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Macy’s Firms Up Balance Sheet, Unveils New Private-Label Fashion

Thanks in part to resurging consumer demand, Macy’s Inc. is on track to retire a good chunk of its debt and get back to a healthier leverage ratio. The news comes just weeks after the department store retailer debuted a new dual-gender private-label fashion brand rife with “elevated essentials for contemporary shoppers.”

“Investing in the profitable growth of Macy’s, Inc. remains our priority,” Macy’s chief financial officer Adrian Mitchell said of plans to voluntarily redeem $1.3 billion Aug. 17, 2021, covering the principal amount of the retailer’s 8.375 percent Senior Secured Notes due 2025.

“We are pleased that, as a result of our disciplined approach to capital allocation, especially over the past 16 months, coupled with a return of consumer demand, we are now well positioned to also focus on further enhancing our long-term financial stability and value creation,” Mitchell added. The redemption covers all of Macy’s outstanding notes, the company said.

The debt retirement would put the retailer “firmly on track to be at or below” its target leverage ratio, furthering Macy’s goal of reaching an “investment grade financial profile” by year end, said Mitchell, a former partner at consulting giant BCG.

“These actions further strengthen our balance sheet, allowing us to invest in our business to deliver strong and sustainable shareholder returns as a digitally led omnichannel retailer,” he added.

The retailer said it expects to record a pre-tax charge of $185 million in its fiscal third quarter, reflecting the redemption and related costs. In addition to the redemption of 100 percent of the principal amount, the extra costs will include accrued and unpaid interest up to, but not including, the redemption date of Aug. 17. The payment will also include the premium due to holders connected to the early redemption and drive an expected annualized interest expense savings of $120 million.

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“Neither the charge nor the interest expense savings was contemplated in the full-year 2021 expectations provided in May,” Macy’s said on Tuesday.

When it reported first-quarter results in May, the retailer said customers were shopping more frequently, driving 4.6 million new shoppers to its core Macy’s brand.

“As consumers seek to re-engage with each other, we are seeing promising signs that our core customers are shopping again, and we continue to attract new customers, who increasingly begin their shopping experience with us online,” CEO Jeff Gennette said in a statement at the time. He added that Macy’s is “seeing record customers coming back to shop, and they’re spending more.”

Data indicates that customers’ average spend climbed 10 percent during the first quarter versus the comparable 2019 period. Macy’s reported Q1 net income of $103 million on a net sales jump of 56 percent to $4.71 billion. That compares with a net loss of $3.58 billion on net sales of $3.02 billion in the year-ago quarter. It is set to post second quarter earnings on Aug. 19.

And Now This

Like many of its peers, Macy’s is rolling out new fashion to court consumers away from their quarantine mainstays of sweats, leggings and loungey attire.

“And Now This features elevated essentials for contemporary shoppers looking to dress around trends and confidently express themselves through fashion,” said Durand Guion, vice president of Macy’s Fashion Office.

Available in Macy’s stores and through its e-commerce site, the new label’s ready-to-wear component features denim, bodysuits, ribbed dresses, tank tops, athleisure and jackets in sizes XS-XXL for women. On the men’s side, consumers can shop a “capsule of essentials” ranging from key basics like tees, henleys and button-downs to on-trend denim, joggers, and outerwear in sizes S-XXL.

Macy’s inaugurated the new brand last month with experiential activations in New York City, Chicago and Southern Florida’s Fort Lauderdale.