenues, expense structure, earnings and operations.
Economic, Global, Legal and External Risks
The Company’s business is subject to discretionary consumer spending, unfavorable economic and political conditions, extreme violence and other related risks.
Our sales are significantly affected by discretionary spending by consumers. Consumer spending may be affected by many factors outside of our control, including general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, consumer behaviors towards incurring and paying debt, the cost of basic necessities and other goods, the strength of the U.S. Dollar relative to foreign currencies and the effects of the weather, natural disasters or health pandemics. These factors can have psychological or economic impacts on consumers that affect their discretionary spending habits. Any decline in discretionary spending by consumers could negatively affect our business and results of operations.
Unfavorable global, domestic or regional economic or political conditions and other developments and risks could negatively affect our business and results of operations. For example, unfavorable changes related to interest rates, rates of economic growth, fiscal and monetary policies of governments, inflation, deflation, tax rates and policy, unemployment trends, energy prices, and other matters that influence the availability and cost of merchandise, consumer confidence, spending and tourism could negatively affect our business and results of operations. Unstable political conditions, civil unrest, terrorist activities, armed conflicts or events of extreme violence may disrupt commerce and could negatively affect our business and results of operations.
Our business could be affected by extreme weather conditions, natural disasters or regional or global health pandemics.
Extreme weather conditions in the areas in which our stores are located could negatively affect our business and results of operations. For example, frequent or unusually heavy snowfall, ice storms, rainstorms or other extreme weather conditions over a prolonged period could make it difficult for our customers to travel to our stores and thereby reduce our sales and profitability. Our business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could reduce demand for a portion of our inventory and thereby reduce our sales and profitability. In addition, extreme weather conditions could result in disruption or delay of production and delivery of materials and products in our supply chain and cause staffing shortages in our stores.
Natural disasters such as hurricanes, tornadoes and earthquakes, or a combination of these or other factors, could damage or destroy our facilities or make it difficult for customers to travel to our stores, thereby negatively affecting our business and results of operations.
Litigation, legislation, regulatory developments or non-compliance could adversely affect our business and results of operations.
We are subject to various federal, state and local laws, rules, regulations, inquiries and initiatives in connection with both our core business operations and our credit card and other ancillary operations (including the Credit Card Act of 2009 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010). Recent and future developments relating to such matters could increase our compliance costs and adversely affect the profitability of our credit card and other operations. Our effective tax rate is impacted by a number of factors, including changes in federal or state tax law, interpretation of existing laws and the ability to defend and support the tax positions taken on historical tax returns. Certain changes in any of these factors could materially impact the effective tax rate and net income.
We are also subject to anti-bribery, customs, child labor, truth-in-advertising and other laws, including consumer protection regulations and zoning and occupancy ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise and the operation of retail stores and warehouse facilities. Although we undertake to monitor changes in these laws, if these laws change without our knowledge, or are violated by importers, designers, manufacturers, distributors or agents, we could experience delays in shipments and receipt of goods or be subject to fines or other penalties under the controlling regulations, any of which could negatively affect our business and results of operations. In addition, we are regularly involved in various litigation matters that arise in the ordinary
course of our business. Adverse outcomes in current or future litigation could negatively affect our financial condition, results of operations and cash flows.
Changes in applicable environmental regulations, including increased or additional regulations to limit carbon emissions or other greenhouse gases may result in increased compliance costs, capital expenditures and other financial obligations which could affect our profitability.
In addition, our business is subject to complex and rapidly evolving laws addressing data privacy and data protection and companies are under increased regulatory scrutiny with respect to these matters. The Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data. The interpretation and application of existing laws regarding data privacy and data protection are in flux and many states are considering new regulations in this area, The California Consumer Privacy Act (CCPA), California Privacy Rights Act (CPRA) and other applicable U.S. privacy laws or new state or federal laws may limit our ability to collect and use data, require us to modify our data processing practices or result in the possibility of fines, litigation or orders which may have an adverse effect on our business and results of operations. The burdens imposed by these and other laws and regulations that may be enacted, or new interpretations of existing laws and regulations, may also require us to incur substantial costs to reach compliance or change the manner in which we use data.
Our sales and operating results could be adversely affected by product safety concerns.
If the Company’s merchandise offerings do not meet applicable safety standards or consumers' expectations regarding safety, we could experience decreased sales, increased costs and/or be exposed to legal and reputational risk. Events that give rise to actual, potential or perceived product safety concerns could expose the Company to government enforcement action and/or private litigation. Reputational damage caused by real or perceived product safety concerns could negatively affect our business and results of operations.
Financial Risks
Inability to access capital markets could adversely affect our business or financial condition.
Changes in the credit and capital markets, including market disruptions, limited liquidity and interest rate fluctuations, may increase the cost of financing or restrict our access to this potential source of future liquidity. A downgrade in the ratings that rating agencies assign to the Company’s short- and long-term debt has and may continue to negatively impact our access to the debt capital markets and increase our cost of borrowing. In addition, our asset-based credit agreement requires us to maintain a specified fixed charge coverage ratio. Our ability to comply with the ratio may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If our results of operations deteriorate to a point where we are not in compliance with our debt covenants, and we are unable to obtain a waiver, much of our debt would be in default and could become due and payable immediately. Our assets may not be sufficient to repay in full this indebtedness, resulting in a need for an alternate source of funding. We cannot make any assurances that we would be able to obtain such an alternate source of funding on satisfactory terms, if at all, and our inability to do so could cause the holders of our securities to experience a partial or total loss of their investments in the Company.
Our level of indebtedness may adversely affect our ability to operate our business, remain in compliance with debt covenants, react to changes in our business or the industry in which we operate, or prevent us from making payments on our indebtedness.
We have a significant amount of indebtedness. As of January 30, 2021, the aggregate principal amount of our total outstanding indebtedness was $4,906 million.
Our high level of indebtedness could have important consequences for the holders of our debt and equity securities. For example, it could:
•
make it more difficult for us to satisfy our debt obligations;
•
increase our vulnerability to general adverse economic and external conditions, including the COVID-19 pandemic;
•
impair our ability to obtain additional debt or equity financing in the future for working capital, capital expenditures, acquisitions or general corporate or other purposes;
•
require us to dedicate a material portion of our cash flows from operations to the payment of principal and interest on our indebtedness, thereby reducing the availability of our cash flows to fund working capital needs, capital expenditures, acquisitions and other general corporate purposes;
•
expose us to the risk of increased interest rates to the extent we make borrowings under our asset-based credit agreement, which bear interest at a variable rate;
•
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•
place us at a disadvantage compared to our competitors that have less indebtedness; and
•
limit our ability to adjust to changing market conditions.
Any of these risks could materially impact our ability to fund our operations or limit our ability to expand our business, which could have a material adverse effect on our business, financial condition and results of operations.
Factors beyond our control could affect the Company’s stock price.
The Company’s stock price, like those of other retail companies, is subject to significant volatility because of many factors, including factors beyond our control. These factors may include:
•
general economic, stock, credit and real estate market conditions;
•
risks relating to the Company’s business and industry, including those discussed above;
•
strategic actions by us or our competitors;
•
adverse business announcements by our competitors;
•
variations in our quarterly results of operations;
•
future sales or purchases of the Company’s common stock; and
•
investor perceptions of the investment opportunity associated with the Company’s common stock relative to other investment alternatives.
We may fail to meet the expectations of our stockholders or of analysts at some time in the future. If the analysts who regularly follow the Company’s stock lower their rating or lower their projections for future growth and financial performance, the Company’s stock price could decline. Also, sales of a substantial number of shares of the Company’s common stock in the public market or the appearance that these shares are available for sale could adversely affect the market price of the Company’s common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B.
Unresolved Staff Comments.
None.

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ITEM 2. PROPERTIES
Item 2.
Properties.
The properties of the Company consist primarily of stores and related facilities, including a logistics network. The Company also owns or leases other properties, including corporate office space in New York and other facilities at which centralized operational support functions are conducted.
As of January 30, 2021, the operations of the Company included 727 store locations in 43 states, the District of Columbia, Puerto Rico and Guam, comprising a total of approximately 113 million square feet. At these locations, store boxes consisted of 328 owned boxes, 353 leased boxes, 105 boxes operated under arrangements where the Company owned the building and leased the land and three boxes of partly owned and partly leased buildings. All owned properties are held free and clear of mortgages. Certain properties secure the senior notes issued by the Company on June 8, 2020, as disclosed further in Item 7. Pursuant to various shopping center agreements, the Company is obligated to operate certain stores for periods of up to 15 years. Some of these agreements require that the stores be operated under a particular name. Most leases require the Company to pay real estate taxes, maintenance and other costs; some also require additional payments based on percentages of sales and some contain purchase options. Certain of the Company’s real estate leases have terms that extend for a significant number of years and provide for rental rates that increase or decrease over time.
The Company's operations were conducted through the following branded store locations:
Boxes
Locations
Macy's
Bloomingdale's
bluemercury
Store count activity was as follows:
Boxes
Locations
Store count at beginning of fiscal year
Stores opened
Stores closed, consolidated into or relocated from existing centers
(56
)
(54
)
Store count at end of fiscal year
Additional information about the Company’s store boxes as of January 30, 2021 is as follows:
By Brand
Total
Owned
Leased
Subject to
a Ground
Lease
Partly
Owned
and Partly
Leased
Macy's
Bloomingdale's
-
bluemercury
-
-
-
As of January 30, 2021, the store box and location information presented above for Macy’s and the total Company includes two stores converted to fulfillment centers during 2020.
Additional information about the Company’s logistics network as of January 30, 2021 is as follows:
Location
Primary
Function
Owned or
Leased
Square
Footage
(thousands)
Cheshire, CT
Direct to customer
Owned
Chicago, IL
Stores
Owned
Columbus, OH
Stores
Leased
Dayton, OH
Stores
Leased
Denver, CO
Stores
Leased
Goodyear, AZ
Direct to customer
Owned
1,560
Hayward, CA
Stores
Owned
Houston, TX
Stores
Leased
Joppa, MD
Stores
Owned
Kapolei, HI
Stores
Leased
Los Angeles, CA
Stores
Owned
1,529
Martinsburg, WV
Direct to customer
Owned
2,200
Miami, FL
Stores
Leased
Portland, TN
Direct to customer
Owned
1,455
Raritan, NJ
Stores
Owned
Sacramento, CA
Direct to customer
Leased
Secaucus, NJ
Stores
Leased
South Windsor, CT
Stores
Owned
Stone Mountain, GA
Stores
Owned
Tampa, FL
Stores
Leased
Tulsa, OK
Direct to customer
Owned
2,195
Tukwila, WA
Stores
Leased
Union City, CA
Stores
Leased
Youngstown, OH
Stores
Owned

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ITEM 3. LEGAL PROCEEDINGS
Item 3.Legal Proceedings.
The Company and its subsidiaries are involved in various proceedings that are incidental to the normal course of their businesses. As of the date of this report, the Company does not expect that any of such proceedings will have a material adverse effect on the Company’s financial position or results of operations.
Retail Hazardous Waste Matter. As previously reported, the District Attorneys for ten counties in California and the City of Los Angeles are investigating alleged non-compliance with laws and regulations enacted or adopted regulating the storage, transportation and disposal of hazardous waste in California at Macy’s stores and distribution centers. The Company is cooperating with the offices and agencies involved, which are focused on disposal and return of cosmetic products, and is committed to adopting policies and procedures as may be appropriate depending on the outcome of the investigation into this matter. No administrative or judicial proceedings have been initiated. In October 2020, the District Attorneys made an initial settlement demand to the Company that included a monetary penalty, reimbursement of investigation costs and injunctive relief. Settlement discussions are on-going. It is possible that we will pay penalties in excess of $1,000,000 in connection with this matter and have adjusted our reserve against potential loss to reflect the settlement demand. Although we are currently unable to predict the outcome of this matter or the amount or range of any possible loss, we do not believe the resolution of this matter will have a material adverse impact on our consolidated results of operations, financial condition or cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4.Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company's common stock is listed on the New York Stock Exchange under the trading symbol “M.” As of January 30, 2021, the Company had approximately 13,596 stockholders of record.
The declaration and payment of future dividends will be at the discretion of the Company’s Board of Directors, are subject to restrictions under the Company’s debt instruments and may be affected by various other factors, including the Company’s earnings, financial condition and legal or contractual restrictions.
Beginning in January 2000, the Company’s Board of Directors approved various authorizations to purchase, in the aggregate, up to $18 billion of common stock. On March 26, 2020, the Company's Board of Directors rescinded its authorization of the remaining unused amount.
