UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended ~~November 3, 2018~~May 4, 2019


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-13536



Incorporated in Delaware		I.R.S. Employer Identification No.
		13-3324058

~~7 West Seventh Street~~



7 West Seventh Street Cincinnati, Ohio 45202 ~~(513) 579-7000~~ ~~and~~ ~~151 West 34th Street~~	and	151 West 34th Street New York, New York 10001
(513) 579-7000		(212) 494-1602

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	M	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ý	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Outstanding at ~~December~~June 1, ~~2018~~2019
Common Stock, ~~$0.01~~$.01 par value per share		~~307,467,240~~308,871,513 shares

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MACY’S, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(millions, except per share figures)



	13 Weeks Ended						39 Weeks Ended						13 Weeks Ended
	November 3, 2018			October 28, 2017			November 3, 2018			October 28, 2017			May 4, 2019			May 5, 2018
Net sales	$	5,404		$	5,281		$	16,516		$	16,267		$	5,504		$	5,541
Credit card revenues, net	185			145			528			473			172			157

Cost of sales	(3,226		)	(3,152		)	(9,927		)	(9,858		)	(3,403		)	(3,382		)
Selling, general and administrative expenses	(2,255		)	(2,188		)	(6,501		)	(6,406		)	(2,112		)	(2,083		)
Gains on sale of real estate	42			65			111			176			43			24
Impairment, restructuring and other costs	(3		)	(33		)	(39		)	(33		)
Impairment and other costs													(1		)	(19		)
Operating income	147			118			688			619			203			238
Benefit plan income, net	9			15			31			42			7			11
Settlement charges	(23		)	(22		)	(73		)	(73		)
Interest expense	(64		)	(76		)	(204		)	(244		)	(54		)	(71		)
Losses on early retirement of debt	—			—			(5		)	(1		)
Interest income	5			2			17			7			7			5
Income before income taxes	74			37			454			350			163			183
Federal, state and local income tax expense	(12		)	(10		)	(96		)	(138		)	(27		)	(52		)
Net income	62			27			358			212			136			131
Net loss attributable to noncontrolling interest	—			3			10			7			—			8
Net income attributable to Macy's, Inc. shareholders	$	62		$	30		$	368		$	219		$	136		$	139
Basic earnings per share attributable to Macy's, Inc. shareholders	$	0.20		$	0.10		$	1.20		$	0.72		$	0.44		$	0.45
Diluted earnings per share attributable to Macy's, Inc. shareholders	$	0.20		$	0.10		$	1.18		$	0.71		$	0.44		$	0.45

The accompanying notes are an integral part of these Consolidated Financial Statements.

MACY’S, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(millions)

13 Weeks Ended 39 Weeks Ended
November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017
Net income $ 62
$ 27
$ 358
$ 212
Other comprehensive income (loss):
Actuarial gain (loss) on post employment and postretirement benefit plans, before tax (164 ) 10
(194 ) 57
Reclassifications to net income:
Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax 7
8
25
26
Settlement charges, before tax 23
22
73
73
Tax effect related to items of other comprehensive income (loss) 35
(15 ) 24
(60 )
Total other comprehensive income (loss), net of tax effect (99 ) 25
(72 ) 96
Comprehensive income (loss) (37 ) 52
286
308
Comprehensive loss attributable to noncontrolling interest —
3
10
7
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders $ (37 ) $ 55
$ 296
$ 315




	13 Weeks Ended
	May 4, 2019			May 5, 2018
Net income	$	136		$	131
Reclassifications to net income:
Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax	8			9
Tax effect related to items of other comprehensive income	(2		)	(2		)
Total other comprehensive income, net of tax effect	6			7
Comprehensive income	142			138
Comprehensive loss attributable to noncontrolling interest	—			8
Comprehensive income attributable to Macy's, Inc. shareholders	$	142		$	146

The accompanying notes are an integral part of these Consolidated Financial Statements.

MACY’S, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(millions)



	November 3, 2018			February 3, 2018			October 28, 2017			May 4, 2019		February 2, 2019		May 5, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	736		$	1,455		$	534		$	737	$	1,162	$	1,531
Receivables	180			363			219			237		400		250
Merchandise inventories	7,147			5,178			7,065			5,498		5,263		5,291
Income tax receivable	10			—			—
Prepaid expenses and other current assets	594			650			610			633		620		638
Total Current Assets	8,667			7,646			8,428			7,105		7,445		7,710
Property and Equipment - net of accumulated depreciation and amortization of $5,084, $4,610 and $5,330	6,572			6,672			6,742
Property and Equipment - net of accumulated depreciation and amortization of $4,621, $4,495 and $4,765										6,499		6,637		6,575
Right of Use Assets										2,631		—		—
Goodwill	3,908			3,897			3,897			3,908		3,908		3,908
Other Intangible Assets – net	481			488			491			441		478		486
Other Assets	733			880			835			712		726		889
Total Assets	$	20,361		$	19,583		$	20,393		$	21,296	$	19,194	$	19,568
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	65		$	22		$	22		$	41	$	43	$	25
Merchandise accounts payable	3,381			1,590			3,173			1,950		1,655		2,045
Accounts payable and accrued liabilities	2,998			3,271			3,257			2,846		3,366		2,695
Income taxes	—			296			34			182		168		312
Total Current Liabilities	6,444			5,179			6,486			5,019		5,232		5,077
Long-Term Debt	5,469			5,861			6,297			4,680		4,708		5,857
Long-Term Lease Liabilities										2,823		—		—
Deferred Income Taxes	1,185			1,148			1,586			1,193		1,238		1,169
Other Liabilities	1,618			1,662			1,750			1,258		1,580		1,664
Shareholders' Equity:
Macy's, Inc.	5,667			5,745			4,282			6,323		6,436		5,821
Noncontrolling interest	(22		)	(12		)	(8		)	—		—		(20		)
Total Shareholders’ Equity	5,645			5,733			4,274			6,323		6,436		5,801
Total Liabilities and Shareholders’ Equity	$	20,361		$	19,583		$	20,393		$	21,296	$	19,194	$	19,568

The accompanying notes are an integral part of these Consolidated Financial Statements.

MACY’S, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

(millions)




	Common Stock		Additional Paid-In Capital			Accumulated Equity			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance at February 2, 2019	$	3	$	652		$	8,050		$	(1,318	)	$	(951	)	$	6,436
Cumulative-effect adjustment (a)						(158		)							(158		)
Net income						136									136
Other comprehensive income												6			6
Common stock dividends ($0.3775 per share)						(117		)							(117		)
Stock-based compensation expense			14												14
Stock issued under stock plans			(60		)				66						6
Balance at May 4, 2019	$	3	$	606		$	7,911		$	(1,252	)	$	(945	)	$	6,323

(a) Represents the cumulative-effect adjustment to retained earnings for the adoption of Accounting Standards Update 2016-02 (ASU-2016-02), Leases (Topic 842), on February 3, 2019.




	Common Stock		Additional Paid-In Capital			Accumulated Equity			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Macy's, Inc. Shareholders’ Equity			Non-controlling Interest			Total Shareholders' Equity
Balance at February 3, 2018	$	3	$	676		$	7,246		$	(1,456	)	$	(724	)	$	5,745		$	(12	)	$	5,733
Net income (loss)						139									139			(8		)	131
Other comprehensive income												7			7						7
Common stock dividends ($0.3775 per share)						(116		)							(116		)				(116		)
Stock-based compensation expense			17												17						17
Stock issued under stock plans			(51		)				80						29						29
Stranded tax costs (b)						164						(164		)	—						—
Balance at May 5, 2018	$	3	$	642		$	7,433		$	(1,376	)	$	(881	)	$	5,821		$	(20	)	$	5,801

(b) Represents the reclassification of stranded tax effects to retained earnings as a result of U.S. federal tax reform.

The accompanying notes are an integral part of these Consolidated Financial Statements.

MACY’S, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(millions)



	39 Weeks Ended						13 Weeks Ended
	November 3, 2018			October 28, 2017			May 4, 2019			May 5, 2018
Cash flows from operating activities:
Net income	$	358		$	212		$	136		$	131
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment, restructuring and other costs	39			33
Settlement charges	73			73
Impairment and other costs							1			19
Depreciation and amortization	718			741			236			235
Stock-based compensation expense	48			46			14			17
Gains on sale of real estate	(111		)	(176		)	(43		)	(24		)
Amortization of financing costs and premium on acquired debt	(5		)	(10		)
Deferred income taxes							7			19
Benefit plans							8			9
Changes in assets and liabilities:
Decrease in receivables	163			274			163			105
Increase in merchandise inventories	(1,969		)	(1,665		)	(235		)	(115		)
Decrease in prepaid expenses and other current assets	16			34
Increase in prepaid expenses and other current assets							(6		)	(20		)
Increase in merchandise accounts payable	1,664			1,630			247			415
Decrease in accounts payable, accrued liabilities and other items not separately identified	(196		)	(412		)
Decrease in current income taxes	(301		)	(321		)
Increase in deferred income taxes	62			47
Decrease in accounts payable and accrued liabilities							(516		)	(453		)
Increase in current income taxes							8			25
Change in other assets and liabilities not separately identified	(130		)	(107		)	(58		)	(41		)
Net cash provided by operating activities	429			399
Net cash provided (used) by operating activities							(38		)	322
Cash flows from investing activities:
Purchase of property and equipment	(468		)	(359		)	(204		)	(132		)
Additions to capitalized software	(209		)	(191		)
Capitalized software							(60		)	(58		)
Disposition of property and equipment	121			212			34			23
Other, net	7			9			(7		)	11
Net cash used by investing activities	(549		)	(329		)	(237		)	(156		)
Cash flows from financing activities:
Debt repaid	(361		)	(564		)	(3		)	(3		)
Dividends paid	(347		)	(346		)	(116		)	(116		)
Increase in outstanding checks	44			80
Acquisition of treasury stock	—			(1		)
Decrease in outstanding checks							(45		)	(10		)
Issuance of common stock	41			3			6			28
Proceeds from noncontrolling interest	7			12			—			2
Net cash used by financing activities	(616		)	(816		)	(158		)	(99		)
Net decrease in cash, cash equivalents and restricted cash	(736		)	(746		)
Net increase (decrease) in cash, cash equivalents and restricted cash							(433		)	67
Cash, cash equivalents and restricted cash beginning of period	1,513			1,334			1,248			1,513
Cash, cash equivalents and restricted cash end of period	$	777		$	588		$	815		$	1,580
Supplemental cash flow information:
Interest paid	$	213		$	251		$	46		$	65
Interest received	17			7			7			5
Income taxes paid (net of refunds received)	335			412			12			8

Note: Restricted cash of $78 million and $49 million have been included with cash and cash equivalents for the 13 weeks ended May 4, 2019 and May 5, 2018, respectively.

The accompanying notes are an integral part of these Consolidated Financial Statements.

MACY’S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Nature of Operations

Macy's, Inc. and subsidiaries (the "Company") is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and ~~kids)~~kids'), cosmetics, home furnishings and other consumer goods. The Company ~~operates approximately 870~~has stores in 4443 states, the District of Columbia, Guam and Puerto Rico. As of ~~November 3, 2018,~~May 4, 2019, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage ~~bluemercury~~ and ~~STORY.~~bluemercury.

Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.

A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended February ~~3, 2018~~2, 2019 (the ~~"2017~~"2018 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the ~~2017~~2018 10-K.

Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.

The Consolidated Financial Statements for the 13 ~~and 39~~ weeks ended ~~November 3, 2018~~May 4, 2019 and ~~October 28, 2017~~May 5, 2018, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.

Seasonality

Because of the seasonal nature of the retail business, the results of operations for the 13 ~~and 39~~ weeks ended ~~November 3, 2018~~May 4, 2019 and ~~October 28, 2017~~May 5, 2018 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.

Reclassifications

Certain reclassifications were made to prior years’ amounts to conform to the classifications of such amounts in the most recent ~~years and adoption of new accounting standards as discussed in more detail below.~~years.

Comprehensive Income

Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income. For the Company, the only other components of total comprehensive income for the 13 ~~and 39~~ weeks ended ~~November 3, 2018~~May 4, 2019 and ~~October 28, 2017~~May 5, 2018 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of income before income taxes in the Consolidated Statements of Income. Amortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in benefit plan income, net on the Consolidated Statements of Income. See Note 4,6, "Benefit Plans," for further information.

Newly Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended, which requires lessees to recognize substantially all leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard was adopted by the Company on February 3, 2019 utilizing a modified retrospective approach that allowed for transition in the period of adoption. The Company adopted the package of practical expedients available at transition that

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. Contracts entered into prior to adoption were not reassessed for leases or embedded leases. Upon adoption, the Company used hindsight in determining lease term and impairment. For lease and non-lease components, the Company has elected to account for both as a single lease component.

Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $2,516 million and $2,728 million, respectively, as of February 3, 2019. The difference of $212 million between the additional net lease assets and lease liabilities, net of the deferred tax impact of $54 million, was recorded as an adjustment to retained earnings. Prepaid rent, intangible lease assets, finance lease assets, and accrued and deferred rent as of February 3, 2019 were recorded as part of the ROU asset. Finance lease obligations as of February 3, 2019 were recorded as part of the lease liabilities. The standard did not materially impact the Company's consolidated net income and had no impact on cash flows.

