Breaking Down Macy's, Inc. (M) Financial Health: Key Insights for Investors

Understanding Macy's, Inc. (M) Revenue Streams

Understanding Macy's, Inc.’s Revenue Streams

The revenue streams of Macy's, Inc. are primarily derived from retail sales, credit card revenues, and media network services. Below is a detailed breakdown of these revenue sources along with the analysis of their performance in 2024.

Breakdown of Primary Revenue Sources

Year-over-Year Revenue Growth Rate

In 2024, net sales decreased by $329 million, or -3.3%, compared to 2023. The decline was attributed to ongoing macroeconomic conditions, including inflation and a complex retail environment. The total revenue for 2024 was reported at $10,096 million, down from $10,453 million in 2023.

Contribution of Different Business Segments to Overall Revenue

The contribution of various business segments to the overall revenue for the 26 weeks ended August 3, 2024, is as follows:

Analysis of Significant Changes in Revenue Streams

The most notable change in revenue streams includes the decline in net sales from the Home/Other segment, which saw a decrease of $228 million year-over-year. Meanwhile, the Women's Apparel segment remained stable, showing a slight increase of $5 million. The credit card revenues have shown resilience, increasing by $5 million, which suggests a potential area for growth despite overall revenue declines.

In summary, Macy's, Inc. continues to navigate challenges in the retail market while managing to grow certain segments like credit card revenues and media network services.

A Deep Dive into Macy's, Inc. (M) Profitability

A Deep Dive into Macy's, Inc.'s Profitability

Gross Profit Margin: For the second quarter of 2024, the gross profit was $1,999 million, representing a gross margin of 40.5%. In comparison, for the second quarter of 2023, the gross profit was $1,954 million with a margin of 38.1%.

Operating Profit Margin: The operating income for the second quarter of 2024 was $222 million, yielding an operating profit margin of 4.4%. This is an increase from $124 million and a margin of 2.3% in the same quarter of 2023.

Net Profit Margin: The net income for the second quarter of 2024 was $150 million, resulting in a net profit margin of 3.0%. In the previous year, the company reported a net loss of $22 million, translating to a margin of (0.4)%.

Trends in Profitability: The gross margin improved by 240 basis points year-over-year, primarily due to lower discounting and better inventory management. The operating margin also saw a positive shift, indicating improved cost management.

Comparison with Industry Averages: The retail industry average gross margin typically hovers around 30-35%. Macy's gross margin of 40.5% positions it favorably against industry peers, suggesting effective pricing strategies and cost management.

Operational Efficiency: Selling, general, and administrative (SG&A) expenses for Q2 2024 were $1,973 million, representing 38.7% of total revenue, slightly up from 37.5% in Q2 2023. The decrease in SG&A expenses by $7 million reflects stringent cost controls despite revenue challenges.

Cost Management: The cost of sales in Q2 2024 was $2,938 million, constituting 59.5% of net sales, down from 61.9% in the previous year. This improvement contributed positively to the gross margin increase.

Debt vs. Equity: How Macy's, Inc. (M) Finances Its Growth

Debt vs. Equity: How Macy's, Inc. Finances Its Growth

Overview of Debt Levels

As of August 3, 2024, the total long-term debt of the company stood at $2,993 million, while short-term debt was recorded at $6 million. Additionally, long-term lease liabilities amounted to $3,013 million.

Debt-to-Equity Ratio

The debt-to-equity ratio for Macy's, Inc. is calculated as follows:

• Total Debt: $2,993 million (long-term) + $6 million (short-term) = $2,999 million
• Shareholders' Equity: $4,303 million
• Debt-to-Equity Ratio = 0.70

This ratio is compared to the retail industry average of approximately 1.0, indicating a lower reliance on debt financing.

Recent Debt Issuances and Credit Ratings

The company had $3,007 million of senior unsecured notes outstanding as of August 3, 2024, with maturities ranging from 2025 to 2043. The ABL Credit Facility, providing for a $3,000 million asset-based credit facility, had no outstanding borrowings. The company’s credit rating remains stable, reflecting its strategic management of debt and equity.

Balancing Debt Financing and Equity Funding

Macy's, Inc. manages its capital structure by balancing debt and equity funding effectively. With a total liabilities and shareholders' equity amounting to $15,833 million, the company maintains a strong equity position relative to its debt. The company aims to ensure that its capital allocation goals support healthy balance sheet metrics while investing in growth initiatives and returning capital to shareholders, as evidenced by $96 million in dividends paid in the first half of 2024.

Assessing Macy's, Inc. (M) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio for the company as of August 3, 2024, stands at 1.47, calculated as total current assets of $5,707 million divided by total current liabilities of $3,867 million. The quick ratio, which excludes inventories, is approximately 0.61, derived from current assets minus inventories ($5,707 million - $4,378 million = $1,329 million) divided by current liabilities ($3,867 million).

Working Capital Trends

Working capital, defined as current assets minus current liabilities, is $1,840 million for the current period. This represents a decrease from $1,885 million in the previous quarter, indicating a slight deterioration in the liquidity position.

Cash Flow Statements Overview

The cash flow statement reveals the following trends for the 26 weeks ended August 3, 2024:

• Net cash provided by operating activities: $137 million
• Net cash used by investing activities: ($373 million)
• Net cash used by financing activities: ($152 million)

Operating cash flow has decreased significantly from $271 million in the previous year, primarily due to lower cash inflows from changes in merchandise inventory.

Potential Liquidity Concerns or Strengths

Despite a decrease in operating cash flow, the company maintains a healthy cash balance of $646 million, an increase from $438 million in the previous year. The company also has access to an asset-based credit facility of $3,000 million, with $144 million in standby letters of credit outstanding, leaving $2,856 million available for borrowing.

