Impact of COVID-19

3 Months Ended

May 02, 2020

Unusual or Infrequent Items, or Both [Abstract]

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States. The COVID-19 pandemic has had a negative impact on the Company's fiscal 2020 operations and financial results to date, and the full financial impact of the pandemic cannot be reasonably estimated at this time due to uncertainty as to the severity and duration of the pandemic. The following summarizes the actions taken and impacts from the COVID-19 pandemic during and subsequent to the 13 weeks ended May 2, 2020.


•	The Company temporarily closed all stores on March 18, 2020, which included all Macy’s, Bloomingdale’s, Bluemercury, Macy’s Backstage, Bloomingdales the Outlet and Market by Macy’s stores. The first tranche of stores began reopening on May 4, 2020 and nearly all the Company's stores have been reopened.

As a result of store closures, the Company recognized an approximate $300 million inventory write-down, primarily on fashion merchandise, during the 13 weeks ended May 2, 2020.

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In an effort to increase liquidity, the Company fully drew on its $1,500 million credit facility, announced the suspension of quarterly cash dividends beginning in the second quarter of 2020 and took additional steps to reduce discretionary spending. The Company's Board of Directors rescinded its authorization of any unused amounts under the Company's share repurchase program. In June 2020, the Company completed financing activities of nearly $4.5 billion. See Note 7, "Financing Activities," for further discussion on these activities.

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To improve the Company's current cash position and reduce its cash expenditures during this uncertain time, the Company's Board of Directors and Chief Executive Officer did not receive compensation from the beginning of the COVID-19 crisis through June 30, 2020. In addition, the Company deferred cash expenditures where possible and temporarily implemented a furlough for the majority of its employee population that will end at the beginning of July 2020. Certain executives not impacted by the furlough took a temporary reduction of their pay through June 30, 2020.

In the first quarter of 2020, the Company deferred rent payments for a significant number of its stores. The Company has elected to treat the COVID-19 pandemic-related rent deferrals as accrued liabilities. The Company will continue to recognize expense during the deferral periods.

In June 2020, the Company announced a restructuring that will align its cost base with anticipated near-term sales as the business recovers from the impact of the COVID-19 pandemic. The Company will reduce corporate and management headcount by approximately 3,900. Additionally, the Company has reduced staffing across its stores portfolio, supply chain and customer support network, which it will adjust as sales recover. For fiscal 2020, the Company expects pre-tax costs of approximately $180 million for these restructuring activities, the majority of which will be recorded in the second quarter of 2020 and all of which will be in cash.

During the 13 weeks ended May 2, 2020, the Company incurred non-cash impairment charges on long-lived tangible and right of use assets to adjust the carrying value of certain store locations to their estimated fair value. The Company also incurred a non-cash impairment charge on goodwill as a result of the sustained decline in the Company's market capitalization and decline in projected cash flows primarily as a result of the COVID-19 pandemic. See Note 3, "Impairment, Restructuring and Other Costs" and Note 4, "Goodwill and Indefinite Lived Intangible Assets", respectively, for further discussion of these charges.


•	On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act") was signed into law, providing payroll tax credits for employee retention, deferral of payroll taxes, and several income tax provisions including modifications to the net interest deduction limitation, changes to certain property depreciation and allows for carryback of certain operating losses.

The impacts of the CARES Act have been included in the estimation of the Company's annual effective tax rate and the income tax benefit recognized during the 13 weeks ended May 2, 2020. Specifically, the Company has estimated an annual net operating loss that will be available for carryback at a 35% federal income tax rate rather than the current 21% federal income tax rate. The resultant benefit of this rate differential was offset by the impact of the non-tax deductible component of the goodwill impairment charge and additional income tax expense associated with deferred

tax remeasurement during the first quarter of 2020. The net impact of these items is the primary driver of the effective tax rate decrease when compared to the same period in 2019. As of May 2, 2020, the Company recognized a $351 million income tax receivable, which is included within Other Assets on the Consolidated Balance Sheets.

In addition, during the 13 weeks ended May 2, 2020, the Company recognized $42 million in employee retention payroll tax credits and elected to defer payment of the employer portion of social security taxes.