This summary is based on the second quarter fiscal 2008 earnings call conducted by Macy’s Inc. (M) on August 13, 2008.
Management:
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Chief Financial Officer, Executive Vice President: Karen M. Hoguet
Key Investors Issues
- Net income was $73 million or 17 cents a share relatively flat compared to last year’s $74 million or 16 cents a share.
- Sales were $5.718 billion, down 3% from $5.89 billion last year.
- The firm generating $592 million in net cash from continuing operating activities.
Half Year Highlights:
- Sales totaled $11.465 billion, down 2.9% from $11.8 billion in 2007.
- Net income dropped 87% to $14 million or 3 cents a share from $110 million or 24 cents a share in the prior year on divisional consolidation costs.
Second Quarter Highlights
Sales were $5.718 billion, down 3% from $5.89 billion last year and on a comp-store basis, sales were down 2.1%, a little stronger than last quarter’s 2.6% decline.
- Geographically, sales were strongest in the Northeast and Texas and they were weakest in the West and the upper Midwest.
- Bloomingdale’s, Bloomingdales.com and macys.com all continued to have very strong growth in the quarter.
- The strongest categories in the quarter were jewelry, cosmetics, shoes, men’s furnishings, men’s collections, housewares, and mattresses.
- The weaker categories were ready-to-wear, intimate apparel, men’s tailored clothing, men’s classification sportswear, children’s, textiles, and tabletop.
Sales were hurt by the lower levels of clearance merchandise on the floor this year relative to a year ago and while this did hurt performance, it was a positive for gross margin.
- Gross margin was 41.5%, up a full point from last year, primarily a function of managing inventories well and the lower levels of clearance inventory.
- The firm ended the second quarter with inventory 3.7% below last year.
- SG&A excluding consolidation expense and asset impairment charges was $2.037 billion, or 35.6% of sales as SG&A dollars benefited from the consolidation related expense savings and lower depreciation.
- These were offset by lower income from credit due to higher bad debt and write-offs and higher expenses needed to support our high growth .com businesses.
The division consolidation costs were $26 million, or $113 million year-to-date and the firm is still tracking to the $150 million annual budget for the division consolidation costs.
- It also booked a $50 million non-cash asset impairment charge related to the Karen Scott and John Ashford private brand names.
- Operating income was $259 million, up from $250 million last year, but as a percent of sales, operating income excluding those same items was 5.9%, which was flat with last year.
- Interest expense was $138 million.
- Net income was $73 million or 17 cents a share relatively flat compared to last year’s $74 million or 16 cents a share on sluggish revenue performance.
Year-to-date cash flow has been strong, in spite of the weak sales, with the firm generating $592 million in net cash from continuing operating activities, as compared to $412 million a year ago.
- Cash used by investing activities was about the same this year versus last year, but keep in mind that last year included the disposition of after hours and a higher-than-normal asset sale level due to the disposition of the May company duplicate stores.
- Macy’s generated cash of $430 million from continuing financing activities as compared to a net use of over $1 billion last year and ended with cash and cash equivalents of $1.293 billion, as compared to $249 million last year.
Update on My Macy’s:
- The new organizations started in their new positions in early May and therefore, during the second quarter most of the time has been spent for these new organizations to be trained in their new jobs and visiting the stores.
- The firm has lots of people in new positions and therefore is putting a great deal of focus on training and on communication.
- It has rolled out a terrific communication tool for use of the districts and the central merchandising organizations.
- The firm announced the retention of the customer insight firm, dunnhumby, to help analyze sales data, develop customer segmentation models, and apply the learnings across the nationwide Macy''s business.
Fiscal 2008 Outlook:
- The firm continues to be on track towards the low end of the original guidance, an annual comp store decline of approximately 1% and an EPS excluding one-time items of approximately $1.85.
- This implies a comp store sales trend for the fall that is flattish, and while this represents improvement versus the spring trend on a one-year basis, the improvement is modest on a multi-year basis.
Key questions and answers from the second quarter earnings call conducted by Macy’s Inc. (M) on August 13, 2008.
Charles Grom (J.P. Morgan):
How did the 2.1 trend throughout the second quarter and then how are sales so far in August?
Karen M. Hoguet: We had talked about May/June being down 1.9, so obviously on an absolute basis, July was weaker if we got to the 2.1 for the quarter. But again, our sales had been trending as we had expected all quarter and have continued so in the beginning of August.