The following graph compares the cumulative total stockholder return on the Company's common stock with the Standard & Poor's 500 Composite Index and the Company's peer group for the period from January 30, 2016 through January 30, 2021, assuming an initial investment of $100 and the reinvestment of all dividends, if any.
The companies included in the old peer group are Bed, Bath & Beyond, Best Buy, Dillard’s, Dollar Tree, Gap, Kohl’s, L Brands, Lowe’s, Nordstrom, Ross Stores, Target, and TJX Companies. The new peer group is comprised of companies within the S&P Retail Select Index.
The change in peer group was made to be consistent with the peer group that the Compensation and Management Development Committee of the Board of Directors uses in benchmarking and assessing compensation for the Company's executive officers.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6.Selected Financial Data.
The selected financial data set forth below should be read in conjunction with the Consolidated Financial Statements and the notes thereto and the other information contained elsewhere in this report. The Company adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), on February 3, 2019, using a modified retrospective approach that allowed for transition in the period of adoption. Therefore, results prior to 2019 have not been recast for the adoption of this standard. Additionally, the Company adopted the ASU No. 2014-09, Revenue from Contracts with Customers, on February 4, 2018 using the full retrospective transition method and recast results from 2017 and 2016.
2017*
(millions, except per share)
Consolidated Statement of Operations Data:
Net sales
$
17,346
$
24,560
$
24,971
$
24,939
$
25,908
Gross margin (a)
5,060
9,389
9,756
9,758
10,242
Operating income (loss)
(4,475
)
1,738
1,864
1,371
Net income (loss)
(3,944
)
1,098
1,555
Net income (loss) attributable to Macy's, Inc.
shareholders
(3,944
)
1,108
1,566
Basic earnings (loss) per share attributable to Macy's,
Inc. shareholders
$
(12.68
)
$
1.82
$
3.60
$
5.13
$
2.03
Diluted earnings (loss) per share attributable to
Macy's, Inc. shareholders
$
(12.68
)
$
1.81
$
3.56
$
5.10
$
2.02
Average number of shares outstanding
311.1
309.7
307.7
305.4
308.5
Cash dividends paid per share
$
0.3775
$
1.51
$
1.51
$
1.51
$
1.49
Depreciation and amortization
$
$
$
$
$
1,058
Capital expenditures
$
$
1,157
$
$
$
Balance Sheet Data (at year end):
Cash and cash equivalents
$
1,679
$
$
1,162
$
1,455
$
1,297
Property and equipment - net
5,940
6,633
6,637
6,672
7,017
Total assets
17,706
21,172
19,194
19,583
20,082
Short-term debt
Long-term debt
4,407
3,621
4,708
5,861
6,562
Total Shareholders’ equity
2,553
6,377
6,436
5,733
4,375
*
53 weeks
(a)
Gross margin is defined as net sales less cost of sales.

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The discussion in this Item 7 should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report. The discussion in this Item 7 contains forward-looking statements that reflect the Company's plans, estimates and beliefs. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed below and elsewhere in this report, particularly in “Risk Factors” and “Forward-Looking Statements.”
Company Overview
The Company is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and kids'), cosmetics, home furnishings and other consumer goods. As of January 30, 2021, the Company's operations were conducted through Macy's, Market by Macy’s, Macy’s Backstage, Bloomingdale’s, Bloomingdale’s The Outlet and bluemercury, which are aggregated into one reporting segment in accordance with the FASB Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting.
Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of the Al Tayer Group, LLC.
COVID-19 Impact
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States. The COVID-19 pandemic had a negative impact on the Company's 2020 operations and financial results, and the full financial impact of the pandemic cannot be reasonably estimated at this time due to uncertainty as to the severity and duration of the pandemic. The COVID-19 pandemic continues to cause significant disruption to organizations and communities across the globe. The Company is navigating through the pandemic with a focus on prudent cash management, strengthening liquidity and executing its strategic initiatives. In addition, as its stores began to reopen in the second quarter of 2020, the Company prioritized the implementation of significant health and safety measures to allow its customers and colleagues to feel safe in the Company's stores and facilities. In response to the operational and financial challenges caused by the COVID-19 pandemic, the specific steps taken by the Company to manage its business through this uncertain period, include, but are not limited to, the following.
•
The Company temporarily closed all stores on March 18, 2020, which included all Macy’s, Bloomingdale’s, bluemercury, Macy’s Backstage, Bloomingdales the Outlet and Market by Macy’s stores. Stores began reopening on May 4, 2020 and substantially all of the Company's stores were open by the end of the second quarter of 2020.
•
In an effort to increase liquidity, the Company fully drew on its $1,500 million credit facility, announced the suspension of quarterly cash dividends beginning in the second quarter of 2020 and took additional steps to reduce discretionary spending. The Company's Board of Directors also rescinded its authorization of any unused amounts under the Company's share repurchase program. In June 2020, the Company completed financing activities totaling nearly $4.5 billion and used a portion of the proceeds from these activities, as well as cash on hand, to repay its credit facility. To create greater flexibility for future liquidity needs, the Company executed an exchange offer and consent solicitation in July 2020 for $465 million of previously issued unsecured notes.
•
To improve the Company's cash position and reduce its cash expenditures, the Company's Board of Directors and Chief Executive Officer did not receive compensation from April 1, 2020 through June 30, 2020. In addition, the Company deferred cash expenditures where possible and temporarily implemented a furlough for the majority of its colleague population which ended for most colleagues at the beginning of July 2020. Certain executives at the director level and above not impacted by the furlough took a temporary reduction of their pay through June 30, 2020.
•
In June 2020, the Company announced a restructuring to align its cost base with anticipated near-term sales as the business recovers from the impact of the COVID-19 pandemic. The Company reduced corporate and management headcount by approximately 3,900. Additionally, the Company reduced staffing across its stores portfolio, supply chain and customer support network, which it expects to adjust as sales recover. During the second quarter of 2020, the Company recognized $154 million of expense for severance related to this reduction
in force, of which substantially all has been paid as of January 30, 2021.
•
During 2020, the Company deferred occupancy payments for a significant number of its stores. Such pandemic related deferrals were included in accounts payable and accrued liabilities and the Company continued to recognize expense during the deferral periods based on the contractual terms of the lease agreements. As of January 30, 2021, substantially all occupancy payment deferrals have been paid.
•
During 2020, the Company incurred approximately $200 million of non-cash impairment charges primarily related to long-lived tangible and right of use assets to adjust the carrying value of certain store locations to their estimated fair value. The Company also incurred $3,080 million of non-cash impairment charges during 2020 on goodwill as a result of the sustained decline in the Company's market capitalization and decrease in projected cash flows primarily as a result of the COVID-19 pandemic.
•
As a result of the COVID-19 pandemic, the Company implemented work-from-home policies for its colleagues except those involved in business critical activities and functions. Such policies are expected to remain in place for the duration of the pandemic. Post-pandemic, the Company may modify work environment policies which could impact the use of certain corporate assets. Such changes could lead to additional long-lived tangible and right of use corporate asset impairment.
•
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act") was signed into law, which included payroll tax credits for employee retention, deferral of payroll taxes, and several income tax provisions, including modifications to the net interest deduction limitation, changes to certain property depreciation and carryback of certain operating losses.
The CARES Act impacted the Company's annual effective tax rate and the income tax benefit recognized during 2020. Specifically, the Company recognized an annual net operating loss that is available for carryback at a 35% federal income tax rate rather than the current 21% federal income tax rate. During 2020, the resultant benefit of this rate differential was offset by the impact of the non-tax deductible component of the goodwill impairment charge. The net impact of these items is the primary driver of the effective tax rate decrease when compared to 2019. As of January 30, 2021, the Company recognized a $520 million income tax receivable, which is included within Other Assets on the Consolidated Balance Sheets.
Under the terms of the Amended and Restated Credit Card Program Agreement (the “Program Agreement”) between the Company and Citibank, if sales decrease by more than 34% over a twelve-month period as compared to the Benchmark Year, defined as the twelve-month period from July 2006 to June 2007 in the Program Agreement, Citibank has the ability to provide written notice to terminate the agreement prior to the end of its current term. Based on the results for the Company’s February 2021 fiscal period, sales for the most recent twelve-month period ended February 27, 2021, have decreased by more than 34% as compared to the Benchmark Year. We are in on-going discussions with Citibank concerning the Program Agreement and as of the date of this filing, the Company has not received a notice to terminate the agreement. The Company is currently unable to estimate any impact this event might have on the Program Agreement or on the Company’s future financial results.
The COVID-19 pandemic has had and continues to have a material adverse impact on the Company's operational performance, financial results and cash flows, although the full impact will depend on future developments, including the continued spread and duration of the outbreak, variant strains of COVID-19, the availability and distribution of effective medical treatments or vaccines as well as any related federal, state or local governmental orders or restrictions, all of which are highly uncertain and cannot be predicted.
Management Overview
2020 was a year of unprecedented challenges and required the Company to adapt its business to address the disruption caused by the COVID-19 pandemic. Faced with the temporary closure of stores and changes in consumer shopping behaviors, the Company had to right-size its cost base and operating model, offer new fulfillment options to customers, focus on product categories with higher consumer demand, and accelerate its focus on digital shopping and underlying investments to support these trends. Financial results in the first and second quarter of 2020 were significantly impacted by the COVID-19 pandemic but the Company saw sequential improvement in its operating results during the third and fourth quarters of 2020. Although uncertainty surrounds the continued impact of the COVID-19 pandemic, the Company has positioned itself to focus on the recovery of its business in 2021 and execute on its corporate strategy for profitable growth in the future.
2020 Financial Highlights
Specific 2020 Macy's, Inc. financial performance included:
•
Net sales were significantly impacted by the COVID-19 pandemic and were $17,346 million in 2020, as compared to $24,560 million in 2019, a decrease of 29.4%.
•
Comparable sales on an owned basis and on an owned plus licensed basis decreased 27.9%.
•
Driven by changes in consumer shopping behaviors due to the COVID-19 pandemic, digital sales increased to 44.3% of net sales, compared to 25.3% in 2019.
•
The gross margin rate for 2020 was 29.2%, a decrease of 900 basis points compared to 2019.
•
SG&A expenses decreased approximately 24.8% from 2019 and SG&A as a percent of sales was higher in 2020 by approximately 240 basis points, illustrating efficient expense management and improved colleague productivity in stores.
•
Cash and non-cash restructuring, impairment, store closings and other costs were $3,579 million, driven by the recognition of non-cash impairment charges and implementation of restructuring activities to respond to the COVID-19 pandemic.
•
Earnings before interest, taxes, depreciation and amortization excluding restructuring, impairment, store closings and other costs and settlement charges ("Adjusted EBITDA") was $117 million in 2020, as compared to $2,336 million in 2019.
•
Diluted loss per share was $12.68 compared to diluted earnings per share of $1.81 in 2019. Excluding restructuring, impairment, store closings and other costs, settlement charges, financing costs and losses on early retirement of debt, adjusted diluted loss per share attributable to Macy's, Inc. shareholders was $2.21 compared to diluted earnings per share attributable to Macy’s, Inc. shareholders of $2.91 in 2019.
•
The Company ended 2020 in a strong liquidity position with approximately $1.7 billion in cash and cash equivalents and approximately $3.0 billion of untapped capacity in the Company’s asset-based credit facility.
•
Merchandise inventories were down 27.3% at the end of 2020 compared to the end of 2019. The Company exited 2020 in a clean inventory position.
See pages 36 to 39 for reconciliations of the non-GAAP financial measures presented above to the most comparable U.S. generally accepted accounting principles ("GAAP") financial measures and other important information.
Polaris Strategy
On February 4, 2020, Macy’s, Inc. announced its Polaris strategy, a multi-year plan designed to stabilize profitability and position the Company for sustainable, profitable growth. Over the course of the COVID-19 pandemic, the Company has refined the components of the Polaris strategy to focus where the Company can drive competitive advantage and differentiation to first recover the business and then drive both top- and bottom-line growth. The Polaris strategy was designed for flexibility and this was greatly tested in 2020. Although the Company’s operations were significantly impacted by the COVID-19 pandemic in 2020, the Polaris strategy proved durable and allowed for a number of accomplishments in 2020, notably:
•
Increasing relevance by introducing new customers to the Macy’s brand. During 2020, Macy’s saw a 45% increase in active bronze memberships in its Star Rewards loyalty program. This increase partially offset the overall drop in active Star Rewards members, which was caused by declines in Macy’s upper loyalty program tiers. In addition, the Company launched Macy’s Media Network in 2020, a new fashion and beauty advertising platform providing a new income stream.
