Macy's Inc

Good morning and welcome to the Macy's second quarter 2021 earnings conference call. Today's hour-long conference is being recorded. I would now like to turn the conference over to Mike McGuire, Head of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and thanks for joining us to discuss our second quarter 2021 results. With me on the call are Jeff Gannett, our Chairman and CEO, and Adrienne Mitchell, our CFO. Jeff and Adrienne have prepared remarks that they'll share, after which we'll provide time for questions. Given the time constraints and the number of participants, we ask that you please limit your questions to one. Along with our press release, we have posted a slide presentation on the Investors section of our website, macysinc.com. In addition to information from our prepared remarks, the presentation includes additional facts and figures to assist your analysis of Macy's. Also note that given the pandemic's impact on 2020 results, unless otherwise noted, the comparisons that we'll speak to this morning will be versus 2019, as we feel that benchmarks our performance more appropriately. We noted in our press release this morning that on Thursday, September 9th at 7.30 a.m. Eastern Time, Jeff and Adrian will be participating in a fireside chat at the Goldman Sachs Annual Global Retailing Conference. This event will be webcast on our investor relations website, so please mark your calendars. Keep in mind that all forward-looking statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today. A detailed discussion of these factors and uncertainties is contained in our filings with the Securities and Exchange Commission. In discussing the results of our operations, we will be providing certain non-GAAP financial measures. You can find additional information regarding these non-GAAP financial measures, as well as others used in our earnings release and our presentation, on the Investors section of our website. And as a reminder, today's call is being webcast on our website. A replay will be available approximately two hours after the conclusion of this call and and it will be archived on our website for one year. With that, I'll turn the call over to Jeff.

Thanks, Mike, and good morning, everyone, and thank you for joining us. Macy's, Inc. continued to build momentum in the second quarter. Our business results across our three nameplates exceeded our expectations on both top and bottom lines. The Polaris transformation, our blueprint to bring Macy's back to growth, is working. Our results this quarter demonstrate the power of an omnichannel model with a robust offering of categories, brands, and price points. We delivered a comparable own plus licensed total sales increase of 5.9% and nearly 16-point trend improvement versus the 10% decrease we saw in Q1 of 2021. Adjusted diluted EPS was $1.29, significantly exceeding our prior guidance. Total digital sales penetration, which continues to outperform expectations, was 32%, and we saw a meaningful improvement in our stores business, which was up 18 percentage points versus the first quarter trend. Gross margin for the quarter improved by approximately 180 basis points, driven by tighter inventories as well as initiatives focused on pricing and promotion. Total company AUR was up more than 12% across all three nameplates, Adrian will cover this improvement in more detail. We are generating a significant amount of cash, and this financial flexibility allows us to simultaneously invest in our business and pursue significant actions to return capital to shareholders. We are reinstating our quarterly dividend, and our board has authorized a $500 million share repurchase plan. And earlier this week, we used cash to repay our $1.3 billion secured senior notes, putting us right on track to be below our target leverage ratio with an investment-grade financial profile by the end of the year. Our results in the quarter were strong across Macy's, Inc., as many people returned to in-person shopping, while still continuing to shop online. From off-price to luxury, we are emerging from the pandemic a stronger company than we were before it began. In the second quarter, we attracted nearly 5 million new customers to Macy's, which is a 30% improvement versus 2019. Average customer spend in the quarter was up 10% compared to 2019 and up two points compared to the trend in Q1 of 2021. We saw continued strength in dressy apparel, fine jewelry, and fragrance as our customers prepared for in-person social events and back to school. We saw enthusiasm for newness with a pent-up desire to feel fresh and look current at gatherings and occasions in school and on social media. We had strong gifting business for Mother's Day, Father's Day, and graduation, with customers making up for lost time and missed milestones with gifts of fine jewelry, fragrances, and accessories. Throughout the quarter, we seized every opportunity to capitalize on rapidly changing consumer demand. analyzing shopping and spending patterns, and adjusting purchasing and allocation strategies. I'm proud of our teams who made sure that when consumers were ready to spend again, we were ready to