This summary is based on the third quarter fiscal 2008 earnings call conducted by Macy’s Inc. (M) on November 12, 2008.
Karen M. Hoguet
Key Investor Issues:
- Year-to-date sales dipped 4.3% to $16.958 billion versus $17.719 billion in the year ago period.
- Q3 net loss of $44 million compares negatively to net income of $33 million in Q3 of 2007.
- Q4 EPS are forecast to be $1.10 to $1.30, excluding one-time division consolidation costs.
Third Quarter Financial Highlights:
The management reported that sales in the third quarter were $5.493 billion.
- On a comparable store basis sales were down 6% in the quarter.
- The slowdown was across all categories of business and geographies.
- The most significant negative trend change in the quarter happened in the furniture and mattress businesses.
- During the quarter, the company experienced resurgence in sales of moderate goods led by strength in private brands like Karen Scott, Style&Co, American Rag and Green Dog.
Geographically, third quarter business was strongest in the Northeast and Texas.
- New York City was still the strongest market but it did soften in the second half of the quarter.
- The weakest geographies continued to be the West Coast and Florida.
- The management reported improved performance in many of the My Macy''s districts, including Chicago, Pittsburgh, and Columbus.
The third quarter gross margin was 39.5%, an increase of 20 basis points versus last year.
- The management commented that last year in the third quarter, gross margin dropped a full point.
- The company is taking more markdowns than planned to keep the inventory current.
- Inventory at the end of October was down approximately 2.5% on a comp store basis.
The management reported quarterly loss from continuing operations of 7 cents per share compared with EPS of 35 cents in the year ago period.
- The results for the first three quarters in 2008 include tow unusual items that negatively impacted EPS by 27 cents.
- Excluding these items, the company earned 20 cents per share from continuing operations in the first three quarters of 2008.
- The first unusual item relates to the consolidation of the company’s three divisions which is expected to save about $100 million per year effective 2009.
- In the first three quarters of the year, the company booked consolidation costs of $129 million.
- The year-to-date2008 results also include non-cash asset impairment charges of $50 million related to private brand trade names acquired in the merger with The May Department Stores Company in 2005.
- In the first three quarters of 2007, the company earned 55 cents per share from continuing operations, excluding May Company merger integration costs of $150 million.
Quarterly operating income totaled $68 million or 1.2% of sales versus $183 million or 3.1% of sales for the same period last year.
- Third quarter operating income included $16 million in division consolidation costs.
- Excluding these costs, operating income for the quarter was $84 million or 1.5% of sales.
- Q3 of 2007 operating income included $17 million in May Company integration costs.
- excluding these costs, operating income for the third quarter last year was $200 million or 3.4% of sales.
- Year-to-date, operating income totaled $357 million or 2.1% of sales versus $641 million or 3.6% of sales for the equivalent period last year.
- The year-to-date operating income includes $129 million in division consolidation costs and $500 million in asset impairment charges.
- Excluding these items, operating income in the first three quarters of 2008 was $536 million or 3.2% of sales.
- The operating income for the first three quarters of 2007 was $791 million or 4.5% of sales, excluding $150 million in May Company integration costs.
SG&A in the quarter was $2.085 billion, or 38% of sales.
- This represents a decrease of $36.0 million, or 1.7% versus last year.
- As a result of the sales drop, SG&A as a percent of sales increased 210 basis points.
- The company was in a position to reduce expense dollars versus last year in spite of higher expenses for the infrastructure driving the multi-channel strategy through the Internet and lower credit income.
- The company also benefited from lower retirement expense due to reduced headcount from earlier consolidation, the impact of the lower stock price on stock-based compensation expense and from lower marketing expense in the quarter.
- Interest expense was $143.0 million and the company reported a tax benefit of $31.0 million.
Net cash provided by continuing operating activities was $317.0 million, an increase from $285.0 million last year.
- Cash used by investing activities was $606.0 million versus last year’s $618.0 million.
- Last year the cash from invested activities benefitted from proceeds from both the disposition of After Hours and the duplicate May Company locations.
- The management reported that between these two categories of asset disposition, the company generated $137 million less cash this than last year.
Capital spending in the year-to-date was $131.0 million lower than last year.