•
In response to the pandemic and consumer behavior, the Company expanded merchandise assortments in categories such as home, outdoor furniture, loungewear and active. In addition, new categories were added to meet emerging demand, including baby gear and skin care devices, home fragrances, outdoor recreation and
gourmet food. In total, the Company added more than 1,000 new brands to meet the demands of customers in this ever-changing environment.
•
Given the significant shift to digital shopping in 2020 that is expected to be permanent in nature, the Company accelerated its focus on and investments in digital shopping. During 2020, the Company quickly launched a curb-side pick-up fulfillment option and improved the integration of its digital and physical assets as well as the design of its digital platforms to improve customers’ shopping experiences. This focus on optimizing customers’ omnichannel experience will continue and the Company has and will continue to utilize its entire network of stores, distribution centers and vendor-direct programs to fill customer orders.
•
Through the initial Polaris restructuring efforts in February 2020 and those executed in July 2020 in response to the COVID-19 pandemic, the Company exited 2020 with an annualized run-rate cost savings of approximately $900 million that is expected to be permanent in nature. Through focus on rigorous expense reduction, prudent cash management and execution of its 2020 financing activities, the Company ended 2020 with significant liquidity to help fund the recovery of its business and the necessary investments to execute on the Polaris strategy.
While the underlying components of the Polaris strategy are unchanged from those presented in February 2020, the components were refined during 2020 to align with customer demands in the COVID-19 pandemic environment as well as expected consumer behavior post-pandemic. The following are the key pillars of the Polaris strategy:
•
Win With Fashion and Style: Delivering fashion and style that meets core and new customer needs for all occasions through existing and new retail platforms. The Company is focusing on the transformation of its assortment architecture, fashion curation, inventory productivity, and vendor relationships to support these changes.
•
Deliver Clear Value: Build trust and deliver value to customers through simple, easy-to-understand pricing and promotions driven by advanced analytics. The Company intends to deepen core and new customer engagement through a personalized loyalty program as well as personalized communication and customer experiences across all touchpoints.
•
Excel in Digital Shopping: Deliver profitable omnichannel growth by investing in a modern, frictionless digital shopping journey, supported by a seamless user experience, immersive category-level experiences and a convenient delivery and returns experience that is fully connected to stores. To support these efforts, the Company will focus on enhancements to product discovery, the checkout process and launch of new digital business models.
•
Enhance Store Experience: Create a tech-enabled, connected omni-ecosystem that supports reimagined store experiences focused on discovery, convenience, service and engagement; delivered through a streamlined stores portfolio and new off-mall formats. The Company will enhance the connection between its store and digital channels by elevating customer experience standards across the organization, enhancing fulfillment options and providing convenience no matter where the customer shops.
•
Modernize Supply Chain: The Company is moving towards a faster and more efficient customer fulfillment infrastructure by optimizing its network to profitably support the expected continued growth in digital and provide enhanced customer delivery options to create a convenient, fast and efficient customer experience for delivery and returns.
•
Enable Transformation: Enabling and accelerating the Company’s core priorities through foundational improvements by modernizing technology platforms to support and enable growth, embedding data and analytics into every aspect of the Company’s business and defining and creating a performance-driven operation model that sets the tone, pace and expectations across the business to execute against the Polaris strategy.
Presentation of Information
The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the fiscal years ended January 30, 2021 and February 1, 2020. For a discussion of changes from the fiscal year ended February 1, 2020 to February 2, 2019, refer to Management's Discussion and Analysis of Financial Condition and Results
of Operations in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2020 (filed March 30, 2020).
Results of Operations
Amount
% to
Sales
Amount
% to
Sales
Amount
% to
Sales
(dollars in millions, except per share figures)
Net sales
$
17,346
$
24,560
$
24,971
Increase (decrease) in comparable sales
(27.9
)%
(0.8
)%
1.7
%
Credit card revenues, net
4.3
%
3.1
%
3.1
%
Cost of sales
(12,286
)
(70.8
)%
(15,171
)
(61.8
)%
(15,215
)
(60.9
)%
Selling, general and administrative
expenses
(6,767
)
(39.0
)%
(8,998
)
(36.6
)%
(9,039
)
(36.2
)%
Gains on sale of real estate
0.3
%
0.6
%
1.5
%
Restructuring, impairment, store closing
and other costs
(3,579
)
(20.6
)%
(354
)
(1.4
)%
(136
)
(0.5
)%
Operating income (loss)
(4,475
)
(25.8
)%
3.9
%
1,738
7.0
%
Benefit plan income, net
Settlement charges
(84
)
(58
)
(88
)
Interest expense - net
(280
)
(185
)
(236
)
Financing costs
(5
)
-
-
Losses on early retirement of debt
-
(30
)
(33
)
Income (loss) before income taxes
(4,790
)
1,420
Federal, state and local income tax
benefit (expense)
(164
)
(322
)
Net income (loss)
(3,944
)
1,098
Net loss attributable to noncontrolling
interest
-
-
Net income (loss) attributable to
Macy's, Inc. shareholders
$
(3,944
)
(22.7
)%
$
2.3
%
$
1,108
4.4%
Diluted earnings (loss) per share
attributable to Macy's, Inc. shareholders
$
(12.68
)
$
1.81
$
3.56
Supplemental Financial Measure
Gross margin
$
5,060
29.2
%
$
9,389
38.2%
$
9,756
39.1
%
Digital sales as a percent of net sales
44.3
%
25.3
%
23.1
%
Supplemental Non-GAAP Financial
Measures
Increase (decrease) in comparable sales on
an owned plus licensed basis
(27.9
)%
(0.7
)%
2.0
%
Adjusted diluted earnings (loss) per share
attributable to Macy's, Inc. shareholders
$
(2.21
)
$
2.91
$
4.18
Adjusted EBITDA
$
$
2,336
$
2,877
ROIC
3.0
%
17.1
%
19.9
%
See pages 36 to 39 for a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measure and for other important information.
Comparison of 2020 and 2019
Net Sales and Comparable Sales
Net sales for 2020 were significantly impacted by the pandemic and the temporary closure of stores during the first
and second quarters. For 2020, net sales were $17,346 million, a decrease of $7,214 million, or 29.4%, from 2019. The decrease in comparable sales on an owned basis and on an owned plus licensed basis for 2020 was 27.9% compared to 2019. Driven by changes in consumer shopping behavior and the COVID-19 pandemic, digital sales grew significantly in 2020, with digital sales as a percent of net sales increasing to 44.3% from 25.3% in 2019. By family of business, home, fine jewelry and watches, fragrances, activewear and sleepwear performed well during 2020 as customers began to work, cook, dine and learn from home due to the pandemic. Driven by these changes to consumer behaviors, sales in 2020 were weaker in apparel categories such as dresses, women's and men’s sportswear and men’s tailored.
Credit Card Revenues, Net
Net credit card revenues were $751 million for 2020, a decrease of $20 million compared to $771 million recognized in 2019. Credit card penetration declined in 2020 to approximately 43% from approximately 47% in 2019. Combined with a decline in new accounts driven by temporary store closures, this decrease in credit sales drove the decrease in net credit card revenues. This was offset by an increase in profit share revenues associated with the underlying credit card portfolio performance, which was driven by improved bad debt activity and delinquencies.
Cost of Sales and Gross Margin
Cost of sales for 2020 decreased $2,885 million from 2019. The cost of sales rate as a percent to net sales of 70.8% in 2020 increased 900 basis points compared to 2019. The gross margin rate in 2020 was 29.2% compared to 38.2% in 2019. The increase in the cost of sales rate as a percent to net sales and the decrease in the gross margin rate were primarily due to increased markdowns in the first and second quarters of 2020. Higher delivery expenses associated with the increase in digital sales as well as carrier surcharges that the Company incurred in the fourth quarter of 2020 also contributed to these results.
SG&A Expenses
SG&A expenses for 2020 decreased $2,231 million and the SG&A rate as a percent to net sales increased 240 basis points, to 39.0%, from to 2019. The decrease in SG&A expenses is a reflection of lower sales as well as the implementation of various expense management strategies undertaken in response to the COVID-19 pandemic. These strategies include the July 2020 restructuring, a significant reduction in discretionary spending and the colleague furlough implemented in 2020.
Gains on Sale of Real Estate
The Company recognized gains of $60 million in 2020 associated with real estate sales, as compared to $162 million in 2019. 2019 included a gain of $52 million associated with the sale of the Macy's Downtown Seattle location.
Restructuring, Impairment, Store Closing and Other Costs
Restructuring, impairment, store closing and other costs for 2020 of $3,579 million included goodwill and asset impairment charges, severance and other human resource-related costs, and other costs associated with organizational changes and store closings, driven by the impacts of the COVID-19 pandemic. 2019 costs of $354 million included costs primarily associated with the Polaris strategy, including $161 million of non-cash impairment charges associated with store closures and campus consolidations and $157 million related to severance and other human resource-related costs.
Benefit Plan Income, Net
2020 and 2019 included $54 million and $31 million, respectively, of non-cash net benefit plan income relating to the Company's defined benefit plans. This income includes the net of: interest cost, expected return on plan assets and amortization of prior service costs or credits and actuarial gains and losses.
Settlement Charges
$84 million and $58 million of non-cash settlement charges were recognized in 2020 and 2019, respectively. These charges relate to the pro-rata recognition of net actuarial losses associated with the Company’s defined benefit retirement plans and are the result of lump sum distributions associated with retiree distribution elections and restructuring activity.
Net Interest Expense
Net interest expense, excluding financing costs and losses on early retirement of debt, for 2020 increased $95 million from 2019 to $280 million. This increase was primarily driven by the financing activities executed by the Company in June 2020 in response to the COVID-19 pandemic.
Losses on Early Retirement of Debt
In 2019, the Company completed a tender offer debt repurchase of $525 million of senior notes and debentures. As a result of these transactions, the Company recognized $30 million in expenses and fees.
Effective Tax Rate
The Company's effective tax rate was 17.7% for 2020 and 22.5% for 2019 compared to the federal income tax statutory rate of 21%. The effective tax rate in 2020 was impacted by the non-tax deductible component of the Company’s goodwill impairment charge, which was largely offset by the benefit associated with the carryback of net operating losses permitted under the CARES Act . The effective tax rate in 2019 was impacted by the settlement of certain state and local tax matters.
Net Income (Loss) Attributable to Macy's, Inc. Shareholders
Net loss attributable to Macy's, Inc. shareholders for 2020 decreased $4,508 million to $3,944 million, compared to 2019, driven by lower operating results resulting from the impact of the COVID-19 pandemic and goodwill impairment charges.
Guidance
The Company expects the COVID-19 pandemic to have a material impact on its financial condition, results of operations and cash flows from operations in future periods. The extent of the impact of the COVID-19 pandemic on the Company's operational and financial performance depends on future developments outside of the Company's control, including the duration and spread of the pandemic and related actions taken by federal, state and local government officials, and international governments to prevent disease spread. On February 23, 2021, the Company disclosed in its release of preliminary earnings its performance expectations for 2021, while acknowledging the significant uncertainty surrounding consumer behavior and economic conditions in the current environment. The Company’s annual guidance contemplates continued pandemic-related challenges in the spring season with momentum building in the back half of
2021.For a more complete discussion of the COVID-19 pandemic related risks facing the Company's business, refer to Item 1A, “Risk Factors.”
•
Net sales between $19.75 billion to $20.75 billion, an increase between approximately 14% and 20% compared to 2020. Digital sales are expected to approximate 35% of net sales.
•
Credit card revenues, net, approximately 3% of net sales
•
Gross margin rate to increase by high-single digit percentage points, up to 37%
•
SG&A expenses as a percentage of net sales to increase approximately 75 to 100 basis points compared to 2019 levels
•
Gains on sale of real estate between $60 million and $90 million
•
Benefit plan income of approximately $60 million
•
Depreciation and amortization expense of approximately $900 million
•
Adjusted EBITDA between 7% and 7.5% of net sales
•
Net interest expense of approximately $325 million
•
An adjusted tax rate of approximately 23.25%
•
Diluted shares outstanding of approximately 318 million
•
Adjusted diluted earnings per share between $0.40 and $0.90
•
Capital expenditures of approximately $650 million
Cash Flow, Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the asset based credit facility described below.
Because of the COVID-19 outbreak, there is significant uncertainty surrounding the potential impact on the Company's results of operations and cash flows. The Company’s liquidity was negatively impacted by store closures. The Company proactively took steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures, suspension of the Company's quarterly dividend and executing additional financing transactions during the second quarter of 2020 as discussed in more detail below. While the Company has obtained additional financing, due the uncertainty of the COVID-19 pandemic, further actions may be required to improve the Company’s cash position, including but not limited to, monetizing Company assets, reinstituting colleague furloughs, and foregoing capital expenditures and other discretionary expenses.