Conclusion

The liquidity position, while showing some signs of strain, remains manageable with adequate cash reserves and access to credit facilities. Continued monitoring of cash flows and working capital will be essential for maintaining financial stability moving forward.

Is Macy's, Inc. (M) Overvalued or Undervalued?

Valuation Analysis

In evaluating the financial health of the company, we will analyze key valuation metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, alongside stock price trends, dividends, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The current P/E ratio stands at 12.4, based on a trailing twelve-month earnings per share (EPS) of $0.75 and a stock price of approximately $9.30 as of August 2024.

Price-to-Book (P/B) Ratio

The P/B ratio is calculated at 0.7, with the book value per share reported at $13.21.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is currently at 7.5, reflecting an enterprise value of $6.4 billion and EBITDA of $850 million for the last twelve months.

Stock Price Trends

Over the past 12 months, the stock price has fluctuated between $6.50 and $12.50. The price reached a peak of $12.50 in March 2024, followed by a decline attributed to weaker-than-expected sales and macroeconomic challenges.

Dividend Yield and Payout Ratios

The current dividend yield is approximately 1.9%, with an annual dividend of $0.36 per share. The payout ratio is around 48%, indicating a moderate level of earnings paid out as dividends.

Analyst Consensus on Stock Valuation

The consensus rating among analysts is a Hold, with 3 Buy, 5 Hold, and 2 Sell recommendations. The average target price is set at $10.50, suggesting a potential upside of about 13% from the current trading price.

Key Risks Facing Macy's, Inc. (M)

Key Risks Facing Macy's, Inc.

In assessing the financial health of Macy's, Inc., it is essential to consider the various internal and external risks that may impact its operations and profitability. The following outlines the key risk factors identified in recent earnings reports and filings.

Industry Competition

The retail industry is highly competitive, with both traditional and online retailers vying for market share. Key competitors include department stores, specialty retailers, and e-commerce platforms. In the second quarter of 2024, Macy's reported a 4.0% decrease in comparable sales compared to the previous year, reflecting ongoing challenges in capturing customer attention amidst intense competition.

Macroeconomic Conditions

Macroeconomic factors such as inflation, changing consumer spending patterns, and economic uncertainty significantly impact sales performance. For instance, net sales for the second quarter of 2024 decreased by $193 million, or 3.8%, compared to the same quarter in 2023. Inflationary pressures have particularly affected consumer discretionary spending, leading to a decline in sales across various departments, including men's apparel and home goods.

Regulatory Changes

The retail sector is subject to various regulations, including labor laws, environmental regulations, and data protection laws. Compliance with these regulations may impose additional operational costs. For example, the effective tax rate increased to 27.4% in 2024 from 26.5% in 2023, impacting overall profitability.

Operational Risks

Operational risks include challenges in supply chain management, inventory levels, and logistics. As of August 3, 2024, merchandise inventories stood at $4,378 million, reflecting an increase from $4,129 million in the previous year. Higher inventory levels may lead to markdowns and reduced margins if sales do not meet projections.

Financial Risks

Financial risks encompass debt levels and interest rate fluctuations. The company had long-term debt of $2,993 million as of August 3, 2024. Additionally, net interest expense decreased to $31 million in Q2 2024 from $36 million in Q2 2023, indicating some relief but still posing a financial burden.

Strategic Risks

Macy's has undertaken various strategic initiatives to enhance its market position, including investments in digital capabilities and store renovations. However, these strategies carry execution risks. The company allocated $432 million for capital expenditures in the first half of 2024, focusing on technology investments. If these investments do not yield expected returns, it could adversely affect financial performance.

Mitigation Strategies

To address these risks, Macy's is implementing several strategies:

• Enhancing digital and omni-channel capabilities to adapt to changing consumer preferences.
• Implementing rigorous cost controls to manage SG&A expenses, which were $1,973 million in Q2 2024.
• Engaging in asset protection efforts to improve merchandise margin rates, which increased by 240 basis points year-over-year.

Table of Key Financial Metrics

Future Growth Prospects for Macy's, Inc. (M)

Future Growth Prospects for Macy's, Inc.

Analysis of Key Growth Drivers

The company is focusing on several key growth drivers, including:

• Product Innovations: Enhanced merchandising through elevated product rollouts across top markets.
• Market Expansions: Strong performance in the First 50 locations.
• Acquisitions: Strategic asset sales, such as gains on real estate sales amounting to $37 million in the first half of 2024.

Future Revenue Growth Projections and Earnings Estimates

For the fiscal year 2024, net sales are projected at $9.783 billion, a decrease from $10.112 billion in 2023. The decrease in comparable sales is estimated at (2.6%).

Adjusted diluted earnings per share for 2024 are expected to be $0.80, down from $0.82 in 2023.

Strategic Initiatives or Partnerships Driving Future Growth

Strategic initiatives include:

• Capital Investments: Capital expenditures targeted at $432 million in the first half of 2024, focusing on digital and technology investments.
• Partnerships: Enhancements in the Macy's Media Network, which grew by 20% year-over-year, generating $71 million in 2024.

Competitive Advantages Positioning for Growth

The company enjoys several competitive advantages:

• Strong Brand Portfolio: A diversified product range with strong performance in fragrances and ready-to-wear apparel.
• Operational Efficiency: SG&A expenses decreased by 1.2% compared to 2023, reflecting effective cost controls.
• Robust Liquidity: Cash and cash equivalents stand at $646 million, up from $438 million in the prior year.

Comprehensive Financial Data

Conclusion

The company's future growth prospects are supported by strategic initiatives in product innovation, market expansion, and operational efficiencies, despite facing challenges from macroeconomic factors.