2. Earnings Per Share Attributable to Macy's, Inc. Shareholders

The following tables set forth the computation of basic and diluted earnings per share attributable to Macy's, Inc. shareholders:



	13 Weeks Ended
	May 4, 2019					May 5, 2018
	Net Income				Shares	Net Income				Shares
	(millions, except per share data)
Net income attributable to Macy's, Inc. shareholders and average number of shares outstanding	$	136			308.2	$	139			305.7
Shares to be issued under deferred compensation and other plans					0.9					0.9
	$	136			309.1	$	139			306.6
Basic earnings per share attributable to Macy's, Inc. shareholders			$	0.44				$	0.45
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units					2.3					2.8
	$	136			311.4	$	139			309.4
Diluted earnings per share attributable to Macy's, Inc. shareholders			$	0.44				$	0.45

In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 16.9 million shares of common stock and restricted stock units relating to 2.2 million shares of common stock were outstanding at May 4, 2019, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.

In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 15.7 million shares of common stock and restricted stock units relating to 2.5 million shares of common stock were outstanding at May 5, 2018, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

3. Revenue

Net sales

Revenue is recognized when customers obtain control of goods and services promised by the Company. The amount of revenue recognized is based on the amount that reflects the consideration that is expected to be received in exchange for those respective goods and services. The Company's revenue generating activities include the following:

~~MACY'S, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

Retail Sales

Retail sales include merchandise sales, inclusive of delivery income, licensed department income, sales of private brand goods directly to third party retailers and sales of excess inventory to third parties. Sales of merchandise are recorded at the time of shipment to the customer and are reported net of estimated merchandise returns and certain customer incentives. Commissions earned on sales generated by licensed departments are included as a component of total net sales and are recognized as revenue at the time merchandise is sold to customers. Service revenues (e.g., alteration and cosmetic services) are recorded at the time the customer receives the benefit of the service. The Company has elected to present sales taxes on a net basis and, as such, sales taxes are included in accounts payable and accrued liabilities until remitted to the taxing authorities.

For the 13 ~~and 39~~ weeks ended ~~November 3,~~May 4, 2019 and May 5, 2018, ~~and October 28, 2017,~~ Macy's accounted for 88% of the Company's net sales. Disaggregation of the Company's net sales by family of business for the 13 ~~and 39~~ weeks ended ~~November 3,~~May 4, 2019 and May 5, 2018 ~~and October 28, 2017~~ were as follows:


	13 Weeks Ended				39 Weeks Ended				13 Weeks Ended
Net sales by family of business	November 3, 2018		October 28, 2017		November 3, 2018		October 28, 2017		May 4, 2019		May 5, 2018
	(millions)								(millions)
Women's Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances	$	2,010	$	1,989	$	6,221	$	6,122	$	2,152	$	2,159
Women's Apparel	1,264		1,247		3,969		3,989		1,313		1,351
Men's and Kids	1,243		1,184		3,702		3,558
Men's and Kids'									1,202		1,174
Home/Other (a)	887		861		2,624		2,598		837		857
Total	$	5,404	$	5,281	$	16,516	$	16,267	$	5,504	$	5,541

(a) Other primarily includes restaurant sales, ~~certain loyalty program income~~allowance for merchandise returns adjustments and breakage income from unredeemed gift cards.

Merchandise Returns

The Company estimates merchandise returns using historical data and recognizes an allowance that reduces net sales and cost of sales. The liability for merchandise returns is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was ~~$265~~$294 million, ~~$291~~$269 million and ~~$260~~$298 million as of ~~November 3,~~May 4, 2019, February 2, 2019 and May 5, 2018, ~~February 3, 2018 and October 28, 2017,~~ respectively. Included in prepaid expenses and other current assets is an asset totaling ~~$180~~$200 million, ~~$201~~$188 million and ~~$178~~$204 million as of ~~November 3,~~May 4, 2019, February 2, 2019 and May 5, 2018, ~~February 3, 2018 and October 28, 2017,~~ respectively, for the recoverable cost of merchandise estimated to be returned by customers.

Gift Cards and Customer Loyalty Programs

The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold or issued, no revenue is recognized; rather, the Company records an accrued liability to customers. The liability is relieved and revenue is recognized equal to the amount redeemed at the time gift cards are redeemed for merchandise. The Company records revenue from unredeemed gift cards (breakage) in net sales on a pro-rata basis over the time period gift cards are actually redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns.

The Company maintains customer loyalty programs in which customers earn points based on their purchases. Under the Macy’s brand, points are earned based on customers’ spending on Macy’s private label and co-branded credit cards as well as non-proprietary cards during certain tender-neutral promotional events. Under the Bloomingdale’s brand, the Company offers a tender neutral points-based program. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer.

The liability for unredeemed gift cards and customer loyalty programs is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was ~~$711~~$696 million, ~~$894~~$856 million and ~~$707~~$736 million as of ~~November 3,~~May 4, 2019, February 2, 2019 and May 5, 2018, ~~February 3, 2018 and October 28, 2017,~~ respectively.

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Credit Card Revenues, net

In 2005, the Company entered into an arrangement with Citibank to sell the Company's private label and co-branded credit cards ("Credit Card Program"). Subsequent to this initial arrangement and associated amendments, in 2014, the Company entered into an amended and restated Credit Card Program Agreement (the "Program Agreement") with Citibank. As part of the Program Agreement, the Company receives payments for providing a combination of interrelated services and intellectual property to Citibank in support of the underlying Credit Card Program. Revenue based on the spending activity of the

~~MACY'S, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

underlying accounts is recognized as the respective card purchases occur and the Company’s profit share is recognized based on the performance of the underlying portfolio. Revenue associated with the establishment of new credit accounts and assisting in the receipt of payments for existing accounts is recognized as such activities occur. Credit card revenues include finance charges, late fees and other revenue generated by the Company’s Credit Card Program, net of fraud losses and expenses associated with establishing new accounts.

~~Newly Adopted Accounting Pronouncements~~

4. Leases

The Company leases a portion of the real estate and personal property used in its operations. Most leases require the Company to pay real estate taxes, maintenance, insurance and other similar costs; some also require additional payments based on percentages of sales and some contain purchase options. Certain of the Company’s real estate leases have terms that extend for a significant number of years and provide for rental rates that increase or decrease over time. Lease terms include the noncancellable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods, termination options and purchase options.

Operating lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company's incremental borrowing rates for its population of leases. Related operating ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by contributions from landlords, plus any prepaid rent and direct costs from executing the leases. ROU assets are tested for impairment in the same manner as long-lived assets.

~~In May 2014,~~Leases with an initial term of 12 months or less are not recorded on the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which established principles to report useful information to financial statements users about the nature, timing and uncertainty of revenue from contracts with customers. ASU No. 2014-09 along with various related amendments comprise ASC Topic 606, Revenue from Contracts with Customers, and provide guidance that is applicable to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. The new standard and its related updates were adopted bybalance sheet; the Company recognizes lease expense for these leases on ~~February 4, 2018. On~~a straight-line basis over the effective date, the Company elected to apply the new guidance retrospectively to each prior period presented which resulted in an increase to retained earnings of $72 million and $54 million at the beginning of fiscal 2018 and fiscal 2017, respectively.lease term. Variable lease payments are recognized as lease expense as they are incurred.

~~Overall, the new standard did not have a material impact on the results~~Certain of the Company's ~~operations or consolidated statements of financial position, but impacted~~leases contain covenants that restrict the ~~presentation and timing of certain revenue transactions. Specifically, the changes included gross presentation~~ability of the Company's estimates for future sales returns and related recoverable assets, presenting income from credit operations, gift card breakage income, and certain loyalty program income as separate components of revenue and recognizing gift card breakage revenue over the period of redemption for gift cards associated with certain returns. The Company's evaluationtenant (typically a subsidiary of the ~~new standards included a review~~Company) to take specified actions (including the payment of dividends or other amounts on account of its capital stock) unless the tenant satisfies certain vendor arrangements to determine whether the Company acts as principal or agent in such arrangements and such evaluation did not result in any material changes in gross versus net presentation as a result of the adoption of the new standards.financial tests.

~~In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (ASC Topic 715), which requires employers to disaggregate the service cost component from other~~ROU assets and lease liabilities consist of:



		May 4, 2019
	Classification	(millions)
Assets
Finance lease assets (a)	Right of Use Assets	$	11
Operating lease assets	Right of Use Assets	2,620
Total leased assets		$	2,631

Liabilities
Current
Finance	Accounts payable and accrued liabilities	$	1
Operating	Accounts payable and accrued liabilities	362

Noncurrent
Finance	Long-Term Lease Liabilities	25
Operating	Long-Term Lease Liabilities	2,798
Total lease liabilities		$	3,186

(a) Finance lease assets are recorded net of accumulated amortization of $12 million as of May 4, 2019.

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The components of net ~~periodic benefit costs and to disclose the~~lease expense are disclosed below. Operating lease expense includes variable lease expense of $28 million.



		13 Weeks Ended
		May 4, 2019
	Classification	(millions)
Operating lease expense (b)	Selling, general and administrative expenses	$	122
Sublease income	Selling, general and administrative expenses	(1		)
Net lease expense		$	121

(b) Certain supply chain operating lease expense amounts ~~of net periodic benefit costs that~~ are included in ~~each income statement line item. The standard requires employers~~cost of sales.

As of May 4, 2019, the maturity of lease liabilities is as follows:



	Finance Leases (c)		Operating Leases (d)		Total
	(millions)
Fiscal year
2019	$	2	$	271	$	273
2020	3		331		334
2021	3		330		333
2022	3		312		315
2023	3		307		310
After 2023	32		5,231		5,263
Total undiscounted lease payments	46		6,782		6,828
Less amount representing interest	20		3,622		3,642
Total lease liabilities	$	26	$	3,160	$	3,186

(c) Finance lease payments include $12 million related to ~~report the service cost component in the same line item as other compensation costs~~options to extend lease terms that are reasonably certain of being exercised.

(d) Operating lease payments include $3,163 million related to options to extend lease terms that are reasonably certain of being exercised and ~~to report the other components~~exclude $942 million of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) separately and outside a subtotal of operating income. The Company adopted this standard effective February 4, 2018 on a retrospective basis to each prior period presented and has recognized its net periodic benefit costs, excluding service costs, in benefit plan income, net on its Consolidated Statements of Income.legally binding minimum lease payments for leases signed but not yet commenced.

~~In 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (ASC Topic 230): Restricted Cash,~~Additional supplemental information regarding assumptions and ~~ASU No. 2016-15, Statement of Cash Flows (ASC Topic 230): Classification of Certain Cash Receipts~~cash flows for operating and Cash Payments. These standards were issued to resolve numerous diversities in practice with regard to the presentation and classification of certain cash receipts and payments in the statement of cash flows. The standards were effective for the Company on February 4, 2018, and were adopted using a retrospective transition method to each prior period presented. As a result of these standards, the Company included its beginning-of-period restricted cash balances of $58 million and end-of-period restricted cash balances of $41 million when reconciling the Consolidated Statement of Cash Flow movement for the 39 weeks ended November 3, 2018. Similarly, for the 39 weeks ended October 28, 2017, the Company included its beginning-of-period restricted cash balances of $37 million and end-of-period restricted cash balances of $54 million. In addition to these changes, the Company changed the classification of $10 million of cash payments for the prepayment of debt from an operating outflow to a financing outflow for the 39 weeks ended October 28, 2017.finance leases are as follows:



	May 4, 2019
Lease Term and Discount Rate	(millions)
Weighted-average remaining lease term (years)
Finance leases	18.2
Operating leases	23.3
Weighted-average discount rate
Finance leases	6.65	%
Operating leases	6.71	%

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for stranded tax effects in accumulated other comprehensive income resulting from H.R. 1, originally known as the “Tax Cuts and Jobs Act,” to be reclassified to retained earnings. The Company early adopted this standard during the first quarter of 2018 and, as a result, reclassified $164 million of stranded tax effects to retained earnings.



	13 Weeks Ended
	May 4, 2019
Other Information	(millions)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used from operating leases	$	94
Leased assets obtained in exchange for new operating lease liabilities	19

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

~~2. Earnings Per Share Attributable to Macy's, Inc. Shareholders~~

~~The following tables set forth~~As of February 2, 2019, as disclosed in the ~~computation of basic and diluted earnings per share attributable to Macy's, Inc. shareholders:~~

2018 10-K, minimum rental commitments for noncancellable leases, including executed leases not yet commenced, were as follows:

13 Weeks Ended
November 3, 2018 October 28, 2017
Net
Income Shares Net
Income Shares
(millions, except per share data)
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding $ 62
307.2
$ 30
304.6
Shares to be issued under deferred
compensation and other plans 0.9
0.9
$ 62
308.1
$ 30
305.5
Basic earnings per share attributable to
Macy's, Inc. shareholders $ 0.20
$ 0.10

Effect of dilutive securities:
Stock options, restricted stock and restricted stock units 4.1
1.0
$ 62
312.2
$ 30
306.5
Diluted earnings per share attributable to
Macy's, Inc. shareholders $ 0.20
$ 0.10



	Capitalized Leases (e)		Operating Leases		Total
	(millions)
Fiscal year
2019	$	3	$	325	$	328
2020	3		315		318
2021	3		309		312
2022	3		283		286
2023	3		264		267
After 2023	31		2,758		2,789
Total minimum lease payments	46		$	4,254	$	4,300
Less amount representing interest	20
Present value of net minimum capitalized lease payments	$	26

39 Weeks Ended
November 3, 2018 October 28, 2017
Net
Income Shares Net
Income Shares
(millions, except per share data)
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding $ 368
306.6
$ 219
304.5
Shares to be issued under deferred
compensation and other plans 0.9
0.8
$ 368
307.5
$ 219
305.3
Basic earnings per share attributable to
Macy's, Inc. shareholders $ 1.20
$ 0.72

Effect of dilutive securities:
Stock options, restricted stock and restricted stock units 3.7
1.3
$ 368
311.2
$ 219
306.6
Diluted earnings per share attributable to
Macy's, Inc. shareholders $ 1.18
$ 0.71

~~In addition to~~(e) For purposes of the ~~stock options and restricted stock units reflected in the foregoing tables, stock options to purchase~~ ~~12.7 million~~ ~~shares of common stock and restricted stock units relating to~~ ~~1.4 million~~ ~~shares of common stock were outstanding at~~ ~~November 3, 2018, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.~~

~~In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase~~ ~~18.9 million~~ ~~shares of common stock and restricted stock units relating to~~ ~~1.2 million~~ ~~shares of common stock were outstanding at~~ ~~October 28, 2017, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.~~disclosure, capitalized lease is used interchangeably with finance lease.