Operating Activities
Net cash provided by operating activities was $649 million in 2020 compared to $1,608 million in 2019. The decline was driven by lower EBITDA, which was partially offset by lower tax payments and a net improvement in merchandise inventory and payables.
Investing Activities
Net cash used by investing activities for 2020 was $325 million, compared to $1,002 million for 2019. Investing activities for 2020 included purchases of property and equipment totaling $338 million and capitalized software of $128 million, compared to purchases of property and equipment totaling $902 million and capitalized software of $255 million for 2019. In addition, property and equipment sales, primarily related to real estate, generated cash proceeds of $113 million in 2020 compared to $185 million in 2019.
Financing Activities
Net cash provided by the Company for financing activities was $699 million for 2020, including debt issued of $2,780 million related to a $1,500 million draw on its revolving credit agreement and issuance of $1,300 million 8.375% senior secured notes, partially offset by repayment of the $1,500 million revolving credit facility draw and the approximate $530 million repayment of debt at maturity. 2020 also included $117 million of cash dividends paid.
Net cash used by the Company for financing activities was $1,123 million for 2019, including the repayment of $597 million of debt and the payment of $466 million of cash dividends. 2019 debt repayments included the repayment at maturity of $36 million of 8.5% senior debentures.
Secured Debt Issuance
On June 8, 2020, the Company issued $1,300 million aggregate principal amount of 8.375% senior secured notes due 2025 (the "Notes"). The Notes bear interest at a rate of 8.375% per annum, which accrues from June 8, 2020 and is payable in arrears on June 15 and December 15 of each year. The Notes mature on June 15, 2025, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the related indenture. The Notes were issued by Macy’s, Inc. and are secured on a first-priority basis by (i) a first mortgage/deed of trust in certain real property of subsidiaries of Macy’s, Inc. that was transferred to subsidiaries of Macy’s Propco Holdings, LLC, a newly created direct, wholly owned subsidiary of Macy’s, Inc. (“Propco”), and (ii) a pledge by Propco of the equity interests in its subsidiaries that own such transferred real property. The Notes are, jointly and severally, unconditionally guaranteed on a secured basis by Propco and its subsidiaries and unconditionally guaranteed on an unsecured basis by Macy’s Retail Holdings, LLC (f/k/a Macy’s Retail Holdings, Inc.) (“MRH”), a direct, wholly owned subsidiary of Macy’s, Inc. The Company used the proceeds of the Notes offering, along with cash on hand, to repay the outstanding borrowings under the existing $1,500 million unsecured credit agreement.
Entry into Asset-Based Credit Facility
On June 8, 2020, Macy’s Inventory Funding LLC (the “ABL Borrower”), an indirect wholly owned subsidiary of the Company, and its parent, Macy’s Inventory Holdings LLC (the “ABL Parent”), entered into an asset-based credit agreement (“the ABL Credit Facility”) with Bank of America, N.A., as administrative agent and collateral agent, and the lenders party thereto. As of January 30, 2021, the ABL Credit Facility provides the ABL Borrower with a $2,941 million revolving credit facility (the “Revolving ABL Facility”), including a swingline sub-facility and a letter of credit sub-facility. The ABL Borrower may request increases in the size of the Revolving ABL Facility up to an additional aggregate principal amount of $750 million. As of January 30, 2021, the Company had $142 million of standby letters of credit outstanding under the ABL Credit Facility, which reduces the available borrowing capacity. The Company had no borrowings outstanding under the ABL Credit Facility as of January 30, 2021.
Additionally on June 8, 2020 and concurrently with closing the ABL Credit Facility, the ABL Borrower purchased all presently existing inventory, and assumed the liabilities in respect of all presently existing and outstanding trade payables owed to vendors in respect of such inventory, from MRH and certain wholly owned subsidiaries of MRH. The ABL Credit Facility is secured on a first priority basis (subject to customary exceptions) by (i) all assets of the ABL Borrower including all such inventory and the proceeds thereof and (ii) the equity of the ABL Borrower. The ABL Parent guaranteed the ABL Borrower’s obligations under the ABL Credit Facility. The Revolving ABL Facility matures on May 9, 2024.
The ABL Credit Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) 80% (which shall automatically increase to 90% upon the satisfaction of certain conditions, including the delivery of an initial appraisal of the inventory) of the net orderly liquidation percentage of eligible inventory, minus (b) customary reserves. Amounts borrowed under the ABL Credit Facility are subject to interest at a rate per annum equal to (i) prior to the Step Down Date (as defined in the ABL Credit Facility), at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.75% to 3.00% or (b) a base rate plus a margin of 1.75% to 2.00%, in each case depending on revolving line utilization and (ii) after the Step Down Date, at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.25% to 2.50% or (b) a base rate plus a margin of 1.25% to 1.50%, in each case depending on revolving line utilization. The ABL Credit Facility also contains customary covenants that provide for, among other things, limitations on indebtedness, liens, fundamental changes, restricted payments, cash hoarding, and prepayment of certain indebtedness as well as customary representations and warranties and events of default typical for credit facilities of this type.
The ABL Credit Facility also requires (1) the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any fiscal quarter on or after April 30, 2021 if (a) certain events of default have occurred and are continuing or (b) Availability plus Suppressed Availability (each as defined in the ABL Credit Facility) is less than the greater of (x) 10% of the Loan Cap (as defined in the ABL Credit Facility) and (y) $250 million, in each case, as of the end of such fiscal quarter and (2) prior to April 30, 2021, that the ABL Borrower not permit Availability plus Suppressed Availability to be lower than the greater of (x) 10% of the Loan Cap and (y) $250 million.
Amendment to Existing Credit Agreement
On June 8, 2020, the Company substantially reduced the credit commitments of its existing $1,500 million unsecured credit agreement, which as of January 30, 2021, provides the Company with unsecured revolving credit of up to $1 million. The unsecured revolving credit facility contains covenants that provide for, among other things, limitations on fundamental changes, use of proceeds, and maintenance of property, as well as customary representations and warranties and events of default. In conjunction with this amendment, the interest coverage ratio and leverage ratio were eliminated as covenant requirements. As of January 30, 2021, the Company had no borrowings outstanding under the credit agreement.
Exchange Offers and Consent Solicitations for Certain Outstanding Debt Securities of MRH
During the second quarter of 2020, MRH completed exchange offers (each, an “Exchange Offer” and, collectively, the “Exchange Offers”) with eligible holders and received related consents in consent solicitations for each series of notes as follows:
(i) $81 million aggregate principal amount of 6.65% Senior Secured Debentures due 2024 (“New 2024 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.65% Senior Debentures due 2024 issued by MRH (“Old 2024 Notes”);
(ii) $74 million aggregate principal amount of 6.7% Senior Secured Debentures due 2028 (“New 2028 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2028 issued by MRH (“Old 2028 Notes”);
(iii) $13 million aggregate principal amount of 8.75% Senior Secured Debentures due 2029 (“New 2029 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 8.75% Senior Debentures due 2029 issued by MRH (“Old 2029 Notes”);
(iv) $5 million aggregate principal amount of 7.875% Senior Secured Debentures due 2030 (“New 2030 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 7.875% Senior Debentures due 2030 issued by MRH (“Old 2030 Notes”);
(v) $5 million aggregate principal amount of 6.9% Senior Secured Debentures due 2032 (“New 2032 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.9% Senior Debentures due 2032 issued by MRH (“Old 2032 Notes”); and
(vi) $183 million aggregate principal amount of 6.7% Senior Secured Debentures due 2034 (“New 2034 Notes” and, together with the New 2024 Notes, New 2028 Notes, New 2029 Notes, New 2030 Notes and New 2032 Notes, the “New Notes” and each series, a “series of New Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2034 issued by MRH (“Old 2034 Notes” and, together with the Old 2024 Notes, Old 2028 Notes, Old 2029 Notes, Old 2030 Notes and Old 2032 Notes, the “Old Notes” and each series, a “series of Old Notes”).
Each New Note issued in the Exchange Offers for a validly tendered Old Note has an interest rate and maturity date that is identical to the interest rate and maturity date of the tendered Old Note, as well as identical interest payment dates and optional redemption prices. The New Notes are MRH’s and Macy’s general, senior obligations and are secured by a second-priority lien on the same collateral securing the Notes. Following the settlement, the aggregate principal amounts of each series of Old Notes outstanding are: (i) $41 million Old 2024 Notes, (ii) $29 million Old 2028 Notes, (iii) $5 million Old 2030 Notes, (iv) $12 million Old 2032 Notes and (v) $18 million Old 2034 Notes.
In addition, MRH solicited and received consents from holders of each series of Old Notes (each, a “Consent Solicitation” and, collectively, the “Consent Solicitations”) pursuant to a separate Consent Solicitation Statement to adopt certain proposed amendments to the indenture governing the Old Notes (the “Existing Indenture”) to conform certain provisions in the negative pledge covenant in the Existing Indenture to the provisions of the negative pledge covenant in MRH’s most recent indenture (the “Proposed Amendments”). MRH received consents from holders of (i) $85 million aggregate principal amount of outstanding Old 2024 Notes, (ii) $77 million aggregate principal amount of outstanding Old 2028 Notes, (iii) $13 million aggregate principal amount of outstanding Old 2029 Notes, (iv) $5 million aggregate principal amount of outstanding Old 2030 Notes, (v) $6 million aggregate principal amount of outstanding Old 2032 Notes and (vi) $185 million aggregate principal amount of outstanding Old 2034 Notes.
At January 30, 2021, no notes or debentures contained provisions requiring acceleration of payment upon a debt rating downgrade. However, the terms of approximately $4,159 million in aggregate principal amount of the Company's senior notes outstanding at that date require the Company to offer to purchase such notes at a price equal to 101% of their principal amount plus accrued and unpaid interest if there is both a change of control (as defined in the applicable
indenture) of the Company and the notes are rated by specified rating agencies at a level below investment grade.
As of January 30, 2021, the Company's credit rating and outlook were as described in the table below.
Standard &
Moody's
Poor's
Fitch
Long-term debt
Ba3
B+
BB
Outlook
Negative
Negative
Negative
March 2021 Financing Activities
On March 17, 2021, MRH completed an offering of $500 million in aggregate principal amount of 5.875% senior notes due 2029 (the “2029 Notes”) in a private offering (the “Notes Offering”). The 2029 Notes mature on April 1, 2029. The 2029 Notes are senior unsecured obligations of MRH and are unconditionally guaranteed on a senior unsecured basis by Macy’s, Inc. MRH used the net proceeds from the Notes Offering, together with cash on hand, to fund a separately announced tender offer in which $500 million of senior notes and debentures were tendered for early settlement and purchased by MRH on March 17, 2021.
Dividends
On February 28, 2020, the Company's board of directors declared a quarterly dividend of 37.75 cents per share on its common stock, payable April 1, 2020, to shareholders of record at the close of business on March 13, 2020. The Company announced the suspension of quarterly cash dividends beginning in the second quarter of 2020.
Contractual Obligations and Commitments
At January 30, 2021, the Company had contractual obligations (within the scope of Item 303(a)(5) of Regulation S-K) as follows:
Obligations Due, by Period
Less than
1 - 3
3 - 5
More than
Total
1 Year
Years
Years
5 Years
(millions)
Short-term debt
$
$
$
-
$
-
$
-
Long-term debt
4,454
-
1,946
1,658
Interest on debt
2,025
Finance lease obligations
Operating leases (a and b)
7,039
5,443
Letters of credit
-
-
-
Other obligations
3,876
2,538
$
18,019
$
3,649
$
2,516
$
3,171
$
8,683
(a)
Operating lease payments include $3,060 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $2 million of legally binding minimum lease payments for leases signed but not yet commenced.
(b)
Operating lease payments include $1,151 million related to non-lease component payments, with $840 million related to options to extend lease terms that are reasonably certain of being exercised.
“Other obligations” in the foregoing table includes post employment and postretirement benefits, self-insurance reserves, group medical/dental/life insurance programs, merchandise purchase obligations and obligations under outsourcing arrangements, construction contracts, energy and other supply agreements identified by the Company and liabilities for unrecognized tax benefits that the Company expects to settle in cash in the next year excluding interest and penalties. The Company's merchandise purchase obligations fluctuate on a seasonal basis, typically being higher in the summer and early fall and being lower in the late winter and early spring. The Company purchases a substantial portion of its merchandise inventories and other goods and services otherwise than through binding contracts. Consequently, the amounts shown as “Other obligations” in the foregoing table do not reflect the total amounts that the Company would need to spend on goods and services in order to operate its businesses in the ordinary course.
