Macy’s Inc., in line with a pre-announcement, reported a steep loss in the first quarter but said it expects sales to gradually improve over the remainder of the year as coronavirus lockdown orders ease.
As previously reported, the company had net sales of $3.017 billion, down 45.2 percent from $5.5 billion a year ago.
Nearly all of the company’s stores have now reopened, including stores in the major metropolitan regions. Stores continued to perform ahead of expectations through May and June, and the company’s digital business sales remained strong across geographies. The company continues to expect a gradual sales recovery.
“The first quarter of 2020 was challenging for the country, the industry and Macy’s, Inc. While our stores are re-opened, we expect that the COVID-19 pandemic will continue to impact the country for the remainder of the year. We do not anticipate another full shutdown, but we are staying flexible and are prepared to address increases in cases on a regional level,” said Jeff Gennette, chairman and chief executive officer of Macy’s, Inc. “We are meeting our customers how and where they are shopping and have enhanced our fulfillment options and health precautions to ensure a safe and welcoming shopping experience.”
“While we continue to see challenges ahead, we’ve taken the necessary actions to stabilize our business and give us financial flexibility. We are confident we have the right strategy and plans in place to navigate the shifting retail landscape,” Gennette continued.
Primarily as a result of the COVID-19 pandemic, the company’s long-term projections and market capitalization changed, requiring interim impairment assessments for its goodwill and long-lived assets. As a result of these assessments, the company recognized pre-tax, non-cash goodwill and long-lived asset impairment charges of $3.1 billion and $80 million, respectively, during the 13 weeks ended May 2, 2020. The company is now reporting a Diluted loss per share of $11.53 and Adjusted Diluted loss per share of $2.03.
Highlights Of The First Quarter
- Sales reached $3.02 billion, down 45.2 percent from $5.5 billion a year ago;
- The net loss was $3.58 billion, or $11.53, against earnings of $136 million, or 44 cents, a year ago;
- Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA) showed a loss of $3.87 billion against income of $446 million;
- Gross margins eroded to 17.1 percent from 38.2 percent;
- Selling, general and administrative expenses increased to 52.9 percent of sales from 38.4 percent;
- Adjusted net income was a loss of $630 million, or $2.03, against earnings of $137 million, or 44 cents, a year ago; and
- Adjusted earnings before interest, taxes, depreciation and amortization was a loss of $689 million against earnings of $447 million.
Adjusted results in the latest period exclude the pre-tax impact of the non-cash goodwill and long-lived asset impairment charges of $3.1 billion and $80 million, respectively, as well as the related tax impact. Adjusted results also include the benefit of tax law changes resulting from the CARES Act.
On June 9, Macy’s said it expected a diluted loss per share of $2.10 before impairments and adjusted diluted loss per share of $2.03 in the first quarter. Sales were expected to reach $3.02 billion.
On June 29, Macy’s announced a restructuring to aligh its cost base with anticipated near-term sales as the business recovers from the impact of the COVID-19 pandemic. The company plans to reduce corporate and management headcount by approximately 3,900. Additionally, Macy’s, Inc. has reduced staffing across its store’s portfolio, supply chain and customer support network, which it will adjust as sales recover.
The company expects the actions announced to generate expense savings of approximately $365 million in fiscal 2020 and approximately $630 million on an annualized basis. These savings will be additive to the anticipated $1.5 billion in annual expense savings announced in February, which the company expects to fully realize by year-end 2022.
For fiscal 2020, the company expects pre-tax costs of approximately $180 million for the restructuring activities, the majority of which will be recorded in the second quarter and all of which will be in cash.
First Quarter Asset Sale Gains
Asset sale gains for the first quarter of 2020 totaled $16 million pre-tax, or $12 million after-tax and $0.04 per diluted share. This compares to the first quarter of 2019 when asset sale gains totaled $43 million pre-tax, or $31 million after-tax and $0.10 per diluted share.
The company previously withdrew its 2020 sales and earnings guidance and is not currently providing an updated outlook.
Photo courtesy Macy’s