Highlights of Progress in 2016

Although 2016 was not the year we expected, Macy’s, Inc. remains among the most profitable retailers in the sector. For the full year 2016, earnings per diluted share were $1.99, and adjusted earnings (excluding certain items) were $3.11 per diluted share. Fiscal 2016 comparable sales on an owned basis declined by 3.5 percent, and on an owned plus licensed basis, comparable sales for fiscal 2016 declined by 2.9 percent.

Given the dynamic nature of the retail landscape, we know we must evolve our strategy and execute faster to make everything we do more relevant and compelling to our customers. Though we anticipate industry challenges will continue, we are not standing still. Importantly, our 2016 progress in a number of key areas helped establish a more solid foundation for 2017 and beyond.

CEO Transition: Passing the Baton … Leader to Leader

In June 2016, Macy’s, Inc. announced our CEO succession plan. On March 23, 2017, that transition was complete as Jeff Gennette was elected chief executive officer and Terry Lundgren became executive chairman.

“I have been honored to lead this enterprise through a period of unprecedented reinvention,” said Terry Lundgren. “I’m pleased to have passed the baton to Jeff, who has a deep knowledge of our business coupled with the vision and determination to continue Macy’s transformation for the next generation.”

Terry Lundgren served as chief executive officer of Macy’s, Inc. beginning in 2003. He has worked for Macy’s, Inc. and our predecessor companies since 1994. Long considered one of the retail industry greats, Lundgren will continue to serve Macy’s, Inc. as executive chairman.

“I’m thrilled to be leading this great company as we persistently pursue our vision,” said Jeff Gennette. “With 140,000 of the industry’s best associates, an iconic brand that has infinite potential and a solid plan to execute, I’m confident we’ll succeed.”

Jeff Gennette was named chief executive officer of Macy’s, Inc. on March 23, 2017 after taking on the role of president in 2014. Prior to that, he served as Macy’s chief merchandising officer, beginning in 2009. Gennette began his retail career in 1983 as an executive trainee at Macy’s West in San Francisco. He held positions of increasing responsibility, including vice president and division merchandise manager for men’s collections, and senior vice president and general merchandise manager for men’s and children’s. From 2006 to 2008, Gennette served as chairman and CEO of Seattle-based Macy’s Northwest. He returned to San Francisco from 2008 to 2009 as chairman and CEO of Macy’s West.

Double-Digit Growth in Digital

In 2016, Macy’s, Inc. continued to see double-digit growth in our digital business, reflecting the success of our investments in this space. We have created one of the best omnichannel experiences in the retail industry and are excited about our plans to continue to improve our digital platforms.

The Macy’s app received accolades in 2016, including L2 listing the app on its Top 10 Department Stores in Digital ranking.

Reinvestment Through Real Estate Strategy

In 2016, Macy’s, Inc. solidified our real estate strategy and started to make good progress on its execution. We expect this momentum to carry into 2017 and beyond and create real value from our substantial real estate portfolio. Overall, real estate transactions in fiscal 2016 generated cash proceeds of approximately $675 million, which is helping to fund continued reinvestment in the business.

Aligned for Growth

In August 2016, we announced our intent to close 100 stores in our portfolio, and we are well on our way to that number. Closures of 68 Macy’s stores were announced in late 2016 and early 2017, and the company intends to close approximately 30 additional stores as leases expire or sales transactions are completed. Aggressively paring back our store footprint was a bold step, giving us a healthy physical store portfolio that complements our expanding digital footprint. This combination gives our customers the ability to shop with us any way they want, anytime they choose.

At the end of fiscal year 2016, the company announced a major restructuring of the entire Macy’s organization. This included a significant reduction in layers of management in the central organization and improvements to the field and store management structures.

The store closures and organizational restructuring, along with other cost savings activities, are expected to generate annual expense savings of approximately $550 million beginning in 2017, enabling the company to invest an additional $250 million in growth initiatives. We have taken actions that have reduced our expenses by more than $1 billion since 2015.

Looking to Our Future

We anticipate the challenging retail environment will continue and that consumer shopping behaviors will continue to shift, sometimes rapidly. As we look to 2017, we anticipate a sales trend that is similar to 2016. We will continue our work on reducing costs to free up funds to invest in growth initiatives that will help us gain market share, return to growth, and derive enhanced value for our shareholders over time.

To keep up with the pace of our customers and competition, we know we need to execute faster. And we will.

Macy’s, Inc. has aligned to operate as a more agile organization – bringing good ideas to fruition faster. Our management team is composed of a mix of people with deep knowledge of our company and the industry, plus a fresh perspective from external hires. This is a powerful combination.

We took decisive action in 2016 to refocus and move the company forward – and we will continue those decisive moves to make the most of the opportunities around us.

Heading into 2017, we are committed to our Macy’s, Bloomingdale’s and Bluemercury strategies, and we are confident that with 140,000 of the industry’s best people working on our team, we will succeed.