Of the Company's $113 million of unrecognized tax benefits at January 30, 2021, within "other obligations" in the foregoing table, the Company has excluded $3 million of deferred tax assets and $104 million of long-term liabilities for unrecognized tax benefits for various tax positions taken. The table also excludes federal, state and local interest and
penalties related to unrecognized tax benefits of $60 million. These liabilities may increase or decrease over time as a result of tax examinations, and given the status of examinations, the Company cannot reliably estimate the period of any cash settlement with the respective taxing authorities.
Guarantor Summarized Financial Information
The Company has senior unsecured notes and senior unsecured debentures (collectively the “Unsecured Notes”) outstanding with an aggregate principal amount of $3,246 million outstanding as of January 30, 2021, with maturities ranging from 2022 to 2043. The Unsecured Notes constitute debt obligations of MRH ("Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent" together with the "Subsidiary Issuer" are the "Obligor Group"), and are fully and unconditionally guaranteed on a senior unsecured basis by Parent. The Unsecured Notes rank equally in right of payment with all of the Company’s existing and future senior unsecured obligations, senior to any of the Company’s future subordinated indebtedness, and are structurally subordinated to all existing and future obligations of each of the Company’s subsidiaries that do not guarantee the Unsecured Notes. Holders of the Company’s secured indebtedness, including the Notes and any borrowings under the ABL Credit Facility, will have a priority claim on the assets that secure such secured indebtedness; therefore, the Unsecured Notes and the related guarantee are effectively subordinated to all of the Subsidiary Issuer’s and Parent and their subsidiaries’ existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness.
The following tables include combined financial information of the Obligor Group. Investments in and equity in the earnings of non-Guarantor subsidiaries of $6,126 million have been excluded. The combined financial information of the Obligor Group is presented on a combined basis with intercompany balances and transactions within the Obligor Group eliminated.
Summarized Balance Sheet
January 30, 2021
(in millions)
ASSETS
Current Assets
$
1,297
Noncurrent Assets
7,491
LIABILITIES
Current Liabilities
$
2,216
Noncurrent Liabilities (a)
10,145
a)
Includes net amounts due to non-Guarantor subsidiaries of $2,702 million
Summarized Statement of Operations
(in millions)
Net Sales
$
1,303
Consignment commission income (a)
1,167
Cost of sales
(905
)
Operating loss
(3,771
)
Loss before income taxes (b)
(2,838
)
Net loss
(2,376
)
a)
Income pertains to transactions with ABL Borrower, a non-Guarantor subsidiary
b)
Includes $1,268 million of dividend income from non-Guarantor subsidiaries
Important Information Regarding Non-GAAP Financial Measures
The Company reports its financial results in accordance with GAAP. However, management believes that certain non-GAAP financial measures provide users of the Company's financial information with additional useful information in evaluating operating performance. Management believes that providing supplemental changes in comparable sales on an owned plus licensed basis, which includes the impact of growth in comparable sales of departments licensed to third parties, assists in evaluating the Company's ability to generate sales growth, whether through owned businesses or departments licensed to third parties, on a comparable basis, and in evaluating the impact of changes in the manner in which certain departments are operated. In addition, management believes that excluding certain items that are not associated with the Company's core operations and that may vary substantially in frequency and magnitude period-to- period from diluted earnings per share attributable to Macy's, Inc. shareholders, EBIT and EBITDA, including as a percent to sales, provide useful supplemental measures that assist in evaluating the Company's ability to generate earnings and leverage sales, respectively, and to more readily compare these metrics between past and future periods. Management also believes that EBIT, EBITDA, Adjusted EBIT and Adjusted EBITDA are frequently used by investors and securities analysts in their evaluations of companies, and that such supplemental measures facilitate comparisons between companies that have different capital and financing structures and/or tax rates. In addition, management believes that ROIC is a useful supplemental measure in evaluating how efficiently the Company employs its capital. The Company uses some of these non-GAAP financial measures as performance measures for components of executive compensation. The company does not provide the most directly comparable forward-looking GAAP measure of EBITDA, earnings (loss) per share and the effective tax rate, 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.
Changes in Comparable Sales
The following is a tabular reconciliation of the non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis, to GAAP comparable sales (i.e., on an owned basis), which the Company believes to be the most directly comparable GAAP financial measure.
Increase (decrease) in comparable sales on an
owned basis (note 1)
(27.9
)%
(0.8
)%
1.7
%
Change 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
(27.9
)%
(0.7
)%
2.0
%
(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, or a material portion of the store, is closed for a significant period of time. No stores have been excluded as a result of the COVID-19 pandemic. 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.
Adjusted Diluted Earnings (Loss) Per Share Attributable to Macy's, Inc. Shareholders
The following is a tabular reconciliation of the non-GAAP financial measure diluted earnings (loss) per share attributable to Macy's, Inc. shareholders, excluding certain items, to GAAP diluted earnings (loss) per share attributable to Macy's, Inc. shareholders, which the Company believes to be the most directly comparable GAAP measure.
As reported
$
(12.68
)
$
1.81
$
3.56
Restructuring, impairment, store closing and other costs (a)
11.50
1.13
0.41
Settlement charges
0.27
0.19
0.28
Losses on early retirement of debt
-
0.10
0.11
Financing costs
0.02
-
-
Income tax impact of certain items identified above
(1.32
)
(0.32
)
(0.18
)
As adjusted
$
(2.21
)
$
2.91
$
4.18
(a)
2018 excludes impairment, restructuring, and other costs attributable to the noncontrollling interest shareholder of $8 million.
Adjusted EBIT and EBITDA as a Percent to Net Sales
The following is a tabular reconciliation of the non-GAAP financial measures EBIT and EBITDA, as adjusted to exclude certain items ("Adjusted EBIT and Adjusted EBITDA"), as a percent to net sales to GAAP net income attributable to Macy's, Inc. shareholders as a percent to net sales, which the Company believes to be the most directly comparable GAAP financial measure.
(millions, except percentages)
Net sales
$
17,346
$
24,560
$
24,971
Net income (loss) attributable to Macy's, Inc. shareholders
$
(3,944
)
$
$
1,108
Net income (loss) attributable to Macy's, Inc. shareholders
as a percent to net sales
(22.7
)%
2.3
%
4.4
%
Net income (loss) attributable to Macy's, Inc. shareholders
$
(3,944
)
$
$
1,108
Restructuring, impairment, store closing and other costs (a)
3,579
Settlement charges
Interest expense - net
Losses on early retirement of debt
-
Financing costs
-
-
Federal, state and local income tax expense (benefit)
(846
)
Adjusted EBIT
$
(842
)
$
1,355
$
1,915
Adjusted EBIT as a percent to net sales
(4.9
)%
5.5
%
7.7
%
Add back depreciation and amortization
Adjusted EBITDA
$
$
2,336
$
2,877
Adjusted EBITDA as a percent to net sales
0.7
%
9.5
%
11.5
%
(a)
2018 excludes impairment, restructuring, and other costs attributable to the noncontrollling interest shareholder of $8 million.
ROIC
Historically, the Company defined ROIC as adjusted EBITDA, excluding net lease expense, as a percent to average invested capital. Average invested capital is comprised of an annual two-point (i.e., end of the year presented and the immediately preceding year) average of gross property and equipment, a capitalized value of non-capitalized leases equal to periodic annual reported net rent expense multiplied by a factor of eight and a four-point (i.e., end of each quarter within the period presented) average of other selected assets and liabilities. The calculation of the capitalized value of non-capitalized leases is consistent with industry and credit rating agency practice and the specified assets are subject to a four-point average to compensate for seasonal fluctuations.
In conjunction with the Company's adoption of ASU No. 2016-02 on February 3, 2019, the Company recognized lease liabilities and related right of use ("ROU") assets on the balance sheet for its operating leases. In the calculation of the Company's ROIC as of January 30, 2021 and February 1, 2020, the Company utilized the total lease ROU assets in lieu of the capitalized value of non-capitalized leases, excluding variable rent which is still multiplied by a factor of eight, as a result of the adoption of ASU 2016-02. In the Company's ROIC calculation as of February 2, 2019, a capitalized value of non-capitalized leases equal to periodic annual reported net rent expense multiplied by a factor of eight was utilized. Rent expense in 2020 and 2019 reflects lease expense related to the Company's operating leases in accordance with ASU 2016-02 and excludes non-lease component expenses. See Note 5, Properties and Leases, to the Consolidated Financial Statements for information on leases, including non-lease components.
In 2020 and 2019, the calculation of ROIC reflected certain refinements to better reflect the company's adjusted EBITDA, excluding lease expense, and invested capital which are summarized below (4-point average of balance, as applicable):
•
Exclude non-lease components of $87 million and $83 million for 2020 and 2019, respectively, from lease expense.
•
Exclude benefit plan income, net of $54 million and $31 million for 2020 and 2019, respectively, from Adjusted EBITDA, excluding lease expense.
•
Exclude rabbi trust investments related to company's deferred compensation plan from prepaid expenses and other current assets ($32 million for both 2020 and 2019).
•
Exclude deferred financing costs ($38 million for 2020 and $4 million for 2019) and net pension asset ($168 million for 2020 and $46 million for 2019) from other assets.
•
Exclude dividend payable ($29 million for 2019), current liabilities for other postretirement health care and life insurance benefits and the supplementary retirement plan ($64 million for 2020 and $76 million for 2019), and the current lease liability ($287 million for 2020 and $306 million for 2019) from accounts payable and accrued liabilities.
•
Include long-term workers' compensation and general liability ($348 million for 2020 and $371 million for 2019).
The following is a tabular reconciliation of the non-GAAP financial measure of ROIC to net income as a percent to property and equipment - net, which the Company believes to be the most directly comparable GAAP financial measure.
(millions, except percentages)
Net income (loss)
$
(3,944
)
$
$
1,098
Property and equipment - net
$
5,940
$
6,633
$
6,637
Net income (loss) as a percent to property and
equipment - net
(66.4
)%
8.5
%
16.5
%
Net income (loss)
$
(3,944
)
$
$
1,098
Add back interest expense, net
Add back financing cost
-
-
Add back losses on early retirement of debt
-
Add back (deduct) federal, state and local tax expense (benefit)
(846
)
Add back restructuring, impairment, store closing and other costs
3,579
Add back settlement charges
Add back depreciation and amortization
Deduct benefit plan income, net
(54
)
(31
)
-
Add back rent expense
Real estate
Personal property
Deferred rent amortization
-
-
Adjusted EBITDA, excluding benefit plan income, net and lease
expense
$
$
2,648
$
3,225
Property and equipment - net
$
6,092
$
6,628
$
6,655
Add back accumulated depreciation and amortization
4,590
4,438
4,553
Add capitalized value of non-capitalized leases
-
-
2,800
Add back capitalized value of variable rent
-
Add back lease right of use assets
2,378
2,241
-
Add (deduct) other selected assets and liabilities:
Receivables
Merchandise inventories
4,356
5,743
5,664
Prepaid expenses and other current assets
Other assets
Merchandise accounts payable
(2,213
)
(2,183
)
(2,219
)
Accounts payable and accrued liabilities
(2,508
)
(2,609
)
(2,917
)
Other long-term liabilities
(348
)
(371
)
-
Total average invested capital
$
13,598
$
15,492
$
16,220
ROIC
3.0
%
17.1
%
19.9
%
Critical Accounting Policies
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market using the last-in, first-out ("LIFO") retail inventory method. Under the retail inventory method, inventory is segregated into departments of merchandise having similar characteristics and is stated at its current retail selling value. The retail inventory method inherently requires management judgments and estimates, such as the amount and timing of permanent markdowns to clear unproductive or slow-moving inventory, which may impact the ending inventory valuation as well as gross margins.
Permanent markdowns designated for clearance activity are recorded when the utility of the inventory has diminished. Factors considered in the determination of permanent markdowns include current and anticipated demand, customer preferences, age of the merchandise and fashion trends. When a decision is made to permanently mark down merchandise, the resulting gross margin reduction is recognized in the period the markdown is recorded.
Long-Lived Asset Impairment and Restructuring Charges
The carrying values of long-lived assets, inclusive of ROU assets, are periodically reviewed by the Company whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as historical operating losses or plans to close stores before the end of their previously estimated useful lives. Additionally, on an annual basis, the recoverability of the carrying values of individual stores is evaluated. A potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets. The estimate of cash flows includes management's assumptions of cash inflows and outflows directly resulting from the use of those assets in operations. When a potential impairment has occurred, an impairment write-down is recorded if the carrying value of the long-lived asset exceeds its fair value. The Company believes its estimated cash flows are sufficient to support the carrying value of its long-lived assets. If estimated cash flows significantly differ in the future, the Company may be required to record asset impairment write-downs.