~~MACY'S, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

3.5. Financing Activities

The following table shows the detail of debt repayments:

39 Weeks Ended
November 3, 2018 October 28, 2017
(millions)
7.45% Senior debentures due 2017 $ —
$ 300
6.9% Senior debentures due 2029 90
3
4.5% Senior notes due 2034 80
—
6.7% Senior notes due 2028 60
3
6.375% Senior notes due 2037 43
135
6.7% Senior debentures due 2034 28
28
7.0% Senior debentures due 2028 27
2
6.65% Senior debentures due 2024 11
4
6.9% Senior debentures due 2032 5
72
9.5% Amortizing debentures due 2021 4
4
9.75% Amortizing debentures due 2021 2
2
Capital leases and other obligations 1
1
$ 351
$ 554



	13 Weeks Ended
	May 4, 2019		May 5, 2018
	(millions)
9.5% Amortizing debentures due 2021	$	2	$	2
9.75% Amortizing debentures due 2021	1		1
	$	3	$	3

~~During the 39 weeks ended November 3, 2018,~~On May 9, 2019, the Company ~~repurchased $344 million face value of senior notes and debentures. The debt repurchases were made in~~entered into a new credit agreement with certain financial institutions that replaces the ~~open market for a total cost of $354 million, including expenses and other fees related~~previous credit agreement which was set to expire on May 6, 2021. Similar to the ~~transactions. Such repurchases resulted~~previous agreement, the new credit agreement provides for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the ~~recognition~~option of ~~expense of $5 million during the 39 weeks ended November 3, 2018 presented as losses on early retirement of debt on the Consolidated Statements of Income.~~

~~During the 39 weeks ended October 28, 2017,~~ the Company, ~~repurchased $247 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cost of $257 million, including expenses and other fees related~~subject to the ~~transactions. Such repurchases resulted in the recognition~~willingness of ~~expense of $1 million during the 39 weeks ended October 28, 2017 presented as losses~~existing or new lenders to provide commitments for such additional financing). The new credit agreement is scheduled to expire on ~~early retirement of debt on the Consolidated Statements of Income.~~

~~During the 39 weeks ended October 28, 2017,~~May 9, 2024, subject to up to two one-year extensions that may be requested by the Company ~~also repaid, at maturity, $300 million of 7.45% Senior debentures due July 2017.~~

~~On November 28, 2018,~~and agreed to by the Company commenced a cash tender offer ("tender offer") to purchase up to $600 million in aggregate principal amount of certain senior unsecured notes and debentures, with stated interest rates ranging from 2.875% to 8.75% and maturities ranging from fiscal years 2023 to 2042. The tender offer expires on December 26, 2018, with an early tender date on December 11, 2018.lenders.

4.6. Benefit Plans

The Company has defined contribution plans which cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has a funded defined benefit plan ("Pension Plan") and an unfunded defined benefit supplementary retirement plan ("SERP"), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.

In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.

~~MACY'S, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

In addition, certain retired employees currently are provided with specified health care and life insurance benefits ("Postretirement Obligations"). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The defined contribution plan expense and actuarially determined components of the net periodic benefit cost (income) associated with the defined benefit plans are as follows:


	13 Weeks Ended						39 Weeks Ended						13 Weeks Ended
	November 3, 2018			October 28, 2017			November 3, 2018			October 28, 2017			May 4, 2019			May 5, 2018
	(millions)						(millions)						(millions)
401(k) Qualified Defined Contribution Plan	$	24		$	20		$	71		$	65		$	25		$	23

Non-Qualified Defined Contribution Plan	$	—		$	—		$	1		$	—		$	1		$	—

Pension Plan
Service cost	$	1		$	1		$	4		$	4		$	1		$	2
Interest cost	28			25			81			79			26			26
Expected return on assets	(51		)	(55		)	(157		)	(168		)	(48		)	(53		)
Recognition of net actuarial loss	7			8			23			24			7			8
Amortization of prior service credit	—			—			—			—			—			—
	$	(15	)	$	(21	)	$	(49	)	$	(61	)	$	(14	)	$	(17	)
Supplementary Retirement Plan
Service cost	$	—		$	—		$	—		$	—		$	—		$	—
Interest cost	6			6			17			17			6			6
Recognition of net actuarial loss	2			2			6			6			2			2
Amortization of prior service cost	—			—			—			—			—			—
	$	8		$	8		$	23		$	23		$	8		$	8

Total Retirement Expense	$	17		$	7		$	46		$	27		$	20		$	14

Postretirement Obligations
Service cost	$	—		$	—		$	—		$	—		$	—		$	—
Interest cost	1			1			3			4			1			1
Recognition of net actuarial gain	(2		)	(2		)	(4		)	(4		)	(1		)	(1		)
Amortization of prior service credit	—			—			—			—			—			—
	$	(1	)	$	(1	)	$	(1	)	$	—		$	—		$	—

For the 13 and 39 weeks ended November 3, 2018, the Company incurred non-cash settlement charges of $23 million and $73 million, respectively, related to the Company's defined benefit plans. For the 13 and 39 weeks ended October 28, 2017, the Company incurred non-cash settlement charges of $22 million and $73 million, respectively. These charges relate to the pro-rata recognition of net actuarial losses and are the result of an increase in lump sum distributions primarily associated with retiree distribution elections and restructuring activity.

~~MACY'S, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

5.7. Fair Value Measurements

The following table shows the Company's financial assets that are required to be measured at fair value on a recurring basis, by level within the hierarchy as defined by applicable accounting standards:

November 3, 2018 October 28, 2017
Fair Value Measurements Fair Value Measurements
Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
(millions)
Marketable equity and debt securities $ 96
$ 26
$ 70
$ —
$ 100
$ 23
$ 77
$ —



	May 4, 2019								May 5, 2018
			Fair Value Measurements								Fair Value Measurements
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(millions)
Marketable equity and debt securities	$	110	$	31	$	79	$	—	$	96	$	25	$	71	$	—

Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, certain short-term investments and other assets, short-term debt, merchandise accounts payable, accounts payable and accrued

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

liabilities and long-term debt. With the exception of long-term debt, the carrying amount of these financial instruments approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are generally estimated based on quoted market prices for identical or similar instruments, and are classified as Level 2 measurements within the hierarchy as defined by applicable accounting standards.

The following table shows the estimated fair value of the Company's long-term debt, excluding capital leases and other obligations:

November 3, 2018 October 28, 2017

Notional
Amount

Carrying
Amount

Fair
Value

Notional
Amount

Carrying
Amount

Fair
Value
(millions)
Long-term debt $ 5,420
$ 5,444
$ 5,170
$ 6,206
$ 6,271
$ 5,908



	May 4, 2019						May 5, 2018
	Notional Amount		Carrying Amount		Fair Value		Notional Amount		Carrying Amount		Fair Value
	(millions)
Long-term debt	$	4,667	$	4,680	$	4,614	$	5,803	$	5,832	$	5,621

6.8. Condensed Consolidating Financial Information

Certain debt obligations of the Company, which constitute debt obligations of Macy's Retail Holdings, Inc. ("Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent"), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, "Other Subsidiaries" includes all other direct subsidiaries of Parent, including Bluemercury, Inc., FDS Bank, West 34th Street Insurance Company New York, Macy's Merchandising Corporation, Macy's Merchandising Group, Inc. and its subsidiaries Macy's Merchandising Group (Hong Kong) Limited, Macy's Merchandising Group Procurement, LLC, Macy's Merchandising Group International, LLC, Macy's Merchandising Group International (Hong Kong) Limited, and its majority-owned subsidiary Macy's China Limited. "Subsidiary Issuer" includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in "Other Subsidiaries."

Condensed Consolidating Statements of Comprehensive Income for the 13 ~~and 39~~ weeks ended ~~November 3,~~May 4, 2019 and May 5, 2018, ~~and October 28, 2017,~~ Condensed Consolidating Balance Sheets as of ~~November 3,~~May 4, 2019, May 5, 2018 ~~October 28, 2017~~ and February ~~3, 2018,~~2, 2019, and the related Condensed Consolidating Statements of Cash Flows for the 3913 weeks ended ~~November 3,~~May 4, 2019 and May 5, 2018 ~~and October 28, 2017~~ are presented on the following pages.

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Statement of Comprehensive Income

For the 13 Weeks Ended ~~November 3, 2018~~May 4, 2019

(millions)

Parent
Subsidiary
Issuer

Other
Subsidiaries

Consolidating
Adjustments
Consolidated
Net sales $ —
$ 2,030
$ 6,185
$ (2,811 ) $ 5,404
Credit card revenues, net —
—
185
—
185

Cost of sales —
(1,266 ) (4,771 ) 2,811
(3,226 )
Selling, general and administrative expenses —
(883 ) (1,372 ) —
(2,255 )
Gains on sale of real estate —
41
1
—
42
Restructuring and other costs —
—
(3 ) —
(3 )
Operating income (loss) —
(78 ) 225
—
147
Benefit plan income, net —
3
6
—
9
Settlement charges —
(8 ) (15 ) —
(23 )
Interest (expense) income, net:
External 4
(64 ) 1
—
(59 )
Intercompany —
(18 ) 18
—
—
Equity in earnings (loss) of subsidiaries 59
(58 ) —
(1 ) —
Income (loss) before income taxes 63
(223 ) 235
(1 ) 74
Federal, state and local income
tax benefit (expense) (1 ) 57
(68 ) —
(12 )
Net income (loss) 62
(166 ) 167
(1 ) 62
Net loss attributable to noncontrolling interest —
—
—
—
—
Net income (loss) attributable to
Macy's, Inc. shareholders $ 62
$ (166 ) $ 167
$ (1 ) $ 62
Comprehensive income (loss) $ (37 ) $ (257 ) $ 106
$ 151
$ (37 )
Comprehensive loss attributable to
noncontrolling interest —
—
—
—
—
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders $ (37 ) $ (257 ) $ 106
$ 151
$ (37 )

~~MACY'S, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

~~Condensed Consolidating Statement of Comprehensive Income~~

~~For the 13 Weeks EndedOctober 28, 2017~~

~~(millions)~~


	Parent		Subsidiary Issuer			Other Subsidiaries			Consolidating Adjustments			Consolidated			Parent			Subsidiary Issuer			Other Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	—	$	2,073		$	5,865		$	(2,657	)	$	5,281		$	—		$	2,154		$	4,768		$	(1,418	)	$	5,504
Credit card revenues, net	—		—			145			—			145
Credit card revenues (expense), net															—			(2		)	174			—			172

Cost of sales	—		(1,382		)	(4,427		)	2,657			(3,152		)	—			(1,341		)	(3,480		)	1,418			(3,403		)
Selling, general and administrative expenses	—		(834		)	(1,354		)	—			(2,188		)	—			(803		)	(1,309		)	—			(2,112		)
Gains on sale of real estate	—		24			41			—			65			—			24			19			—			43
Restructuring and other costs	—		(1		)	(32		)	—			(33		)
Operating income (loss)	—		(120		)	238			—			118
Impairment and other costs															—			—			(1		)	—			(1		)
Operating income															—			32			171			—			203
Benefit plan income, net	—		6			9			—			15			—			3			4			—			7
Settlement charges	—		(8		)	(14		)	—			(22		)
Interest (expense) income, net:
External	1		(76		)	1			—			(74		)	5			(53		)	1			—			(47		)
Intercompany	—		(34		)	34			—			—			—			(19		)	19			—			—
Equity in earnings (loss) of subsidiaries	29		(57		)	—			28			—			132			(30		)	—			(102		)	—
Income (loss) before income taxes	30		(289		)	268			28			37			137			(67		)	195			(102		)	163
Federal, state and local income tax benefit (expense)	—		59			(69		)	—			(10		)	(1		)	24			(50		)	—			(27		)
Net income (loss)	30		(230		)	199			28			27			136			(43		)	145			(102		)	136
Net loss attributable to noncontrolling interest	—		—			3			—			3			—			—			—			—			—
Net income (loss) attributable to Macy's, Inc. shareholders	$	30	$	(230	)	$	202		$	28		$	30		$	136		$	(43	)	$	145		$	(102	)	$	136
Comprehensive income (loss)	$	55	$	(207	)	$	215		$	(11	)	$	52		$	142		$	(38	)	$	149		$	(111	)	$	142
Comprehensive loss attributable to noncontrolling interest	—		—			3			—			3			—			—			—			—			—
Comprehensive income (loss) attributable to Macy's, Inc. shareholders	$	55	$	(207	)	$	218		$	(11	)	$	55		$	142		$	(38	)	$	149		$	(111	)	$	142

