This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Macy’s Inc. (M: chart) on February 26, 2008.
Chief Financial Officer, Executive Vice President: Karen Hoguet
Key Investors Issues
- Earnings per share dropped to $1.73 per share versus $1.40 per share in last year.
- Quarterly revenue dropped 6% over prior year to $8.59 billion.
- During Q4, the firm spent approximately $320 million to buy back 13 million shares.
- For fiscal 2007, the earnings were $893 million, on revenue of $26.3 billion.
Fourth Quarter Fiscal 2007 Financial Highlights
Macy''s reported earnings from continuing operations of $1.73 per share for the quarter.
This compares with diluted earnings per share from continuing operations of $1.45 for the 14-week fourth quarter last year. Excluding May Company merger integration costs of $69 million, fourth quarter earnings per share from continuing operations were $1.83. Included in 2007 fourth quarter is a non-cash tax credit of $78 million or 18 cents per share from the settlement of a federal income tax examination, primarily attributable to losses related to the disposition of a former subsidiary. Also excluding the tax settlement, fourth quarter diluted earnings per share from continuing operations were $1.65.
Sales in the quarter totaled $8.594 billion, a decrease of 6.2% compared to total sales of $9.159 billion in the prior year.
On a same-store basis, the company''s fourth quarter sales were down 2%. The revenue decline is due to one lost week in the quarter this year, the drop in same store sales as well as closed store. While disappointing, the firm’s sales performance compared well to its peers in the quarter
In the fourth quarter, 12 Macy''s stores were closed. In addition, three Macy''s stores were closed temporarily while a new Macy''s opened in Peabody, MA.
During the fourth quarter, the SG&A in dollars was $2.282 billion, down 1.3% from last year.
While that is lower in dollars than expected, the rate was more than a point above last year, primarily due to the weak sales. In addition to the low sales, this increase in rate was due to higher depreciation expense, higher retirement expense and a higher investment in the firm’s online business.
Depreciation and amortization was $327 million in the quarter.
This was slightly below the expected $335 million but above last year''s $320 million. This leads to operating income, excluding the May integration cost of a $1.291 billion. As a percent of sales, the operating income rate was 15% which is down 0.7 points versus last year.
- Recurring gross margin in the fourth quarter was 41.6%, up 70 basis points versus last year.
- Interest expense was a $136 million and tax expenses $336 million, benefiting from the $78 million non-cash settlement for returns from prior year.
- Average diluted share count for the quarter was 435 million shares.
- During the fourth quarter, the firm spent approximately $320 million to buy back 13 million shares at an average price of $24.50. The firm has approximately $852 million of its authorization remaining.
The firm made the announcement a few weeks ago about its localization initiative in division consolidation.
The objective of these changes is to both accelerate its sales growth and also to increase its profitability. The key is to improve its execution at the local level. The firm is changing the field organization and the geographies currently served by Macy''s North, Macy''s Midwest and Macy''s Northwest to help to deliver a more localized experience to the customer.
The key components of this structure are the following:
- A shorter span of control for store supervision; 10 stores instead of 16 to 23 today.
- More focus on tailoring assortments by location. This means vendors, sizes, colors, etcetera. People in the field will now have more input into this process.
- More resources devoted both to store merchandising and also to product knowledge training. This should make the product look much more interesting on the selling floors and should better equip the firm’s associates to help customers.
- The firm intends to reinvest some of the savings to provide better coverage on the selling floor.
The company is funding these changes through some of the savings from the division consolidations and net of these investments, it still expects to save $100 million on an annual basis or $60 million in the fall of this year. Additionally, the firm expects these consolidations will enable it to make big merchandising decisions faster and also will simplify its relationships with its vendors. Improving its collaboration with vendors is very important to the firm and figuring out how to do this best will be a priority in 2008.