If the Company commits to a plan to dispose of a long-lived asset before the end of its previously estimated useful life or changes its use of corporate assets, estimated cash flows are revised accordingly, and the Company may be required to record an asset impairment charge. Additionally, related liabilities arise such as severance, contractual obligations and other accruals associated with store closings from decisions to dispose of assets. The Company estimates these liabilities based on the facts and circumstances in existence for each restructuring decision. The amounts the Company will ultimately realize or disburse could differ from the amounts assumed in arriving at the asset impairment and restructuring charge recorded.
Goodwill and Intangible Assets
The Company reviews the carrying value of its goodwill and other intangible assets with indefinite lives at least annually, as of the end of fiscal May, or more frequently if an event occurs or circumstances change, for possible impairment in accordance with ASC Topic 350, Intangibles - Goodwill and Other. For impairment testing, goodwill has been assigned to reporting units which consist of the Company's retail operating divisions. Macy's and bluemercury are the only reporting units with goodwill as of January 30, 2021, and 98% of the Company's goodwill is allocated to the Macy's reporting unit.
The Company may elect to evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit or fair value of indefinite lived intangible assets is less than its carrying value. If the qualitative evaluation indicates that it is more likely than not that the fair value of a reporting unit or indefinite lived intangible asset is less than its carrying amount, a quantitative impairment test is required. Alternatively, the Company may bypass the qualitative assessment for a reporting unit or indefinite lived intangible asset and directly perform the quantitative assessment. This determination can be made on an individual reporting unit or asset basis, and performance of the qualitative assessment may resume in a subsequent period.
The quantitative impairment test involves estimating the fair value of each reporting unit and indefinite lived intangible asset and comparing these estimated fair values with the respective reporting unit or indefinite lived intangible asset carrying value. If the carrying value of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to such excess, limited to the total amount of goodwill allocated to the reporting unit. If the carrying value of an individual indefinite lived intangible asset exceeds its fair value, such individual indefinite lived intangible asset is written down by an amount equal to such excess.
Estimating the fair values of reporting units and indefinite lived intangible assets involves the use of significant assumptions, estimates and judgments with respect to a variety of factors, including sales, gross margin and SG&A expense rates, capital expenditures, cash flows and the selection and use of an appropriate discount rate and market values and multiples of earnings and revenues of similar public companies. Projected sales, gross margin and SG&A expense rate assumptions and capital expenditures are based on the Company's annual business plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the reporting unit or indefinite lived intangible asset.
The use of different assumptions, estimates or judgments in the goodwill impairment testing process, including with respect to the estimated future cash flows of the Company's reporting units, the discount rate used to discount such estimated cash flows to their net present value, and the reasonableness of the resultant implied control premium relative to the Company's market capitalization, could materially increase or decrease the fair value of the reporting unit and/or its net assets and, accordingly, could materially increase or decrease any related impairment charge.
During the first quarter of 2020, as a result of the sustained decline in the Company's market capitalization and changes in the Company's long-term projections driven largely by the impacts of the COVID-19 pandemic, the Company determined a triggering event had occurred that required an interim impairment assessment for all of its reporting units and indefinite lived intangible assets. The Company determined the fair value of each of its reporting units using a market approach or a combination of a market approach and income approach, as appropriate. Relative to the prior assessment, as part of this interim 2020 assessment, it was determined that an increase in the discount rate applied in the valuation was required to align with market-based assumptions and company-specific risk. The revised long-term projections, in conjunction with this higher discount rate, resulted in lower fair values of the reporting units. As a result, the Company recognized $2,982 million and $98 million of goodwill impairment for the Macy's and bluemercury reporting units, respectively, during 2020, the majority of which was recognized during the first quarter of 2020.
As of May 2, 2020, the Company elected to perform a qualitative impairment test on its intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceeded the carrying values and the intangible assets with indefinite lives were not impaired.
For the Company's annual impairment assessment as of the end of fiscal May, the Company elected to perform a qualitative impairment test on its goodwill and intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceeded the carrying values and goodwill and intangible assets with indefinite lives were not impaired.
The Company continues to monitor the key inputs to the fair values of its reporting units. A decline in market capitalization or future declines in macroeconomic factors or business conditions may result in additional impairment charges in future periods.
Income Taxes
Income taxes are estimated based on the tax statutes, regulations and case law of the various jurisdictions in which the Company operates. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and net operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets are evaluated for recoverability based on all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. Deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized.
Uncertain tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Uncertain tax positions meeting the more-likely-than-not recognition threshold are then measured to determine the amount of benefit eligible for recognition in the financial statements. Each uncertain tax position is measured at the largest amount of benefit that is more likely than not to be realized upon ultimate settlement.
Uncertain tax positions are evaluated and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions. Resolution of these matters could have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Significant judgment is required in evaluating the Company's uncertain tax positions, provision for income taxes, and any valuation allowance recorded against deferred tax assets. Although the Company believes that its judgments are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the Company's historical income provisions and accruals.
Pension and Supplementary Retirement Plans
The Company has a funded defined benefit pension plan (the “Pension Plan”) and an unfunded defined benefit supplementary retirement plan (the “SERP”). The Company accounts for these plans in accordance with ASC Topic 715, Compensation - Retirement Benefits. Under ASC Topic 715, an employer recognizes the funded status of a defined benefit postretirement plan as an asset or liability on the balance sheet and recognizes changes in that funded status in the year in which the changes occur through comprehensive income (loss). Additionally, pension expense is generally recognized on an accrual basis over the average remaining lifetime of participants. The pension expense calculation is generally independent of funding decisions or requirements.
The Pension Protection Act of 2006 provides the funding requirements for the Pension Plan which are different from the employer's accounting for the plan as outlined in ASC Topic 715. No funding contributions were required, and the Company made no funding contributions to the Pension Plan in 2020 and 2019. As of the date of this report, the Company does not anticipate making funding contributions to the Pension Plan in 2021.
The calculation of pension expense and pension liabilities requires the use of a number of assumptions. Changes in these assumptions can result in different expense and liability amounts, and future actual experience may differ significantly from current expectations. The Company believes that the most critical assumptions relate to the long-term rate of return on plan assets (in the case of the Pension Plan) and the discount rate used to determine the present value of projected benefit obligations.
The Company's assumed annual long-term rate of return for the Pension Plan's assets was 6.25% for 2020, 6.50% for 2019 and 6.75% for 2018 based on expected future returns on the portfolio of assets. As of January 30, 2021, the Company lowered the assumed annual long-term rate of return for the Pension Plan's assets from 6.25% to 5.75% based on expected future returns on the portfolio of assets. The Company develops its expected long-term rate of return assumption by evaluating input from several professional advisors taking into account the asset allocation of the portfolio and long-term asset class return expectations, as well as long-term inflation assumptions. Pension expense increases or decreases as the expected rate of return on the assets of the Pension Plan decreases or increases, respectively. Lowering or raising the expected long-term rate of return assumption on the Pension Plan's assets by 0.25% would increase or decrease the estimated 2021 pension expense by approximately $7 million.
The Company discounted its future pension obligations using a weighted-average rate of 2.43% at January 30, 2021 and 2.83% at February 1, 2020, for the Pension Plan and 2.51% at January 30, 2021 and 2.89% at February 1, 2020 for the SERP. The discount rate used to determine the present value of the Company's Pension Plan and SERP obligations is based on a yield curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year's expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate for Pension Plan and SERP obligations. As the discount rate is reduced or increased, the pension liability would increase or decrease, respectively, and future pension expense would decrease or increase, respectively. Lowering the discount rates by 0.25% would increase the projected benefit obligations at January 30, 2021 by approximately $86 million and would decrease estimated 2021 pension expense by approximately $4 million. Increasing the discount rates by 0.25% would decrease the projected benefit obligations at January 30, 2021 by approximately $82 million and would increase estimated 2021 pension expense by approximately $3 million.
The Company estimates the service and interest cost components of net periodic benefit costs for the Pension Plan and SERP. This method uses a full yield curve approach in the estimation of these components of net periodic benefit costs. Under this approach, the Company applies discounting using individual spot rates from the yield curve composed of the rates of return from a portfolio of high quality corporate debt securities available at the measurement date. These spot rates align to each of the projected benefit obligation and service cost cash flows.
New Pronouncements
See Note 1, Organization and Summary of Significant Accounting Policies, to the Consolidated Financial Statements for discussion on new accounting pronouncements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk from changes in interest rates that may adversely affect its financial position, results of operations and cash flows. In seeking to minimize the risks from interest rate fluctuations, the Company manages exposures through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company does not use financial instruments for trading or other speculative purposes and is not a party to any leveraged financial instruments.
The Company is exposed to interest rate risk through its borrowing activities, which are described in Note 7, Financing, to the Consolidated Financial Statements. All of the Company’s borrowings are under fixed rate instruments. However, the Company, from time to time, may use interest rate swap and interest rate cap agreements to help manage its exposure to interest rate movements and reduce borrowing costs. At January 30, 2021, the Company was not a party to any material derivative financial instruments and based on the Company’s lack of market risk sensitive instruments outstanding at January 30, 2021, the Company has determined that there was no material market risk exposure to the Company’s consolidated financial position, results of operations or cash flows as of such date.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8.
Financial Statements and Supplementary Data.
Information called for by this item is set forth in the Company’s Consolidated Financial Statements and supplementary data contained in this report and is incorporated herein by this reference. Specific financial statements and supplementary data can be found at the pages listed in the following index:
INDEX
Page
Report of Management
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019
Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019
Consolidated Balance Sheets as of January 30, 2021 and February 1, 2020
Consolidated Statements of Changes in Shareholders’ Equity for the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019
Consolidated Statements of Cash Flows for the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019
Notes to Consolidated Financial Statements

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.
Controls and Procedures.
a.
Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have carried out, as of January 30, 2021, with the participation of the Company’s management, an evaluation of the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of January 30, 2021, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports the Company files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
b.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s management conducted an assessment of the Company’s internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on this assessment, the Company’s management has concluded that, as of January 30, 2021, the Company’s internal control over financial reporting was effective.
The Company’s independent registered public accounting firm, KPMG LLP, has audited the Company’s Consolidated Financial Statements included in this Annual Report on Form 10-K and the effectiveness of the Company’s internal control over financial reporting as of January 30, 2021, and has issued an attestation report expressing an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting, as stated in their report located on page.
c.
Changes in Internal Control over Financial Reporting
From time to time adoption of new accounting pronouncements, major organizational restructuring and realignment occurs for which the Company reviews its internal control over financial reporting. As a result of this review, there were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B.
Other Information.
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item for executive officers is set forth under “Item 1. Business - Information about our Executive Officers” in this report. The other information called for by this item is set forth under “Item 1. Election of Directors” and “Further Information Concerning the Board of Directors - Committees of the Board” in the Proxy Statement to be delivered to stockholders in connection with the 2021 Annual Meeting of Shareholders (the “Proxy Statement”), and incorporated herein by reference.
The Company’s Code of Conduct is in compliance with the applicable rules of the SEC that apply to the principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. A copy of the Code of Conduct is available, free of charge, through the Company’s website at https://www.macysinc.com. We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Conduct by posting such information to the Company’s website at the address and location specified above.
Set forth below are the names, ages and principal occupations of the Company's non-employee directors as of March 25, 2021.
Name
Age
Director
Since
Principal Occupation
David P. Abney
Former Chairman and Chief Executive Officer of UPS, Inc., a
multinational package delivery and supply chain management
company.
Francis S. Blake
Former Chairman and Chief Executive Officer of The Home
Depot, Inc., a multinational home improvement retailer.
Torrence N. Boone
Vice President, Global Client Partnerships, Alphabet Inc. since
2010.
John A. Bryant
Former Chairman, President and Chief Executive Officer of
Kellogg Company, a multinational cereal and snack food
producer.
Deirdre P. Connelly
Former President, North American Pharmaceuticals of
GlaxoSmithKline, a global pharmaceutical company.
Leslie D. Hale
President and Chief Executive Officer of RLJ Lodging Trust, a
publicly-traded lodging real estate investment trust, since 2018.
William H. Lenehan
President and Chief Executive Officer of Four Corners Property
Trust, Inc., a real estate investment trust, since 2015.
Sara Levinson
Co-Founder and Director of Katapult, a digital entertainment
company making products for today's creative generation, since
2013.