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Statement of Comprehensive Income

For the 3913 Weeks Ended ~~November 3,~~May 5, 2018

(millions)

Parent
Subsidiary
Issuer

Other
Subsidiaries

Consolidating
Adjustments
Consolidated
Net sales $ —
$ 6,110
$ 16,462
$ (6,056 ) $ 16,516
Credit card revenues (expense), net —
(3 ) 531
—
528

Cost of sales —
(3,857 ) (12,126 ) 6,056
(9,927 )
Selling, general and administrative expenses —
(2,522 ) (3,979 ) —
(6,501 )
Gains on sale of real estate —
83
28
—
111
Impairment, restructuring and other costs —
—
(39 ) —
(39 )
Operating income (loss) —
(189 ) 877
—
688
Benefit plan income, net —
12
19
—
31
Settlement charges (5 ) (24 ) (44 ) —
(73 )
Interest (expense) income, net:
External 13
(203 ) 3
—
(187 )
Intercompany —
(54 ) 54
—
—
Losses on early retirement of debt —
(5 ) —
—
(5 )
Equity in earnings of subsidiaries 362
51
—
(413 ) —
Income (loss) before income taxes 370
(412 ) 909
(413 ) 454
Federal, state and local income
tax benefit (expense) (2 ) 123
(217 ) —
(96 )
Net income (loss) 368
(289 ) 692
(413 ) 358
Net loss attributable to noncontrolling interest —
—
10
—
10
Net income (loss) attributable to
Macy's, Inc. shareholders $ 368
$ (289 ) $ 702
$ (413 ) $ 368
Comprehensive income (loss) $ 296
$ (357 ) $ 646
$ (299 ) $ 286
Comprehensive loss attributable to
noncontrolling interest —
—
10
—
10
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders $ 296
$ (357 ) $ 656
$ (299 ) $ 296

~~MACY'S, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

~~Condensed Consolidating Statement of Comprehensive Income~~

~~For the 39 Weeks EndedOctober 28, 2017~~

~~(millions)~~


	Parent			Subsidiary Issuer			Other Subsidiaries			Consolidating Adjustments			Consolidated			Parent			Subsidiary Issuer			Other Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	—		$	6,358		$	15,784		$	(5,875	)	$	16,267		$	—		$	2,008		$	5,363		$	(1,830	)	$	5,541
Credit card revenues (expense), net	—			(2		)	475			—			473			—			(6		)	163			—			157

Cost of sales	—			(4,160		)	(11,573		)	5,875			(9,858		)	—			(1,320		)	(3,892		)	1,830			(3,382		)
Selling, general and administrative expenses	(1		)	(2,458		)	(3,947		)	—			(6,406		)	—			(828		)	(1,255		)	—			(2,083		)
Gains on sale of real estate	—			116			60			—			176			—			23			1			—			24
Restructuring and other costs	—			(1		)	(32		)	—			(33		)
Impairment and other costs																—			—			(19		)	—			(19		)
Operating income (loss)	(1		)	(147		)	767			—			619			—			(123		)	361			—			238
Benefit plan income, net	—			16			26			—			42			—			4			7			—			11
Settlement charges	—			(24		)	(49		)	—			(73		)
Interest (expense) income, net:
External	4			(243		)	2			—			(237		)	4			(71		)	1			—			(66		)
Intercompany	—			(102		)	102			—			—			—			(18		)	18			—			—
Losses on early retirement of debt	—			(1		)	—			—			(1		)
Equity in earnings (loss) of subsidiaries	217			(26		)	—			(191		)	—
Equity in earnings of subsidiaries																136			102			—			(238		)	—
Income (loss) before income taxes	220			(527		)	848			(191		)	350			140			(106		)	387			(238		)	183
Federal, state and local income tax benefit (expense)	(1		)	142			(279		)	—			(138		)	(1		)	37			(88		)	—			(52		)
Net income (loss)	219			(385		)	569			(191		)	212			139			(69		)	299			(238		)	131
Net loss attributable to noncontrolling interest	—			—			7			—			7			—			—			8			—			8
Net income (loss) attributable to Macy's, Inc. shareholders	$	219		$	(385	)	$	576		$	(191	)	$	219		$	139		$	(69	)	$	307		$	(238	)	$	139
Comprehensive income (loss)	$	315		$	(295	)	$	632		$	(344	)	$	308		$	146		$	(63	)	$	303		$	(248	)	$	138
Comprehensive loss attributable to noncontrolling interest	—			—			7			—			7			—			—			8			—			8
Comprehensive income (loss) attributable to Macy's, Inc. shareholders	$	315		$	(295	)	$	639		$	(344	)	$	315		$	146		$	(63	)	$	311		$	(248	)	$	146

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Balance Sheet

As of ~~November 3, 2018~~May 4, 2019

(millions)


	Parent		Subsidiary Issuer		Other Subsidiaries			Consolidating Adjustments			Consolidated			Parent		Subsidiary Issuer		Other Subsidiaries		Consolidating Adjustments			Consolidated
ASSETS:
Current Assets:
Cash and cash equivalents	$	426	$	74	$	236		$	—		$	736		$	293	$	151	$	293	$	—		$	737
Receivables	1		25		154			—			180			—		40		197		—			237
Merchandise inventories	—		3,112		4,035			—			7,147			—		2,369		3,129		—			5,498
Income tax receivable	81		—		—			(71		)	10
Prepaid expenses and other current assets	—		139		455			—			594			—		163		470		—			633
Total Current Assets	508		3,350		4,880			(71		)	8,667			293		2,723		4,089		—			7,105
Property and Equipment – net	—		3,244		3,328			—			6,572			—		3,202		3,297		—			6,499
Right of Use Assets														—		677		1,954		—			2,631
Goodwill	—		3,326		582			—			3,908			—		3,326		582		—			3,908
Other Intangible Assets – net	—		40		441			—			481			—		5		436		—			441
Other Assets	—		39		694			—			733			—		28		684		—			712
Deferred Income Taxes	11		—		—			(11		)	—			6		—		—		(6		)	—
Intercompany Receivable	1,725		—		882			(2,607		)	—			2,436		—		886		(3,322		)	—
Investment in Subsidiaries	3,639		3,028		—			(6,667		)	—			3,776		3,061		—		(6,837		)	—
Total Assets	$	5,883	$	13,027	$	10,807		$	(9,356	)	$	20,361		$	6,511	$	13,022	$	11,928	$	(10,165	)	$	21,296
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities:
Short-term debt	$	—	$	42	$	23		$	—		$	65		$	—	$	41	$	—	$	—		$	41
Merchandise accounts payable	—		1,515		1,866			—			3,381			—		845		1,105		—			1,950
Accounts payable and accrued liabilities	192		874		1,932			—			2,998			73		786		1,987		—			2,846
Income taxes	—		40		31			(71		)	—			87		61		34		—			182
Total Current Liabilities	192		2,471		3,852			(71		)	6,444			160		1,733		3,126		—			5,019
Long-Term Debt	—		5,453		16			—			5,469			—		4,680		—		—			4,680
Long-Term Lease Liabilities														—		607		2,216		—			2,823
Intercompany Payable	—		2,607		—			(2,607		)	—			—		3,322		—		(3,322		)	—
Deferred Income Taxes	—		619		577			(11		)	1,185			—		626		573		(6		)	1,193
Other Liabilities	24		431		1,163			—			1,618			28		341		889		—			1,258
Shareholders' Equity:
Macy's, Inc.	5,667		1,446		5,221			(6,667		)	5,667			6,323		1,713		5,124		(6,837		)	6,323
Noncontrolling Interest	—		—		(22		)	—			(22		)	—		—		—		—			—
Total Shareholders' Equity	5,667		1,446		5,199			(6,667		)	5,645			6,323		1,713		5,124		(6,837		)	6,323
Total Liabilities and Shareholders' Equity	$	5,883	$	13,027	$	10,807		$	(9,356	)	$	20,361		$	6,511	$	13,022	$	11,928	$	(10,165	)	$	21,296

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Balance Sheet

As of ~~October 28, 2017~~May 5, 2018

(millions)


	Parent		Subsidiary Issuer		Other Subsidiaries			Consolidating Adjustments			Consolidated			Parent		Subsidiary Issuer		Other Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS:
Current Assets:
Cash and cash equivalents	$	116	$	89	$	329		$	—		$	534		$	1,070	$	79	$	382		$	—		$	1,531
Receivables	—		67		152			—			219			—		48		202			—			250
Merchandise inventories	—		3,218		3,847			—			7,065			—		2,283		3,008			—			5,291
Income tax receivable	—		2		—			(2		)	—
Prepaid expenses and other current assets	—		141		469			—			610			—		150		488			—			638
Total Current Assets	116		3,517		4,797			(2		)	8,428			1,070		2,560		4,080			—			7,710
Property and Equipment – net	—		3,370		3,372			—			6,742			—		3,298		3,277			—			6,575
Goodwill	—		3,315		582			—			3,897			—		3,326		582			—			3,908
Other Intangible Assets – net	—		46		445			—			491			—		43		443			—			486
Other Assets	1		62		772			—			835			1		96		792			—			889
Deferred Income Taxes	27		—		—			(27		)	—			5		—		—			(5		)	—
Intercompany Receivable	1,436		—		2,161			(3,597		)	—			1,156		—		2,113			(3,269		)	—
Investment in Subsidiaries	2,932		3,700		—			(6,632		)	—			3,975		4,232		—			(8,207		)	—
Total Assets	$	4,512	$	14,010	$	12,129		$	(10,258	)	$	20,393		$	6,207	$	13,555	$	11,287		$	(11,481	)	$	19,568
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities:
Short-term debt	$	—	$	6	$	16		$	—		$	22		$	—	$	6	$	19		$	—		$	25
Merchandise accounts payable	—		1,339		1,834			—			3,173			—		896		1,149			—			2,045
Accounts payable and accrued liabilities	139		1,008		2,110			—			3,257			109		784		1,802			—			2,695
Income taxes	20		—		16			(2		)	34			253		35		24			—			312
Total Current Liabilities	159		2,353		3,976			(2		)	6,486			362		1,721		2,994			—			5,077
Long-Term Debt	—		6,280		17			—			6,297			—		5,841		16			—			5,857
Intercompany Payable	—		3,597		—			(3,597		)	—			—		3,269		—			(3,269		)	—
Deferred Income Taxes	—		731		882			(27		)	1,586			—		570		604			(5		)	1,169
Other Liabilities	71		476		1,203			—			1,750			24		416		1,224			—			1,664
Shareholders' Equity:
Macy's, Inc.	4,282		573		6,059			(6,632		)	4,282			5,821		1,738		6,469			(8,207		)	5,821
Noncontrolling Interest	—		—		(8		)	—			(8		)	—		—		(20		)	—			(20		)
Total Shareholders' Equity	4,282		573		6,051			(6,632		)	4,274			5,821		1,738		6,449			(8,207		)	5,801
Total Liabilities and Shareholders' Equity	$	4,512	$	14,010	$	12,129		$	(10,258	)	$	20,393		$	6,207	$	13,555	$	11,287		$	(11,481	)	$	19,568

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Balance Sheet

As of February ~~3, 2018~~2, 2019

(millions)


	Parent		Subsidiary Issuer		Other Subsidiaries			Consolidating Adjustments			Consolidated			Parent		Subsidiary Issuer		Other Subsidiaries		Consolidating Adjustments			Consolidated
ASSETS:
Current Assets:
Cash and cash equivalents	$	1,109	$	58	$	288		$	—		$	1,455		$	889	$	59	$	214	$	—		$	1,162
Receivables	—		85		278			—			363			—		68		332		—			400
Merchandise inventories	—		2,344		2,834			—			5,178			—		2,342		2,921		—			5,263
Prepaid expenses and other current assets	—		165		485			—			650			—		143		477		—			620
Total Current Assets	1,109		2,652		3,885			—			7,646			889		2,612		3,944		—			7,445
Property and Equipment – net	—		3,349		3,323			—			6,672			—		3,287		3,350		—			6,637
Goodwill	—		3,315		582			—			3,897			—		3,326		582		—			3,908
Other Intangible Assets – net	—		44		444			—			488			—		38		440		—			478
Other Assets	1		89		790			—			880			—		41		685		—			726
Deferred Income Taxes	11		—		—			(11		)	—			12		—		—		(12		)	—
Intercompany Receivable	884		—		2,388			(3,272		)	—			1,713		—		1,390		(3,103		)	—
Investment in Subsidiaries	4,032		4,126		—			(8,158		)	—			4,030		3,119		—		(7,149		)	—
Total Assets	$	6,037	$	13,575	$	11,412		$	(11,441	)	$	19,583		$	6,644	$	12,423	$	10,391	$	(10,264	)	$	19,194
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities:
Short-term debt	$	—	$	6	$	16		$	—		$	22		$	—	$	42	$	1	$	—		$	43
Merchandise accounts payable	—		653		937			—			1,590			—		713		942		—			1,655
Accounts payable and accrued liabilities	159		980		2,132			—			3,271			170		950		2,246		—			3,366
Income taxes	113		30		153			—			296			14		52		102		—			168
Total Current Liabilities	272		1,669		3,238			—			5,179			184		1,757		3,291		—			5,232
Long-Term Debt	—		5,844		17			—			5,861			—		4,692		16		—			4,708
Intercompany Payable	—		3,272		—			(3,272		)	—			—		3,103		—		(3,103		)	—
Deferred Income Taxes	—		559		600			(11		)	1,148			—		679		571		(12		)	1,238
Other Liabilities	20		430		1,212			—			1,662			24		406		1,150		—			1,580
Shareholders' Equity:
Macy's, Inc.	5,745		1,801		6,357			(8,158		)	5,745			6,436		1,786		5,363		(7,149		)	6,436
Noncontrolling Interest	—		—		(12		)	—			(12		)	—		—		—		—			—
Total Shareholders' Equity	5,745		1,801		6,345			(8,158		)	5,733			6,436		1,786		5,363		(7,149		)	6,436
Total Liabilities and Shareholders' Equity	$	6,037	$	13,575	$	11,412		$	(11,441	)	$	19,583		$	6,644	$	12,423	$	10,391	$	(10,264	)	$	19,194