Joyce M. Roché
Former President and Chief Executive Officer of Girls
Incorporated, a national non-profit research, education and
advocacy organization.
Paul C. Varga
Former Chairman and Chief Executive Officer of Brown-
Forman Corporation, a spirits and wine company.
Marna C. Whittington
Former Chief Executive Officer of Allianz Global Investors
Capital, a diversified global investment firm.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
Information called for by this item is set forth under “Compensation Discussion & Analysis,” “Compensation of the Named Executives for 2020,” “Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation” and "Further Information Concerning the Board of Directors - Risk Oversight" in the Proxy Statement and incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information called for by this item is set forth under “Stock Ownership - Certain Beneficial Owners,” “Stock Ownership - Securities Authorized for Issuance Under Equity Compensation Plans,” and “Stock Ownership - Stock Ownership of Directors and Executive Officers” in the Proxy Statement and incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information called for by this item is set forth under “Further Information Concerning the Board of Directors - Director Independence” and “Policy on Related Person Transactions” in the Proxy Statement and incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
Information called for by this item is set forth under “Item 2. Ratification of the Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement and incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15.
Exhibit and Financial Statement Schedules.
(a)
The following documents are filed as part of this report:
1.
Financial Statements:
The list of financial statements required by this item is set forth in Item 8 “Financial Statements and Supplementary Data” and is incorporated herein by reference.
2.
Financial Statement Schedules:
All schedules are omitted because they are inapplicable, not required, or the information is included elsewhere in the Consolidated Financial Statements or the notes thereto.
3.
Exhibits:
Exhibit
Number
Description
Document if Incorporated by Reference
3.1
Amended and Restated Certificate of Incorporation
Exhibit 3.1 to the Company's Current Report on Form 8-K filed May 18, 2010
3.1.1
Certificate of Designations of Series A Junior Participating Preferred Stock
Exhibit 3.1.1 to the Company's Annual Report on Form 10-K (File No. 1-13536) for the fiscal year ended January 28, 1995
3.1.2
Article Seventh of the Amended and Restated Certificate of Incorporation
Exhibit 3.1 to the Company's Current Report on Form 8-K filed May 24, 2011
3.2
Amended and Restated By-Laws
Exhibit 3.1 to the Company's Current Report on Form 8-K filed March 25, 2021
4.1
Indenture, dated as of January 15, 1991, among the Company (as successor to The May Department Stores Company (“May Delaware”)), Macy's Retail Holdings, Inc. (“Macy's Retail”) (f/k/a The May Department Stores Company (NY) or “May New York”) and The Bank of New York Mellon Trust Company, N.A. (“BNY Mellon”, successor to J.P. Morgan Trust Company and as successor to The First National Bank of Chicago), as Trustee (“1991 Indenture”)
Exhibit 4(2) to May New York’s Current Report on Form 8-K filed January 15, 1991
4.1.1
Guarantee of Securities, dated as of August 30, 2005, by the Company relating to 1991 Indenture
Exhibit 10.13 to the Company's Current Report on Form 8-K filed August 30, 2005 (“August 30, 2005 Form 8-K”)
4.1.2
First Supplemental Indenture to 1991 Indenture dated as of May 28, 2020 among Macy’s Retail Holdings, Inc., a Delaware corporation (as successor to Macy’s Retail Holdings, Inc., a New York corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee
Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020 (“May 2, 2020 Form 10-Q”)
4.1.3
Second Supplemental Indenture to 1991 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee
Exhibit 4.4 to May 2, 2020 Form 10-Q
4.1.4
Third Supplemental Indenture to 1991 Indenture dated as of June 26, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee
Exhibit 4.15 to May 2, 2020 Form 10-Q
Exhibit
Number
Description
Document if Incorporated by Reference
4.2
Indenture, dated as of December 15, 1994, between the Company and U.S. Bank National Association (successor to State Street Bank and Trust Company and The First National Bank of Boston), as Trustee (“1994 Indenture”)
Exhibit 4.1 to the Company's Registration Statement on Form S-3 (Registration No. 33-88328) filed January 9, 1995
4.2.1
Ninth Supplemental Indenture to 1994 Indenture, dated as of July 14, 1997, between the Company and U.S. Bank National Association (successor to State Street Bank and Trust Company and The First National Bank of Boston), as Trustee
Exhibit 3 to the Company's Current Report on Form 8-K filed July 15, 1997
4.2.2
Tenth Supplemental Indenture to 1994 Indenture, dated as of August 30, 2005, among the Company, Macy's Retail and U.S. Bank National Association (as successor to State Street Bank and Trust Company and as successor to The First National Bank of Boston), as Trustee
Exhibit 10.14 to August 30, 2005 Form 8-K
4.2.3
Guarantee of Securities, dated as of August 30, 2005, by the Company relating to 1994 Indenture
Exhibit 10.16 to August 30, 2005 Form 8-K
4.2.4
Eleventh Supplemental Indenture to 1994 Indenture dated as of May 28, 2020 among Macy’s Retail Holdings, Inc., a Delaware corporation (as successor to Macy’s Retail Holdings, Inc., a New York corporation), Macy’s, Inc. and U.S. Bank National Association, as Trustee
Exhibit 4.5 to May 2, 2020 Form 10-Q
4.2.5
Twelfth Supplemental Indenture to 1994 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and U.S. Bank National Association, as Trustee
Exhibit 4.6 to May 2, 2020 Form 10-Q
4.2.6
Thirteenth Supplemental Indenture to 1994 Indenture dated as of June 24, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and U.S. Bank National Association, as Trustee
Exhibit 4.16 to May 2, 2020 Form 10-Q
4.3
Indenture, dated as of June 17, 1996, among the Company (as successor to May Delaware), Macy's Retail (f/k/a May New York) and The Bank of New York Mellon Trust Company, N.A. (“BNY Mellon”, successor to J.P. Morgan Trust Company), as Trustee (“1996 Indenture”)
Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 333-06171) filed June 18, 1996 by May Delaware
4.3.1
First Supplemental Indenture to 1996 Indenture, dated as of August 30, 2005, by and among the Company (as successor to May Delaware), Macy's Retail (f/k/a May New York) and BNY Mellon (successor to J.P. Morgan Trust Company, National Association), as Trustee
Exhibit 10.9 to August 30, 2005 Form 8-K
4.3.2
Second Supplemental Indenture to 1996 Indenture dated as of May 28, 2020 among Macy’s Retail Holdings, Inc., a Delaware corporation (as successor to Macy’s Retail Holdings, Inc., a New York corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee
Exhibit 4.7 to May 2, 2020 Form 10-Q
Exhibit
Number
Description
Document if Incorporated by Reference
4.3.3
Third Supplemental Indenture to 1996 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee
Exhibit 4.8 to May 2, 2020 Form 10-Q
4.3.4
Fourth Supplemental Indenture to 1996 Indenture dated as of June 26, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee
Exhibit 4.17 to May 2, 2020 Form 10-Q
4.4
Indenture, dated as of September 10, 1997, between the Company and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee (“1997 Indenture”)
Exhibit 4.4 to the Company's Amendment No. 1 to Form S-3 (Registration No. 333-34321) filed September 11, 1997
4.4.1
First Supplemental Indenture to 1997 Indenture, dated as of February 6, 1998, between the Company and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee
Exhibit 2 to the Company's Current Report on Form 8-K filed February 6, 1998
4.4.2
Third Supplemental Indenture to 1997 Indenture, dated as of March 24, 1999, between the Company and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee
Exhibit 4.2 to the Company's Registration Statement on Form S-4 (Registration No. 333-76795) filed April 22, 1999
4.4.3
Seventh Supplemental Indenture to 1997 Indenture, dated as of August 30, 2005 among the Company, Macy's Retail and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee
Exhibit 10.15 to August 30, 2005 Form 8-K
4.4.4
Guarantee of Securities, dated as of August 30, 2005, by the Company relating to 1997 Indenture
Exhibit 10.17 to August 30, 2005 Form 8-K
4.4.5
Eighth Supplemental Indenture to 1997 Indenture dated as of May 28, 2020 among Macy’s Retail Holdings, Inc., a Delaware corporation (as successor to Macy’s Retail Holdings, Inc., a New York corporation), Macy’s, Inc. and U.S. Bank National Association, as Trustee
Exhibit 4.9 to May 2, 2020 Form 10-Q
4.4.6
Ninth Supplemental Indenture to 1997 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and U.S. Bank National Association, as Trustee
Exhibit 4.10 to May 2, 2020 Form 10-Q
4.4.7
Tenth Supplemental Indenture to 1997 Indenture dated as of June 24, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and U.S. Bank National Association, as Trustee
Exhibit 4.18 to May 2, 2020 Form 10-Q
Exhibit
Number
Description
Document if Incorporated by Reference
4.5
Indenture, dated as of July 20, 2004, among the Company (as successor to May Delaware), Macy's Retail (f/k/a May New York) and BNY Mellon, as Trustee (“2004 Indenture”)
Exhibit 4.1 to Current Report on Form 8-K (File No. 001-00079) filed July 22, 2004 by May Delaware
4.5.1
First Supplemental Indenture to 2004 Indenture, dated as of August 30, 2005 among the Company (as successor to May Delaware), Macy's Retail and BNY Mellon (successor to J.P. Morgan Trust Company, National Association), as Trustee
Exhibit 10.10 to August 30, 2005 Form 8-K
4.6
Indenture, dated as of November 2, 2006, by and among Macy's Retail, the Company and U.S. Bank National Association, as Trustee (“2006 Indenture”)
Exhibit 4.6 to the Company's Registration Statement on Form S-3ASR (Registration No. 333-138376) filed November 2, 2006
4.6.1
Third Supplemental Indenture to 2006 Indenture, dated March 12, 2007, among Macy's Retail, the Company and U.S. Bank National Association, as Trustee
Exhibit 4.2 to the Company's Current Report on Form 8-K filed March 12, 2007
4.6.2
Sixth Supplemental Indenture to 2006 Indenture, dated December 10, 2015, among Macy's Retail, the Company and U.S. Bank National Association, as Trustee
Exhibit 4.2 to the Company's Current Report on Form 8-K filed December 10, 2015
4.6.3
Seventh Supplement Indenture to 2006 Indenture dated as of May 28, 2020 among Macy's Retail Holdings, Inc., a Delaware corporation (as successor to Macy's Retail Holdings, Inc., a New York corporation), Macy's, Inc. and U.S. Bank National Association, as Trustee
Exhibit 4.11 to May 2, 2020 Form 10-Q
4.6.4
Eighth Supplemental Indenture to 2006 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and U.S. Bank National Association, as Trustee
Exhibit 4.12 to May 2, 2020 Form 10-Q
4.6.5
Ninth Supplemental Indenture to 2006 Indenture dated as of June 24, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and U.S. Bank National Association, as Trustee
Exhibit 4.19 to May 2, 2020 Form 10-Q
4.7
Indenture, dated as of January 13, 2012, among Macy's Retail, the Company and BNY Mellon, as Trustee ("2012 Indenture")
Exhibit 4.1 to the Company's Current Report on Form 8-K filed January 13, 2012 (“January 13, 2012 Form 8-K”)
4.7.1
First Supplemental Trust Indenture to 2012 Indenture, dated as of January 13, 2012, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
Exhibit 4.2 to January 13, 2012 Form 8-K
4.7.2
Second Supplemental Trust Indenture to 2012 Indenture, dated as of January 13, 2012, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
Exhibit 4.3 to January 13, 2012 Form 8-K
4.7.3
Third Supplemental Trust Indenture, dated as of November 20, 2012, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
Exhibit 4.2 to the Company's Current Report on Form 8-K filed November 20, 2012 (“November 20, 2012 Form 8-K”)
4.7.4
Fourth Supplemental Trust Indenture, dated as of November 20, 2012, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
Exhibit 4.3 to November 20, 2012 Form 8-K
Exhibit
Number
Description
Document if Incorporated by Reference
4.7.5
Fifth Supplemental Trust Indenture, dated as of September 6, 2013, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
Exhibit 4.2 to the Company's Current Report on Form 8-K filed September 6, 2013
4.7.6
Sixth Supplemental Trust Indenture, dated as of May 23, 2014, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
Exhibit 4.2 to the Company's Current Report on Form 8-K filed May 23, 2014
4.7.7
Seventh Supplemental Trust Indenture, dated as of November 18, 2014, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
Exhibit 4.2 to the Company's Current Report on Form 8-K filed November 18, 2014
4.7.8
Eighth Supplemental Indenture to 2012 Indenture dated as of May 28, 2020 among Macy’s Retail Holdings, Inc., a Delaware corporation (as successor to Macy’s Retail Holdings, Inc., a New York corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee
Exhibit 4.13 to May 2, 2020 Form 10-Q
4.7.9
Ninth Supplemental Indenture to 2012 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee
Exhibit 4.14 to May 2, 2020 Form 10-Q
4.7.10
Tenth Supplemental Indenture to 2012 Indenture dated as of June 26, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee
Exhibit 4.20 to May 2, 2020 Form 10-Q
4.8
Indenture dated as of June 8, 2020, among Macy's, Inc., as issuer, the guarantors party thereto and U.S. Bank National Association, as trustee and collateral trustee, relating to the Company's 8.375% Senior Secured Notes due 2025
Exhibit 4.1 to the Company's Current Report on Form 8-K filed June 9, 2020 (“June 9, 2020 Form 8-K”)
4.8.1
Form of 8.375% Senior Secured Note due 2025
Exhibit A to Exhibit 4.1 to June 9, 2020 Form 8-K
4.9
Indenture, dated as of July 28, 2020, among Macy’s Retail Holdings, LLC, as issuer, Macy’s, Inc., as guarantor, and U.S. Bank National Association, as trustee and collateral trustee, relating to Macy’s Retail Holdings, LLC’s 6.65% Senior Secured Debentures due 2024, 6.7% Senior Secured Debentures due 2028, 8.75% Senior Secured Debentures due 2029, 7.875% Senior Secured Debentures due 2030, 6.9% Senior Secured Debentures due 2032 and 6.7% Senior Secured Debentures due 2034
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed July 28, 2020 (“July 28, 2020 Form 8-K”)
4.9.1
Form of 6.65% Senior Secured Debentures due 2024, 6.7% Senior Secured Debentures due 2028, 8.75% Senior Secured Debentures due 2029, 7.875% Senior Secured Debentures due 2030, 6.9% Senior Secured Debentures due 2032 and 6.7% Senior Secured Debentures due 2034
Exhibit A to Exhibit 4.1 to July 28, 2020 Form 8-K
Exhibit
Number
Description
Document if Incorporated by Reference
4.9.2
Fifth Supplemental Trust Indenture to 1996 Indenture, dated as of July 10, 2020, among Macy’s Retail Holdings, LLC, as issuer, Macy’s, Inc. as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to Macy’s Retail Holdings, LLC’s 6.65% Senior Debentures due 2024, 6.7% Senior Debentures due 2028, 8.75% Senior Debentures due 2029, 7.875% Senior Debentures due 2030, 6.9% Senior Debentures due 2032 and 6.7% Senior Debentures due 2034
Exhibit 4.3 to July 28, 2020 Form 8-K
4.10
Description of the Company's Securities Registered under Section 12 of the Securities Exchange Act of 1934
Exhibit 4.8 to the Company’s Annual Report on Form 10-K (File No. 1-135360) for the fiscal year ended February 1, 2020 (“2019 Form 10-K”)
10.1
Credit Agreement, dated as of June 8, 2020, among Macy’s Inventory Funding LLC, as the Borrower, Macy’s Inventory Holdings LLC, as Parent, Bank of America, N.A., as Agent, L/C Issuer and Swing Line Lender, the other lenders party thereto, BofA Securities, Inc., Credit Suisse Loan Funding LLC, JPMorgan Chase Bank, N.A., Fifth Third Bank, National Association, MUFG Union Bank, N.A., PNC Capital Markets LLC and Wells Fargo Bank, National Association, as Joint Lead Arrangers and Joint Bookrunners, Credit Suisse Loan Funding LLC and JPMorgan Chase Bank, N.A., as Co-Syndication Agents and Fifth Third Bank, National Association, MUFG Union Bank, N.A., as Co-Syndication Agents and Fifth Third Bank, National Association, MUFG Union Bank, N.A., PNC Bank, National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents
Exhibit 10.1 to June 9, 2020 Form 8-K
10.2
Credit Agreement, dated as of May 9, 2019, among the Company, Macy's Retail and Bank of America, N.A., as administrative agent
Exhibit 10.1 to the Company's Current Report on Form 8-K filed May 15, 2019 (“May 15, 2019 Form 8-K”)
10.3
Guarantee Agreement, dated as of May 9, 2019, among the Company, Macy's Retail and Bank of America, N.A., as administrative agent
Exhibit 10.2 to May 15, 2019 Form 8-K
10.4
Amendment No. 1 to Credit Agreement dated as of June 8, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (f/k/a Macy’s Retail Holdings, Inc.), as Borrower, Macy’s, Inc., a Delaware corporation, as Parent, the Lenders party thereto, and Bank of America, N.A., as Administrative Agent
Exhibit 10.2 to June 9, 2020 Form 8-K
10.5
Tax Sharing Agreement, dated as of October 31, 2014, among Macy's, Inc. and members of the Affiliated Group
Exhibit 10.7 to the Company's Annual Report on Form 10-K (File No. 1-13536) for the fiscal year ended January 31, 2015 (“2014 Form 10-K”)
10.6+
Amended and Restated Credit Card Program Agreement, dated November 10, 2014, among the Company, FDS Bank, Macy's Credit and Customer Services, Inc. (“MCCS”), Macy's West Stores, Inc., Bloomingdales, Inc., Department Stores National Bank ("DSNB") and Citibank, N.A.
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed December 8, 2014
10.7
Senior Executive Incentive Compensation Plan, as amended March 26, 2020 *
Exhibit 10.3 to May 2, 2020 Form 10-Q
Exhibit
Number
Description
Document if Incorporated by Reference
10.8
Form of Indemnification Agreement *
Exhibit 10.14 to the Registration Statement on Form 10 (File No. 1-10951), filed November 27, 1991
10.9
Executive Severance Plan, effective November 1, 2009, as revised and restated January 1, 2014 *
Exhibit 10.14 to the Company’s Annual Report on Form 10-K (File No. 1-13536) for the fiscal year ended February 1, 2014 (“2013 Form 10-K”)
10.9.1
Senior Executive Severance Plan effective as of April 1, 2018 *
Exhibit 10.9.1 to the Company's Annual Report on Form 10-K (File No. 1-13536) for the fiscal year ended February 3, 2018 ("2017 Form 10-K")
10.10
Form of Nonqualified Stock Option Agreement under the 2009 Omnibus Incentive Compensation Plan (for Executives and Key Employees) *
Exhibit 10.15.3 to the Company's Annual Report on Form 10-K (File No. 1-13536) for the fiscal year ended February 2, 2013 ("2012 Form 10-K")
10.10.1
Form of Nonqualified Stock Option Agreement under the Amended and Restated 2009 Omnibus Incentive Compensation Plan (for Executives and Key Employees) *
Exhibit 10.14.4 to 2014 Form 10-K
10.10.2
Form of Nonqualified Stock Option Agreement under the Amended and Restated 2009 Omnibus Incentive Compensation Plan (for Executives and Key Employees), as amended *
Exhibit 10.10.5 to 2017 Form 10-K
10.10.3
Form of Stock Option Terms and Conditions under the 2018 Equity and Incentive Compensation Plan *
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 4, 2019
10.11
Form of Time-Based Restricted Stock Agreement under the 2009 Omnibus Incentive Compensation Plan *
Exhibit 10.3 to the Company's Current Report on Form 8-K filed March 25, 2010
10.12
2019-2021 Performance-Based Restricted Stock Unit Terms and Conditions under the 2018 Equity and Incentive Compensation Plan *
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 4, 2019
10.12.1
2020-2022 Performance-Based Restricted Stock Unit Terms and Conditions under the 2018 Equity and Incentive Compensation Plan*
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended August 1, 2020
10.13
Form of Time-Based Restricted Stock Unit Agreement under the 2009 Omnibus Incentive Compensation Plan*
Exhibit 10.19 to 2012 Form 10-K
10.13.1
Form of Time-Based Restricted Stock Unit Agreement under the Amended and Restated 2009 Omnibus Incentive Compensation Plan *
Exhibit 10.18.1 to 2014 Form 10-K
10.13.2
Form of Time-Based Restricted Stock Unit Agreement under the Amended and Restated 2009 Omnibus Incentive Compensation Plan (with dividend equivalents) *
Exhibit 10.13.2 to 2017 Form 10-K
10.13.3
Form of Time-Based Restricted Stock Unit Agreement under the Amended and Restated 2009 Omnibus Incentive Compensation Plan, as amended *
Exhibit 10.13.3 to 2017 Form 10-K
10.13.4
Form of Time-Based Restricted Stock Unit Terms and Conditions under the 2018 Equity and Incentive Compensation Plan *
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 4, 2019
10.14
Supplementary Executive Retirement Plan *
Exhibit 10.29 to the Company’s Annual Report on Form 10-K (File No. 1-13536) for the fiscal year ended January 31, 2009 (“2008 Form 10-K”)
Exhibit
Number
Description
Document if Incorporated by Reference
10.14.1
First Amendment to the Supplementary Executive Retirement Plan effective January 1, 2012 *
Exhibit 10.21.1 to the Company's Annual Report on Form 10-K (File No. 1-13536) for the fiscal year ended January 28, 2012
10.14.2
Second Amendment to Supplementary Executive Retirement Plan effective January 1, 2012 *
Exhibit 10.20.2 to 2012 Form 10-K
10.14.3
Third Amendment to Supplementary Executive Retirement Plan effective December 31, 2013 *
Exhibit 10.20.3 to 2013 Form 10-K
10.15
Executive Deferred Compensation Plan *
Exhibit 10.30 to 2008 Form 10-K
10.15.1
First Amendment to Executive Deferred Compensation Plan effective December 31, 2013 *
Exhibit 10.21.1 to 2013 Form 10-K
10.16
Macy's, Inc. 401(k) Retirement Investment Plan (the "Plan") (amending and restating the Macy's, Inc. 401(k) Retirement Investment Plan) effective as of January 1, 2014 *
Exhibit 10.22 to 2013 Form 10-K
10.16.1
First Amendment to the Plan regarding matching contributions with respect to the Plan’s plan years beginning on and after January 1, 2014, effective January 1, 2014 *
Exhibit 10.21.1 to 2014 Form 10-K
10.16.2
Second Amendment to the Plan regarding marriage status, effective January 1, 2014 *
Exhibit 10.21.2 to 2014 Form 10-K
10.16.3
Third Amendment to the Plan regarding matching contributions with respect to the Plan’s plan years beginning on and after January 1, 2014 *
Exhibit 10.21.3 to 2014 Form 10-K
10.16.4
Fourth Amendment to the Plan regarding rules applicable to Puerto Rico participants effective January 1, 2011 (and for the Plan's plan years beginning on and after that date)*
Exhibit 10.17.4 to the Company's Annual Report on Form 10-K (File No. 1-13536) for the fiscal year ended January 30, 2016 ("2015 Form 10-K")
10.16.5
Fifth Amendment to the Plan regarding eligible associates to participate (pre-tax deferrals only, no match) immediately upon hire effective as of January 1, 2014*
Exhibit 10.17.5 to 2015 Form 10-K
10.17
Director Deferred Compensation Plan *
Exhibit 10.33 to 2008 Form 10-K
10.18
Macy's, Inc. Amended and Restated 2009 Omnibus Incentive Compensation Plan *
Appendix B to the Company's Proxy Statement dated April 2, 2014
10.19
Macy's, Inc. 2018 Equity and Incentive Compensation Plan *
Appendix B to the Company's Proxy Statement dated April 4, 2018
10.20
Macy's, Inc. Deferred Compensation Plan (Amended and restated effective as of August 1, 2018) *
Exhibit 10.18 to 2019 Form 10-K
10.21
Change in Control Plan, effective November 1, 2009, as revised and restated effective April 1, 2018 *
Exhibit 10.20 to 2017 Form 10-K
10.22
Time Sharing Agreement between Macy's, Inc. and Jeff Gennette, dated June 14, 2017 *
Exhibit 10.21.1 to 2017 Form 10-K
10.23
Advisory Agreement dated as of April 6, 2020 by and between Macy’s, Inc. and Paula A. Price*
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 7, 2020
Subsidiaries
Exhibit
Number
Description
Document if Incorporated by Reference
List of Subsidiary Guarantors
Consent of KPMG LLP
Powers of Attorney
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
32.1
Certification by Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act
32.2
Certification by Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act
The following financial statements from Macy's, Inc.’s Annual Report on Form 10-K for the year ended January 30, 2021, filed March 29, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements, tagged as block of text and in detail.
Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)
+
Portions of the exhibit have been omitted pursuant to a request for confidential treatment. The confidential portions have been provided to the SEC.
*
Constitutes a compensatory plan or arrangement.