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Statement of Cash Flows

For the 3913 Weeks Ended ~~November 3, 2018~~May 4, 2019

(millions)


	Parent			Subsidiary Issuer			Other Subsidiaries			Consolidating Adjustments			Consolidated			Parent			Subsidiary Issuer			Other Subsidiaries			Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net income (loss)	$	368		$	(289	)	$	692		$	(413	)	$	358		$	136		$	(43	)	$	145		$	(102	)	$	136
Equity in earnings of subsidiaries	(362		)	(51		)	—			413			—
Impairment, restructuring and other costs	—			—			39			—			39
Settlement charges	5			24			44			—			73
Equity in loss (earnings) of subsidiaries																(132		)	30			—			102			—
Impairment and other costs																—			—			1			—			1
Dividends received from subsidiaries	689			—			—			(689		)	—			225			—			—			(225		)	—
Depreciation and amortization	—			250			468			—			718			—			85			151			—			236
Gains on sale of real estate	—			(83		)	(28		)	—			(111		)	—			(24		)	(19		)	—			(43		)
Changes in assets, liabilities and other items not separately identified	(191		)	115			(571		)	(1		)	(648		)	78			(118		)	(328		)	—			(368		)
Net cash provided (used) by operating activities	509			(34		)	644			(690		)	429			307			(70		)	(50		)	(225		)	(38		)
Cash flows from investing activities:
Purchase of property and equipment and capitalized software, net of dispositions	—			(98		)	(458		)	—			(556		)	—			(52		)	(178		)	—			(230		)
Other, net	—			(15		)	(29		)	51			7			—			—			(7		)	—			(7		)
Net cash used by investing activities	—			(113		)	(487		)	51			(549		)	—			(52		)	(185		)	—			(237		)
Cash flows from financing activities:
Debt repaid	—			(310		)	(1		)	(50		)	(361		)	—			(3		)	—			—			(3		)
Dividends paid	(347		)	—			(689		)	689			(347		)	(116		)	—			(225		)	225			(116		)
Issuance of common stock	41			—			—			—			41			6			—			—			—			6
Proceeds from noncontrolling interest	—			—			7			—			7
Intercompany activity, net	(803		)	378			425			—			—			(700		)	214			486			—			—
Other, net	(83		)	74			53			—			44			(93		)	28			20			—			(45		)
Net cash provided (used) by financing activities	(1,192		)	142			(205		)	639			(616		)	(903		)	239			281			225			(158		)
Net decrease in cash, cash equivalents and restricted cash	(683		)	(5		)	(48		)	—			(736		)
Net increase (decrease) in cash, cash equivalents and restricted cash																(596		)	117			46			—			(433		)
Cash, cash equivalents and restricted cash at beginning of period	1,109			79			325			—			1,513			889			64			295			—			1,248
Cash, cash equivalents and restricted cash at end of period	$	426		$	74		$	277		$	—		$	777		$	293		$	181		$	341		$	—		$	815

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Statement of Cash Flows

For the 3913 Weeks Ended ~~October 28, 2017~~May 5, 2018

(millions)


	Parent			Subsidiary Issuer			Other Subsidiaries			Consolidating Adjustments			Consolidated			Parent			Subsidiary Issuer			Other Subsidiaries			Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net income (loss)	$	219		$	(385	)	$	569		$	(191	)	$	212		$	139		$	(69	)	$	299		$	(238	)	$	131
Equity in loss (earnings) of subsidiaries	(217		)	26			—			191			—
Restructuring and other costs	—			1			32			—			33
Settlement charges	—			24			49			—			73
Equity in earnings of subsidiaries																(136		)	(102		)	—			238			—
Impairment and other costs																—			—			19			—			19
Dividends received from subsidiaries	571			—			—			(571		)	—			200			—			—			(200		)	—
Depreciation and amortization	—			265			476			—			741			—			82			153			—			235
Gains on sale of real estate	—			(116		)	(60		)	—			(176		)	—			(23		)	(1		)	—			(24		)
Changes in assets, liabilities and other items not separately identified	(44		)	167			(607		)	—			(484		)	150			175			(364		)	—			(39		)
Net cash provided (used) by operating activities	529			(18		)	459			(571		)	399
Net cash provided by operating activities																353			63			106			(200		)	322
Cash flows from investing activities:
Disposition (purchase) of property and equipment and capitalized software, net	—			30			(368		)	—			(338		)
Purchase of property and equipment and capitalized software, net of dispositions																—			(50		)	(117		)	—			(167		)
Other, net	—			2			7			—			9			—			(10		)	21			—			11
Net cash provided (used) by investing activities	—			32			(361		)	—			(329		)
Net cash used by investing activities																—			(60		)	(96		)	—			(156		)
Cash flows from financing activities:
Debt repaid	—			(563		)	(1		)	—			(564		)	—			(3		)	—			—			(3		)
Dividends paid	(346		)	—			(571		)	571			(346		)	(116		)	—			(200		)	200			(116		)
Issuance of common stock, net of common stock acquired	2			—			—			—			2
Issuance of common stock																28			—			—			—			28
Proceeds from noncontrolling interest	—			—			12			—			12			—			—			2			—			2
Intercompany activity, net	(1,016		)	589			427			—			—			(254		)	(10		)	264			—			—
Other, net	9			(32		)	103			—			80			(50		)	23			17			—			(10		)
Net cash used by financing activities	(1,351		)	(6		)	(30		)	571			(816		)
Net cash provided (used) by financing activities																(392		)	10			83			200			(99		)
Net increase (decrease) in cash, cash equivalents and restricted cash	(822		)	8			68			—			(746		)	(39		)	13			93			—			67
Cash, cash equivalents and restricted cash at beginning of period	938			81			315			—			1,334			1,109			79			325			—			1,513
Cash, cash equivalents and restricted cash at end of period	$	116		$	89		$	383		$	—		$	588		$	1,070		$	92		$	418		$	—		$	1,580

MACY'S, INC.


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

For purposes of the following discussion, all references to "~~third~~first quarter of ~~2018~~2019" and "~~third~~first quarter of ~~2017~~2018" are to the Company's 13-week fiscal periods ended ~~November 3, 2018~~May 4, 2019 and ~~October 28, 2017~~May 5, 2018, ~~respectively,~~respectively. References to "2019" and ~~all references to~~ "2018" ~~and "2017"~~ are to the Company's ~~39-week~~52-week fiscal ~~periods~~years ending February 1, 2020 and ended ~~November 3, 2018 and October 28, 2017,~~February 2, 2019, respectively.

The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report, as well as the financial and other information included in the ~~2017~~2018 10-K. The following discussion contains forward-looking statements that reflect the Company's plans, estimates and beliefs. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed below and elsewhere in this report (particularly in "Risk Factors" and in "Forward-Looking Statements") and in the ~~2017~~2018 10-K (particularly in "Risk Factors" and in "Forward-Looking Statements"). This discussion includes non-GAAP financial measures. For information about these measures, see the disclosure under the caption "Important Information Regarding Non-GAAP Financial Measures" on pages 2927 to ~~31.~~28.

Overview

The Company is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and ~~kids)~~kids'), cosmetics, home furnishings and other consumer goods. The Company ~~operates approximately 870~~has stores in 4443 states, the District of Columbia, Guam and Puerto Rico. As of ~~November 3, 2018,~~May 4, 2019, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage, ~~bluemercury~~ and ~~STORY.~~bluemercury.

Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.

Quarter Highlights

During the ~~third~~first quarter of ~~2018,~~2019, the Company ~~completed foundational work~~continued its investment in its 2019 strategic initiatives and experienced continued growth in its 2018 strategic initiatives. Highlights of these initiatives include:

Expansion of the Growth50 to the Growth150 with the addition of 100 locations in 2019. These additional 100 locations will receive the store improvement initiatives executed at the Growth50 locations, such as facility upgrades, merchandising strategies, and localized marketing. During the first quarter of 2019, sales results for the ~~2018 five key strategic initiatives~~Growth50 locations outperformed the other Macy's locations, and implementation of the ~~North Star strategy. These~~store improvement initiatives ~~continued to contribute to~~is underway at the ~~results of 2018. Specifically:~~additional 100 locations.

The Macy's Star Rewards loyalty program marked its one-year anniversary and continued to offer improved benefits to its members, including exclusive experiences for the program's platinum loyalty members.

~~Completing the fiscal 2018~~Continued expansion of Backstage, Macy's mall-based off-price business, to another 50 locations within existing Macy's locations in 2019. During the first quarter of 2019, the Company opened 56nine new locations within existing ~~Macy’s~~Macy's stores ~~during the third quarter~~for a total of ~~2018. This expansion brings the total~~181 Backstage locations ~~to 173 (seven freestanding and 166~~(174 inside Macy's ~~stores)~~stores and seven freestanding locations) as of ~~November 3, 2018.~~May 4, 2019.

~~The Company's~~Continued expansion of the vendor direct program (i.e., merchandise purchased from the Company's websites and digital applications and shipped directly to customers from the respective vendor) ~~continued its expansion~~ during 2019 into additional brands and assortments. During the ~~third~~first quarter of ~~2018, with~~2019, the vendor direct program added new vendors and increased ~~assortment~~merchandise assortments, and contributed to the ~~addition of new categories and brands.~~Company's digital sales growth.

The ~~Company completed~~mobile-first strategy includes improving a customer's digital experience through the enhancement of ~~customer options for pick-up, delivery~~app features such as My Wallet (i.e., online order pick up identification, payment and ~~checkout~~loyalty rewards features), My Store (i.e., access to in-store offers and product locator features) and My Stylist (i.e., connects customers with in-store fashion consultants). The first quarter of 2019 included investments in the enhancement of these features.

Investment in destination businesses comprising six merchandise categories (dresses, fine jewelry, big ticket, men's tailored, women's shoes and beauty) to gain market share and to further contribute to the Company's sales growth. These merchandise categories experienced strong sales performance during the first quarter of 2019.

During the first quarter of 2019, STORY at Macy's ~~including~~was launched with the ~~expansion~~opening of ~~Buy Online Ship~~36 locations in 15 states. Each STORY at Macy's will be refreshed with a new theme and merchandise every 10 to ~~Store~~15 weeks.

Bloomingdale's and ~~construction of At Your Service stations~~Bloomingdale's The Outlets had strong performances during the quarter. Bloomingdale's continued to see the operating performance for its flagship 59th Street store benefit from the renovations that occurred in ~~all stores.~~

~~The Growth50 locations contributed to the strong operating results for the third quarter of~~ 2018. ~~As a result of the performance of the Growth50 locations, the Company will expand the initiative to another 100 stores in fiscal 2019.~~

The Company recently announced a retail store strategy for Macy's that focuses on identifying a scalable investment strategy for all of the brand's stores, improving the customer's experience and growing total sales profitably. This strategy includes categorization ofBluemercury, the Company's luxury beauty products and spa retailer, continued its growth during the quarter both in stand-alone stores and stores within Macy's ~~stores into three groups:~~

~~Flagship stores include Herald Square and 10 other regional flagship stores which serve as premier retail destinations within their respective regions.~~

Magnet stores include the Growth50 stores, which as noted previously will be expanded to another 100 stores in fiscal 2019. These stores are retail destinations within major markets that offer an expanded selection of merchandise.

Neighborhood stores are smaller, profitable locations that are visited primarily for convenience and on-line order fulfillment. The Company is testing, and will continue to test in fiscal 2019, different investment models aimed at increasing shopping ease and convenience. Once the right model is determined, it will be rolled-out to the remaining neighborhood stores.

MACY'S, INC.

Further building upon its acquisition of STORY and investment in b8ta in the first half of 2018, the Company continued its enhancement of in-store experiences and personalization through advanced technology and partnerships. During the third quarter of 2018, the Company completed the roll-out of virtual reality furniture at 69 stores and began offering augmented reality beauty experiences in certain stores. Additionally, the Company announced the expansion of the number of e-commerce brands that will be available at The Market @ Macy's during the fourth quarter of 2018.

In addition to the above, the Company has continued to grow its luxury beauty products and spa retailer, bluemercury, by opening additional freestanding bluemercury stores in urban and suburban markets, and adding bluemercury products and boutiques to Macy's stores. Eight new freestanding bluemercury locations were opened in the third quarter of 2018, and four additional freestanding locations are expected to open later in the fiscal year. As of November 3, 2018, the Company is operating 180 bluemercury locations (160 freestanding and 20 inside Macy's stores).

Results of Operations

Comparison of the ~~Third~~First Quarter of ~~2018~~2019 and the ~~Third~~First Quarter of ~~2017~~2018


	Third Quarter of 2018						Third Quarter of 2017						First Quarter of 2019						First Quarter of 2018
	Amount			% to Net Sales			Amount			% to Net Sales			Amount			% to Net Sales			Amount			% to Net Sales
	(dollars in millions, except per share figures)												(dollars in millions, except per share figures)
Net sales	$	5,404					$	5,281					$	5,504					$	5,541
Credit card revenues, net	185			3.4		%	145			2.7		%	172			3.1		%	157			2.8		%

Cost of sales	(3,226		)	(59.7	)	%	(3,152		)	(59.7	)	%	(3,403		)	(61.8	)	%	(3,382		)	(61.0	)	%
Selling, general and administrative expenses	(2,255		)	(41.7	)	%	(2,188		)	(41.4	)	%	(2,112		)	(38.4	)	%	(2,083		)	(37.6	)	%
Gains on sale of real estate	42			0.8		%	65			1.2		%	43			0.8		%	24			0.4		%
Restructuring and other costs	(3		)	(0.1	)	%	(33		)	(0.6	)	%
Impairment and other costs													(1		)	—		%	(19		)	(0.3	)	%
Operating income	147			2.7		%	118			2.2		%	203			3.7		%	238			4.3		%
Benefit plan income, net	9						15						7						11
Settlement charges	(23		)				(22		)
Interest expense, net	(59		)				(74		)				(47		)				(66		)
Income before income taxes	74						37						163						183
Federal, state and local income tax expense	(12		)				(10		)				(27		)				(52		)
Net income	62						27						136						131
Net loss attributable to noncontrolling interest	—						3						—						8
Net income attributable to Macy's, Inc. shareholders	$	62		1.1		%	$	30		0.6		%	$	136		2.5		%	$	139		2.5		%

Diluted earnings per share attributable to Macy's, Inc. shareholders	$	0.20					$	0.10					$	0.44					$	0.45

Supplemental Financial Measure
Gross margin (a)	$	2,178		40.3		%	$	2,129		40.3		%	$	2,101		38.2		%	$	2,159		39.0		%

Supplemental Non-GAAP Financial Measure
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of certain items	$	0.27					$	0.21					$	0.44					$	0.48

(a) Gross margin is defined as net sales less cost of sales.

Net Sales and Comparable Sales

Net sales for the ~~third~~first quarter of ~~2018~~2019 ~~increased $123~~decreased $37 million or ~~2.3%~~0.7% compared to the ~~third~~first quarter of ~~2017~~2018. Comparable sales on an owned basis for the ~~third~~first quarter of ~~2018~~2019 increased ~~3.1%~~0.6% compared to the ~~third~~first quarter of ~~2017~~2018. On an owned plus licensed basis, comparable sales increased ~~3.3%~~0.7% during the ~~third~~first quarter of ~~2018~~2019.

~~The Company’s digital business~~Digital sales continued ~~its~~to experience strong growth with double-digit gains in the ~~third~~first quarter of ~~2018~~2019 and all three brands, Macy's, Bloomingdale's and bluemercury, performed well. Sales during the ~~third~~first quarter of ~~2018~~2019 were strong in the merchandise categories that make up our destination businesses, particularly dresses, fine jewelry, men's tailored, women's shoes, skincare and fragrances. Active and kids also improved compared to the prior year quarter, while sales were not as strong in handbags during the first quarter of 2019. Geographically, the Midwest and Northeast were the strongest ~~in men's and kids, fine jewelry, fragrances, active, women's shoes and coats, while sales in women's sportswear and fashion watches were not as strong.~~regions during the first quarter of 2019.

~~MACY'S, INC.~~

Credit Card Revenues, Net

Credit card revenues, net were ~~$185~~$172 million in the ~~third~~first quarter of ~~2018~~2019, an increase of ~~$40~~$15 million compared to ~~$145~~$157 million recognized in the ~~third~~first quarter of ~~2017~~2018. Increased proprietary card usage driven by the enhanced Macy's Star Rewards loyalty program and higher consumer credit balances drove the favorable results. Proprietary card penetration increased 80 basis points to ~~48.4% in the third quarter of 2018 from 47.4%~~46.3% in the ~~third~~first quarter of ~~2017~~2019 compared to 45.5% in the first quarter of 2018.

MACY'S, INC.

Cost of Sales

Cost of sales increased by ~~$74~~$21 million compared to the ~~third~~first quarter of ~~2017, remaining flat~~2018, an 80 basis points increase as a percent to net sales ~~with~~to 61.8% in the ~~third~~first quarter of ~~2017 at 59.7%.~~2019. The increase in cost of sales ~~dollars~~ was primarily driven by higher ~~sales.~~delivery expense which resulted from free shipping offered as part of the Company's loyalty programs coupled with increased transactions compared to the prior year quarter.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses for the ~~third~~first quarter of ~~2018~~2019 increased ~~$67~~$29 million from the ~~third~~first quarter of ~~2017.~~2018. The SG&A rate as a percent to net sales of ~~41.7%~~38.4% was 3080 basis points higher in the ~~third~~first quarter of ~~2018,~~2019, as compared to the ~~third~~first quarter of ~~2017.~~2018. This increase in SG&A expenses was driven primarily by investments in the expansion of Backstage as well as the ~~Company's new employee incentive plan.~~other strategic initiatives previously discussed.

Gains on Sale of Real Estate

The ~~third~~first quarter of ~~2018~~2019 included asset sale gains of ~~$42~~$43 million ~~including $23~~compared to $24 million ~~related to the continued recognition of the deferred gain from the Macy's Brooklyn transaction closed in fiscal 2015. This compares to $65 million of asset sale gains recognized~~ in the ~~third~~first quarter of ~~2017, including approximately $40~~2018. The first quarter of 2019 included a $21 million gain related to the Macy's ~~downtown Seattle location and $22~~White Plains transaction, while the first quarter of 2018 included approximately $18 million related to the Macy's Brooklyn transaction.

~~Restructuring~~Impairment and Other Costs

The ~~third~~first quarters of 2019 and 2018 ~~and 2017~~ included $3$1 million and ~~$33~~$19 million, respectively, of ~~restructuring~~impairment and other costs. Impairment and other costs ~~related to severance activity and other human resource costs~~in the first quarter of 2018 were associated with ~~organizational restructuring.~~the wind-down of Macy's China Limited.

Benefit Plan Income, Net

The ~~third~~first quarters of 2019 and 2018 ~~and 2017~~ included $9$7 million and ~~$15~~$11 million, respectively, of non-cash net benefit plan income relating to the Company's defined benefit plans. This income includes the net of: interest cost, expected return on plan assets and amortization of prior service costs or credits and actuarial gains and losses.

~~Settlement Charges~~

The third quarters of 2018 and 2017 included $23 million and $22 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses and are the result of an increase in lump sum distributions primarily associated with retiree distribution elections and restructuring activity.

Net Interest Expense

Net interest expense for the ~~third~~first quarter of ~~2018~~2019 decreased ~~$15~~$19 million from the ~~third~~first quarter of ~~2017~~2018 due to a reduction in the Company's debt resulting from tender offer ~~repurchases in fiscal 2017~~ and open market repurchases in ~~fiscal~~ 2018.

Effective Tax Rate

The Company's effective tax rate ~~of 16.2%~~was 16.6% for the ~~third~~first quarter of 2019 and 28.4% for the first quarter of 2018 ~~and 27.0% for the third quarter of 2017 differ from~~compared to the federal income tax statutory rate of 21% ~~and 35%, respectively, because of the resolution of certain tax settlements and tax examinations. In addition to these items, the~~. The effective tax rate for the ~~third~~first quarter of ~~2018~~2019 was ~~lower than~~impacted by the ~~effective~~settlement of certain tax ~~rate for~~matters. In addition, the ~~third~~first quarter of ~~2017 due~~2019 included income of $1 million for net excess tax benefits associated with share-based payments compared to a net tax shortfall expense of $3 million in the ~~enactment~~first quarter of ~~U.S. federal tax reform in December 2017, which lowered the Company's federal income tax statutory rate as outlined above.~~2018.

Net Income Attributable to Macy's, Inc. Shareholders

Net income attributable to Macy's, Inc. shareholders for the ~~third~~first quarter of ~~2018 increased $32~~2019 decreased $3 million compared to the ~~third~~first quarter of ~~2017.~~2018. The ~~third~~first quarter of ~~2018 included higher sales, net credit card revenue and gross margin, as well as~~2019 was driven by lower operating income partially offset by lower interest expense and a lower effective tax rate than the ~~third~~first quarter of ~~2017.~~2018.

Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders

Diluted earnings per share for the ~~third~~first quarter of 2019 decreased $0.01 compared to the first quarter of 2018 ~~increased $0.10 compared to the~~ ~~third quarter of 2017~~, reflecting ~~higher~~lower net income.

~~MACY'S, INC.~~

~~Comparison of the 39 Weeks Ended November 3, 2018 and October 28, 2017~~

2018 2017
Amount % to Net Sales Amount % to Net Sales
(dollars in millions, except per share figures)
Net sales $ 16,516
$ 16,267

Credit card revenues, net 528
3.2
% 473
2.9
%

Cost of sales (9,927 ) (60.1 ) % (9,858 ) (60.6 ) %
Selling, general and administrative expenses (6,501 ) (39.4 ) % (6,406 ) (39.4 ) %
Gains on sale of real estate 111
0.7
% 176
1.1
%
Impairment, restructuring and other costs (39 ) (0.2 ) % (33 ) (0.2 ) %
Operating income 688
4.2
% 619
3.8
%
Benefit plan income, net 31
42

Settlement charges (73 ) (73 )
Interest expense, net (187 ) (237 )
Losses on the early retirement of debt (5 ) (1 )
Income before income taxes 454
350

Federal, state and local income tax expense (96 ) (138 )
Net income 358
212

Net loss attributable to noncontrolling interest 10
7

Net income attributable to Macy's, Inc. shareholders $ 368
2.2
% $ 219
1.3
%

Diluted earnings per share attributable to
Macy's, Inc. shareholders
$ 1.18
$ 0.71

Supplemental Financial Measures
Gross margin (a)
$ 6,589
39.9
% $ 6,409
39.4
%

Supplemental Non-GAAP Financial Measures
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of certain items $ 1.45
$ 0.93

~~(a) Gross margin is defined as net sales less cost of sales.~~

~~Net Sales and Comparable Sales~~

Net sales for 2018 increased $249 million or 1.5% compared to 2017. Comparable sales on an owned basis during 2018 increased 2.4% compared to 2017. On an owned plus licensed basis comparable sales increased 2.7% during 2018. Sales during 2018 benefited from the Company's implementation of the five key strategic initiatives of the North Star strategy, strong consumer spending and improved inventory management. The Company’s digital business continued its strong growth with double-digit gains in 2018. Sales during 2018 were the strongest in fine jewelry, fragrances, men's, women's shoes, dresses, kids, and active. Sales were not as strong in women's sportswear and fashion watches during 2018.

~~Credit Card Revenues, Net~~

Credit card revenues, net were $528 million in 2018, an increase of $55 million compared to $473 million recognized in 2017. Increased proprietary card usage driven by the enhanced Macy's Star Rewards loyalty program and higher consumer credit balances drove the favorable results. Proprietary card penetration increased to 46.8% in 2018 from 46.3% in 2017.

~~Cost of Sales~~

The cost of sales rate as a percent to net sales for 2018 decreased to 60.1% compared to 60.6% for 2017, while cost of sales increased $69 million compared to 2017 due to improved sales. The decrease in the cost of sales rate as a percent to net sales was primarily due to the Company's improved inventory management, which resulted in lower markdowns.

~~MACY'S, INC.~~

~~Selling, General and Administrative Expenses~~

SG&A expenses for 2018 increased $95 million from 2017. The SG&A rate as a percent to net sales of 39.4% was flat in 2018 as compared to 2017. The SG&A rate was impacted by the savings of the Company's prior restructuring activity, offset by the expansion of Backstage as well as the Company's new employee incentive plan.

~~Gains on Sale of Real Estate~~

2018 included asset sale gains of $111 million, including $58 million related to the continued recognition of the deferred gain from the Macy's Brooklyn transaction closed in fiscal 2015. This compares to $176 million of asset sale gains recognized in 2017, including $47 million related to the Macy's downtown Minneapolis location, $49 million related to the Macy's Brooklyn transaction, and $40 million related to the Macy's downtown Seattle location.

~~Impairment, Restructuring and Other Costs~~

2018 and 2017 included $39 million and $33 million, respectively, of costs primarily associated with the wind-down of Macy's China Limited, as well as severance activity and other human resource costs related to organizational restructuring.

~~Benefit Plan Income, Net~~

2018 and 2017 included $31 million and $42 million, respectively, of non-cash net benefit plan income relating to the Company's defined benefit plans. This income includes the net of: interest cost, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses.

~~Settlement Charges~~

2018 and 2017 each included $73 million of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses and are the result of an increase in lump sum distributions primarily associated with retiree distribution elections and restructuring activity.

~~Net Interest Expense~~

Net interest expense for 2018 decreased $50 million from 2017 due to a reduction in the Company's debt as a result of the activity previously discussed within the quarterly results of operations as well as open market repurchases during fiscal 2017.

~~Losses on Early Retirement of Debt~~

In 2018, the Company repurchased approximately $344 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cost of approximately $354 million, including expenses and other fees related to the transactions. As a result of the debt repurchases, the Company recognized $5 million in expenses and fees net of the write-off of unamortized debt premiums.

In 2017, the Company repurchased approximately $247 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cost of approximately $257 million, including expenses and other fees related to the transactions. As a result of the debt repurchases, the Company recognized $1 million in expenses and fees net of the write-off of unamortized debt premiums in 2017.

~~Effective Tax Rate~~

The Company's effective tax rate of 21.1% for 2018 and 39.4% for 2017 include the effects of certain tax settlements and tax examinations as well as the impact of the U.S. federal tax reform in December 2017, which lowered the Company's federal income tax statutory rate from 35% to 21%. Further, 2017 included the recognition of approximately $12 million, respectively, of net tax deficiencies associated with share-based payment awards.

~~Net Income Attributable to Macy's, Inc. Shareholders~~

Net income attributable to Macy's, Inc. shareholders for 2018 increased $149 million compared to 2017. The increase in 2018 was due to higher sales, net credit card revenue and gross margin, as well as lower interest expense and a lower effective tax rate. These increases were offset by lower gains associated with the sale of real estate as well as higher SG&A expenses in 2018 as compared to 2017.

~~Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders~~

~~Diluted earnings per share for 2018 increased $0.47 compared to 2017, reflecting higher net income.~~

~~MACY'S, INC.~~

Liquidity and Capital Resources

The Company's principal sources of liquidity are cash from operations, cash on hand and the credit facility described below.

Operating Activities

Net cash used by operating activities in the first quarter of 2019 was $38 million, compared to net cash provided by operating activities ~~in 2018 was $429 million, compared to~~of $~~399~~322 million ~~provided~~ in ~~2017. Operating~~the first quarter of 2018. The difference in operating cash flows ~~in 2018 were driven by~~period over period reflects the ~~Company's higher net income as discussed within the results~~timing of ~~operations and due to the Company's debt repurchase activity as well as lower income tax payments.~~inventory purchases.

MACY'S, INC.

Investing Activities

Net cash used by investing activities was $~~549~~237 million in ~~2018,~~the first quarter of 2019, compared to ~~net cash used by investing activities of~~ $~~329~~156 million in ~~2017.~~the first quarter of 2018. The increase in ~~2018~~the first quarter of 2019 was driven by the Company's investments in its ~~five key~~ strategic initiatives resulting in $264 million of capital expenditures, inclusive of property and equipment and capitalized software, compared to $190 million in the ~~North Star strategy.~~first quarter of 2018. Offsetting this outflow in the first quarter of 2019, the Company received cash of ~~$121~~$34 million from the disposition of property and equipment primarily related to the execution of real estate transactions, ~~in 2018, including the sale of the upper seven floors of the Macy's State Street store in Chicago. In 2017, the Company received $212~~compared to $23 million of ~~real estate sale~~ proceeds ~~that included $59 million from~~in the ~~sale~~first quarter of ~~the Macy's downtown Minneapolis location.~~2018.

Financing Activities

Net cash used by the Company for financing activities was ~~$616~~$158 million for ~~2018,~~the first quarter of 2019, including payment of ~~$347~~$116 million of cash ~~dividends. This outflow was~~dividends and a $45 million decrease in outstanding checks. These outflows were partially offset by ~~$41~~$6 million of proceeds received from the issuance of common stock, primarily due to an increase in stock option exercise activity. During 2018, the Company repurchased approximately $344 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cost of approximately $354 million, including expenses and other fees related to the ~~transactions.~~exercise of stock options.

Net cash used by the Company for financing activities was ~~$816~~$99 million for ~~2017,~~the first quarter of 2018, including ~~debt payments of $564 million and~~ payment of ~~$346~~$116 million of cash dividends. ~~In 2017,~~This outflow was partially offset by $28 million from the ~~Company repurchased approximately $247 million face value~~issuance of ~~senior notes and debentures. The debt repurchases were made in the open market for a total cash cost of $257 million, including expenses and other fees~~common stock, primarily related to the ~~transactions. Additionally, during the second quarter~~exercise of ~~2017,~~stock options.

As of May 4, 2019, the Company ~~repaid at maturity $300 million of 7.45% senior debentures due July 2017.~~

On November 28, 2018, the Company commenced a tender offer to purchase up to $600 million in aggregate principal amount of certain senior unsecured notes and debentures, with stated interest rates ranging from 2.875% to 8.75% and maturities ranging from fiscal years 2023 to 2042. The tender offer expires on December 26, 2018, with an early tender date on December 11, 2018.

~~The Company is~~was party to a credit agreement with certain financial institutions providing for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the option of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing) outstanding at any particular time. ~~The agreement is set to expire May 6, 2021.~~ As of ~~November 3, 2018,~~May 4, 2019, the Company did not have any borrowings or letters of credit outstanding under its credit facility.

On May 9, 2019, the Company entered into a new credit agreement with certain financial institutions that replaces the previous credit agreement which was set to expire on May 6, 2021. Similar to the previous agreement, the new credit agreement provides for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the option of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing). The new credit agreement is scheduled to expire on May 9, 2024, subject to up to two one-year extensions that may be requested by the Company and agreed to by the lenders.

The Company is party to a $1,500 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate amount outstanding at any particular time not to exceed its then-current combined borrowing availability under its bank credit agreement. As of ~~November 3, 2018,~~May 4, 2019, the Company did not have any borrowings outstanding under its commercial paper program.

As of ~~November 3, 2018,~~May 4, 2019, the Company was required under its credit agreement to maintain a specified interest coverage ratio for the latest four quarters of no less than 3.25 and a specified leverage ratio as of and for the latest four quarters of no more than 3.75 under the credit agreement. The Company's interest coverage ratio for the ~~third~~first quarter of ~~2018~~2019 was ~~10.88~~12.30 and its leverage ratio at ~~November 3, 2018~~May 4, 2019 was ~~1.88,~~1.78, in each case as calculated in accordance with the credit agreement. As of ~~November 3, 2018,~~May 4, 2019, the Company was in compliance with the ratios.

On ~~October 26, 2018,~~May 17, 2019, the Company announced that the Board of Directors declared a quarterly dividend of 37.75 cents per share on its common stock, payable ~~January 2,~~July 1, 2019, to Macy's shareholders of record at the close of business on ~~December~~June 14, ~~2018.~~2019.

MACY'S, INC.

Capital Resources

Management believes that, with respect to the Company's current operations, its cash on hand and funds from operations, together with its credit facility and other capital resources, will be sufficient to cover the Company's reasonably foreseeable working capital, capital expenditure and debt service requirements and other cash requirements in both the near term and over the longer term. The Company's ability to generate funds from operations may be affected by numerous factors, including general economic conditions and levels of consumer confidence and demand; however, the Company expects to be able to manage its working capital levels and capital expenditure amounts so as to maintain sufficient levels of liquidity. To the extent that the Company's cash balances from time to time exceed amounts that are needed to fund its immediate liquidity requirements, the Company will consider alternative uses of some or all of such excess cash. Such alternative uses may include, among others, the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations. Depending upon its actual and anticipated sources and uses of liquidity, conditions in the capital markets and other factors, the Company will from time to time consider the issuance of debt or other securities, or other possible capital markets transactions, for the purpose of raising capital which could be used to refinance current indebtedness or for other corporate purposes, including the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations.

The Company intends from time to time to consider additional acquisitions of, and investments in, retail businesses and other complementary assets and companies. Acquisition transactions, if any, are expected to be financed from one or more of the following sources: cash on hand, cash from operations, borrowings under existing or new credit facilities and the issuance of long-term debt or other securities, including common stock.

Outlook and Recent Developments

On ~~November 14, 2018,~~May 15, 2019, the Company issued a press release to report preliminary earnings for its ~~third~~first quarter of 2019 and ~~updated sales and earnings guidance for fiscal 2018 as follows:~~

~~Total net sales are expected to range from up 0.3% to up 0.7% compared to fiscal 2017.~~

Annual comparable sales on an owned plus licensed basis are expected to increase between 2.3% and 2.5%. Annual comparable sales on an owned basis are expected to be 20-30 basis points below comparable sales on an owned plus licensed basis.

•~~Net credit card revenue is expected to be approximately $740 million to $755 million.~~

•~~Effective tax rate is expected to be 22.75%.~~

~~Adjusted earnings per diluted share are expected to be $4.10 to $4.30. This reflects an increase of 15 cents compared to the prior revised~~reaffirmed its full year guidance provided atpreviously in the ~~end of the Company's second quarter of 2018.~~

All other annual guidance including gross margin, SG&A, asset sale gains, interest expense, depreciation and amortization, and capital expenditures are unchanged from the guidance previously provided by the Company.

~~Total net sales guidance is provided on a 52-week basis in~~ 2018 compared to a 53-week basis in 2017. Comparable sales guidance is provided on a 52-week basis in both 2018 and 2017. The above fiscal 2018 guidance and fiscal 2017 comparable amounts reflect the new accounting standards related to revenue recognition and retirement benefits.

10-K.

MACY'S, INC.

Important Information Regarding Non-GAAP Financial Measures

The Company reports its financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). However, management believes that certain non-GAAP financial measures provide users of the Company's financial information with additional useful information in evaluating operating performance. Management believes that providing supplemental changes in comparable sales on an owned plus licensed basis, which includes adjusting for growth in comparable sales of departments licensed to third parties, assists in evaluating the Company's ability to generate sales growth, whether through owned businesses or departments licensed to third parties, on a comparable basis, and in evaluating the impact of changes in the manner in which certain departments are operated. In addition, management believes that excluding certain items from net income and diluted earnings per share attributable to Macy's, Inc. shareholders that are no longer associated with the Company’s core operations and that may vary substantially in frequency and magnitude period-to-period provides useful supplemental measures that assist in evaluating the Company's ability to generate earnings and leverage sales and to more readily compare these metrics between past and future periods.

The reconciliation of the forward-looking non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis to GAAP comparable sales (i.e., on an owned basis) is in the same manner as illustrated below, except that the impact of growth in comparable sales of departments licensed to third parties is the only reconciling item. In addition, the Company does not provide the most directly comparable forward-looking GAAP measure of net income and diluted earnings per share attributable to Macy’s, Inc. shareholders excluding certain items because the timing and amount of excluded items are unreasonably difficult to fully and accurately estimate.

Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the Company's financial results prepared in accordance with GAAP. Certain of the items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the Company's financial position, results of operations or cash flows and should therefore be considered in assessing the Company's actual and future financial condition and performance. Additionally, the amounts received by the Company on account of sales of departments licensed to third parties are limited to commissions received on such sales. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.

~~MACY'S, INC.~~

Change in Comparable Sales

The following is a tabular reconciliation of the non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis, to GAAP comparable sales (i.e. on an owned basis), which the Company believes to be the most directly comparable GAAP financial measure.

Third Quarter of 2018 2018

Increase in comparable sales on an owned basis (note 1) 3.1 % 2.4 %
Impact of growth in comparable sales of departments licensed to third parties (note 2) 0.2 % 0.3 %
Increase in comparable sales on an owned plus licensed basis 3.3 % 2.7 %



	First Quarter of 2019

Increase in comparable sales on an owned basis (note 1)	0.6	%
Impact of growth in comparable sales of departments licensed to third parties (note 2)	0.1	%
Increase in comparable sales on an owned plus licensed basis	0.7	%

Notes:

(1)

Represents the period-to-period percentage change in net sales from stores in operation throughout the year presented and the immediately preceding year and all online sales, excluding commissions from departments licensed to third parties. Stores impacted by a natural disaster or undergoing significant expansion or shrinkage remain in the comparable sales calculation unless the store, or material portion of the store, is closed for a significant period of time. Definitions and calculations of comparable sales may differ among companies in the retail industry.

(2)

Represents the impact of including the sales of departments licensed to third parties occurring in stores in operation throughout the year presented and the immediately preceding year and all online sales in the calculation of comparable sales. The Company licenses third parties to operate certain departments in its stores and online and receives commissions from these third parties based on a percentage of their net sales. In its financial statements prepared in conformity with GAAP, the Company includes these commissions (rather than the sales of the departments licensed to third parties) in its net sales. The Company does not, however, include any amounts with respect to licensed department sales (or any commissions earned on such sales) in its comparable sales in accordance with GAAP (i.e., on an owned basis). The Company believes that the amounts of commissions earned on sales of departments licensed to third parties are not material to its results of operations for the periods presented.

MACY'S, INC.

Adjusted Net Income and Adjusted Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders

The following is a tabular reconciliation of the non-GAAP financial measure of net income and diluted earnings per share attributable to Macy's, Inc. shareholders, excluding certain items identified below, to GAAP net income and diluted earnings per share attributable to Macy's, Inc., shareholders, which the Company believes to be the most directly comparable GAAP measures.

Third Quarter of 2018 Third Quarter of 2017

Net Income Attributable to Macy's, Inc. Shareholders Diluted Earnings Per Share Net Income Attributable to Macy's, Inc. Shareholders Diluted Earnings Per Share
As reported $ 62
$ 0.20
$ 30
$ 0.10
Restructuring and other costs 3
0.01
33
0.11
Settlement charges 23
0.08
22
0.07
Income tax impact of certain items identified above (5 ) (0.02 ) (20 ) (0.07 )
As adjusted $ 83
$ 0.27
$ 65
$ 0.21

2018 2017

Net Income Attributable to Macy's, Inc. Shareholders Diluted Earnings Per Share Net Income Attributable to Macy's, Inc. Shareholders Diluted Earnings Per Share
As reported $ 368
$ 1.18
$ 219
$ 0.71
Impairment, restructuring and other costs (Note 1) 31
0.10
33
0.11
Settlement charges 73
0.23
73
0.24
Losses on early retirement of debt (Note 2) 5
0.02
1
—
Income tax impact of certain items identified above (26 ) (0.08 ) (40 ) (0.13 )
As adjusted $ 451
$ 1.45
$ 286
$ 0.93



	First Quarter of 2019				First Quarter of 2018

	Net Income Attributable to Macy's, Inc. Shareholders		Diluted Earnings Per Share		Net Income Attributable to Macy's, Inc. Shareholders			Diluted Earnings Per Share
As reported	$	136	$	0.44	$	139		$	0.45
Impairment and other costs (note 3 and 4)	1		—		13			0.04
Income tax impact of certain item noted above (note 4)	—		—		(3		)	(0.01		)
As adjusted	$	137	$	0.44	$	149		$	0.48

Notes:


~~(1)~~(3)	For the first quarter of 2018, the above pre-tax adjustment excludes impairment ~~restructuring~~ and other costs attributable to the noncontrolling interest shareholder of $8$6 million.


~~(2)~~(4)	The impact during ~~2017~~the first quarter of 2019 represents a value less than zero for net income attributable to Macy's, Inc. shareholders or $0.01 per diluted share attributable to Macy's, Inc. shareholders.

~~MACY'S, INC.~~

New Pronouncements

Accounting Pronouncements Recently Adopted

See Part I, Item 1, “Financial Statements — Note 1 — Organization and Summary of Significant Accounting Policies.”

~~Accounting Pronouncements Not Yet Adopted~~

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize substantially all leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for the Company on February 3, 2019 and will be adopted utilizing a modified retrospective approach that allows for transition in the period of adoption, with certain practical expedients available.

While the Company is continuing to assess all impacts of the standard, total assets and liabilities are expected to increase by $2.0 billion to $2.5 billion as of the date of adoption. The standard is not expected to materially affect consolidated net income, which is expected to be impacted by changes to the timing of recognition of certain real estate asset sale gains due to application of the new sale-leaseback guidance and ASU No. 2017-05, Other Income - Gains and Losses from the Derecognition of NonFinancial Assets (Subtopic 610-20). These estimates are based on the Company's current lease portfolio and may change if the lease portfolio changes and as the Company continues to evaluate the new standard. A significant change in leasing activity between the date of this report and adoption is not expected. The Company's estimates will be updated each quarter as changes occur.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to the Company’s market risk as described in the Company's ~~2017~~2018 10-K. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the ~~2017~~2018 10-K.


Item 4.	Controls and Procedures.

The Company's Chief Executive Officer and Chief Financial Officer have carried out, as of ~~November 3, 2018~~May 4, 2019, with the participation of the Company's management, an evaluation of the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of ~~November 3, 2018~~May 4, 2019 the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in reports the Company files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (the "SEC") rules and forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

From time to time adoption of new accounting pronouncements, major organizational restructuring and realignment occurs for which the Company reviews its internal control over financial reporting. As a result of this review, there were no changes in the Company's internal control over financial reporting that occurred during the Company's most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

MACY'S, INC.

PART II - OTHER INFORMATION


Item 1.	Legal Proceedings.

The Company and its subsidiaries are involved in various proceedings that are incidental to the normal course of their businesses. As of the date of this report, the Company does not expect that any of such proceedings will have a material adverse effect on the Company’s financial position or results of operations.


Item 1A.	Risk Factors.

~~There~~Except as set forth below, there have been no material changes to the Risk Factors described in Part I, "Item 1A. Risk Factors" in the Company's ~~2017~~2018 10-K.

The risk factor "We depend upon designers, vendors and other sources of merchandise, goods and services. Our business could be affected by disruptions in, or other legal, regulatory, political or economic issues associated with, our supply network" is deleted and replaced as follows:

We depend upon designers, vendors and other sources of merchandise, goods and services. Our business could be affected by disruptions in, or other legal, regulatory, political or economic issues associated with, our supply network.

Our relationships with established and emerging designers have been significant contributors to Macy's past success. Our ability to find qualified vendors and access products in a timely and efficient manner is often challenging, particularly with respect to goods sourced outside the United States. We source the majority of our merchandise from manufacturers located outside the U.S., primarily Asia. Any major changes in tax policy, such as the disallowance of tax deductions for imported merchandise could have a material adverse effect on our business, results of operations and liquidity.

The procurement of all our goods and services are subject to the effects of price increases which we may or may not be able to pass through to our customers. In addition, our procurement of goods and services from outside the U.S. is subject to risks associated with political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade. All of these factors may affect our ability to access suitable merchandise on acceptable terms, are beyond our control and could negatively affect our business and results of operations.

On May 10, 2019, the current U.S. Administration imposed a 25% tariff on approximately $200 billion worth of imports from China into the U.S. The current U.S. Administration is in the process of extending the 25% tariff to all remaining imports from China, valued at approximately $300 billion, which imports include merchandise for both private-label and national brands sold in our stores. The Office of the U.S. Trade Representative is expected to hold a public hearing regarding the tariff extension on June 17, 2019. We are evaluating the potential impact of the effective and proposed tariffs, including a potential continued escalation of retaliatory tariffs, as well as other recent changes in foreign trade policy on our supply chain, costs, sales and profitability and are considering strategies to mitigate such impact, including reviewing sourcing options and working with our vendors and merchants. While it is too early to predict how these changes in foreign trade policy and any recently enacted, proposed and future tariffs on products imported by us from China will affect our business, these changes could negatively impact our business and results of operations if they seriously disrupt the movement of products through our supply chain or increase their cost. In addition, while we may be able to shift our sourcing options, executing such a shift would be time consuming and would be difficult or impracticable for many products and may result in an increase in our manufacturing costs. The adoption and expansion of trade restrictions, retaliatory tariffs, or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and/or the U.S. economy, which in turn could adversely impact our results of operations and business.

MACY'S, INC.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information regarding the Company's purchases of Common Stock during the ~~third~~first quarter of ~~2018.~~2019.



	~~Total~~ ~~Number~~ ~~of Shares~~ ~~Purchased~~	~~Average~~ ~~Price Paid~~ ~~per Share ($)~~	~~Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)~~	~~Maximum Dollar Value of Shares that may yet be Purchased Under the Plans or Programs (1)($)~~
	~~(thousands)~~		~~(thousands)~~	~~(millions)~~
~~August 5, 2018 – September 1, 2018~~	—	—	—	~~1,716~~
~~September 2, 2018 – October 6, 2018~~	—	—	—	~~1,716~~
~~October 7, 2018 – November 3, 2018~~	—	—	—	~~1,716~~
	—	—	—



	Total Number of Shares Purchased	Average Price Paid per Share ($)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Dollar Value of Shares that may yet be Purchased Under the Plans or Programs (1)($)
	(thousands)		(thousands)	(millions)
February 3, 2019 – March 2, 2019	8	25.14	—	1,716
March 3, 2019 – April 6, 2019	—	—	—	1,716
April 7, 2019 – May 4, 2019	—	—	—	1,716
	8	25.14	—

___________________

(1)

Commencing in January 2000, the Company's Board of Directors has from time to time approved authorizations to purchase, in the aggregate, up to $18 billion of Common Stock as of ~~November 3, 2018~~May 4, 2019. All authorizations are cumulative and do not have an expiration date. As of ~~November 3, 2018~~May 4, 2019, $1,716 million of authorization remained unused. The Company may continue, discontinue or resume purchases of Common Stock under these or possible future authorizations in the open market, in privately negotiated transactions or otherwise at any time and from time to time without prior notice.

MACY'S, INC.


Item 5.	Other Information.

Forward-Looking Statements

This report and other reports, statements and information previously or subsequently filed by the Company with the SEC contain or may contain forward-looking statements. Such statements are based upon the beliefs and assumptions of, and on information available to, the management of the Company at the time such statements are made. The following are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (i) statements preceded by, followed by or that include the words "may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "think," "estimate" or "continue" or the negative or other variations thereof, and (ii) statements regarding matters that are not historical facts. Such forward-looking statements are subject to various risks and uncertainties, including risks and uncertainties relating to:

the possible invalidity of the underlying beliefs and assumptions;

~~competitive pressures from department~~the success of the Company’s operational decisions, such as product sourcing, merchandise mix and ~~specialty~~pricing, and marketing, and strategic initiatives, such as Growth stores, ~~general merchandise stores, manufacturers' outlets,~~Backstage on-mall off-price business, and ~~discount stores, and all other retail channels, including the Internet, catalogs and television;~~

~~the Company's ability to remain competitive and relevant as consumers' shopping behaviors migrate to other shopping channels and to maintain its brand and reputation;~~vendor direct expansion;

general consumer-spending levels, including the impact of general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods and the effects of the weather or natural disasters;

~~conditions to, or changes in~~competitive pressures from department stores, specialty stores, general merchandise stores, manufacturers’ outlets, off-price and discount stores, and all other retail channels, including the ~~timing of, proposed transactions, including planned store closings,~~Internet, catalogs and ~~changes in expected synergies, cost savings and non-recurring charges;~~television;

the ~~success of the Company's operational decisions (e.g., product curation, marketing programs)~~Company’s ability to remain competitive and ~~strategic initiatives;~~ relevant as consumers’ shopping behaviors migrate to other shopping channels and to maintain its brand and reputation;

possible systems failures and/or security breaches, including any security breach that results in the theft, transfer or unauthorized disclosure of customer, employee or company information, or the failure to comply with various laws applicable to the Company in the event of such a breach;

the cost of employee benefits as well as attracting and retaining quality employees;

transactions involving our real estate portfolio;

conditions to, or changes in the ~~seasonal nature~~timing of, ~~the Company's business;~~proposed transactions, and changes in expected synergies, cost savings and non-recurring charges;

possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions;

possible actions taken or omitted to be taken by third parties, including customers, suppliers, business partners, competitors and legislative, regulatory, judicial and other governmental authorities and officials;

changes in relationships with vendors and other product and service providers;

currency, interest and exchange rates and other capital market, economic and geo-political conditions;

the seasonal nature of the Company's business;

unstable political conditions, civil unrest, terrorist activities and armed conflicts;

the possible inability of the Company's manufacturers or transporters to deliver products in a timely manner or meet the Company's quality standards;

the ~~Company's~~Company’s reliance on foreign sources of production, including risks related to the disruption of imports by labor disputes, regional health pandemics, and regional political and economic conditions; and

duties, taxes, other charges and quotas on imports.

In addition to any risks and uncertainties specifically identified in the text surrounding such forward-looking statements, the statements in the immediately preceding sentence and the statements under captions such as "Risk Factors" in this report and in reports, statements and information filed by the Company with the SEC from time to time constitute cautionary statements identifying important factors that could cause actual amounts, results, events and circumstances to differ materially from those expressed in or implied by such forward-looking statements.

MACY'S, INC.


Item 6.	Exhibits.



10.1		Form of Stock Option Terms and Conditions under the 2018 Equity and Incentive Compensation Plan *

10.2		2019-2021 Performance-Based Restricted Stock Unit Terms and Conditions under the 2018 Equity and Incentive Compensation Plan *

10.3		Form of Time-Based Restricted Stock Unit Terms and Conditions under the 2018 Equity and Incentive Compensation Plan *

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)

32.1		Certification by Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act

32.2		Certification by Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act

101		The following financial statements from Macy's, Inc.'s Quarterly Report on Form 10-Q for the quarter ended ~~November 3, 2018,~~May 4, 2019, filed on ~~December 7, 2018,~~June 5, 2019, formatted in XBRL: (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and ~~(v)~~(vi) the Notes to Consolidated Financial Statements.

*Constitutes a compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	MACY’S, INC.

	By:	/s/ ELISA D. GARCIA
		Elisa D. Garcia Executive Vice President, Chief Legal Officer and Secretary

	By:	/s/ FELICIA WILLIAMS
		Felicia Williams ~~Executive~~Senior Vice President, Controller and Enterprise Risk Officer (Principal Accounting Officer)

Date: ~~December 7, 2018~~June 5, 2019

3633



	2018						2017
	Amount			% to Net Sales			Amount			% to Net Sales
	(dollars in millions, except per share figures)
Net sales	$	16,516					$	16,267
Credit card revenues, net	528			3.2		%	473			2.9		%

Cost of sales	(9,927		)	(60.1	)	%	(9,858		)	(60.6	)	%
Selling, general and administrative expenses	(6,501		)	(39.4	)	%	(6,406		)	(39.4	)	%
Gains on sale of real estate	111			0.7		%	176			1.1		%
Impairment, restructuring and other costs	(39		)	(0.2	)	%	(33		)	(0.2	)	%
Operating income	688			4.2		%	619			3.8		%
Benefit plan income, net	31						42
Settlement charges	(73		)				(73		)
Interest expense, net	(187		)				(237		)
Losses on the early retirement of debt	(5		)				(1		)
Income before income taxes	454						350
Federal, state and local income tax expense	(96		)				(138		)
Net income	358						212
Net loss attributable to noncontrolling interest	10						7
Net income attributable to Macy's, Inc. shareholders	$	368		2.2		%	$	219		1.3		%

Diluted earnings per share attributable to Macy's, Inc. shareholders	$	1.18					$	0.71

Supplemental Financial Measures
Gross margin (a)	$	6,589		39.9		%	$	6,409		39.4		%

Supplemental Non-GAAP Financial Measures
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of certain items	$	1.45					$	0.93