deliver across all channels. Comparable sales for the Macy's brand were up 5.2% on an own plus license basis, a nearly 16-point improvement to last quarter. Our e-commerce conversion was up 10% and traffic was up 22%. Our stores also exceeded expectations with both existing and new customers returning to in-person shopping. Our Macy's backstage store-within-store locations, open more than one year, continued to outperform, up 28 percentage points when compared to the full-line stores. And our freestanding backstage locations also delivered positive results on a comparable basis. The Bloomingdale's business was strong online and in-stores. Comp sales on an own plus license basis were up 11.5%, a nearly 19 point trend improvement versus the first quarter. Performance was driven by strength of elevated designer products across all categories, with the majority showing double digit growth. Results also reflected better sell throughs at full price and improvement in average retail. The Blue Mercury business also showed a trend improvement versus the first quarter. with comp plus license sales up 2.2% and nearly 18-point improvement to last quarter. Loyalty customer performance improved across all tiers of our Star Rewards program. The combined platinum, gold, and silver average spend per customer increased by 15%, and average spend per visit increased by 11%. The bronze tier of this program saw average spend per customer increase 15%, and average spend per visit increase 19%. The bronze tier is one of our best customer acquisition vehicles with approximately 26% of members under 40 and 56% ethnically diverse. Loyalty program members are important to our omnichannel business, comprising approximately 65% of our total Macy's brand, comparable owned plus licensed sales for the first half of 2021. And our omnichannel customers shop with us more often, make three times as many trips as single channel customers, purchase across two to three times more product categories and spend two and a half to three and a half times more. They are our most productive and most valuable customers, and we are working to ensure that their experience with us is outstanding. We also want to maintain a best-in-class digital experience as we continue to make investments in foundational improvements to keep our online platform current and differentiated digital experiences that provide greater service, discovery, and value for our customers. We made advancements in enterprise-wide data and analytics capabilities to improve inventory placement, pickup, and delivery options, boosting speed and convenience for online orders. And these omnichannel investments are showing strong results. We saw customer spend increases across both new and retained customers. We are effectively serving customers with new, more contemporary products across all categories, and we continue to add new categories and brands as we look to unlock additional opportunities with our future core customer who is under 40 and increasingly diverse. In some cases, we're expanding upon current brand partnerships or investing more in our private brands or launching entirely new private brands, such as, and now this, a contemporary men's and women's apparel line of elevated basics and sophisticated styles that we introduced in the second quarter. Younger customers are reacting positively. We're seeing consistent full-price sell-throughs both online and in stores, and we're confident that the exploration will unlock opportunities for us with younger customers. We are building upon our expertise in the home category with brands such as Hotel to launch Oak, a new private label home and textiles brand for our more socially conscious customers. Oak will be featured on a new sitelet that launches in a few weeks, which will make it easier for customers interested in Macy's full range of environmentally conscious products to see those brands and merchandise in one place. We're taking this approach based on the success of our contemporary sitelet, which has already drawn younger customers to Macy's.com. We're also applying a physical expression of this strategy in 160 of our stores where these contemporary boutiques will sit near front entrances for maximum visibility. We also seek to gain market share from younger consumers by attracting and retaining the millennial mom, who we know shops for back to school, holiday, year-round gifting, and for herself. The breadth of our offering creates a unique opportunity to make Macy's her go-to and most satisfying convenient one-stop shop. A great example is the growth of our toy business during the pandemic, which we saw as a category that helped us attract millennial parents. and then also lead them to higher margin products and apparel and accessories. Today, I'm pleased to announce that Macy's has entered into an exclusive omnichannel partnership with Toys R Us to help us more fully realize the toy category. More information on this relationship can be found in the press release we issued this morning. By offering a wide assortment of categories, products, and brands, from off-price to luxury, we're able to meet the needs, and flex to the demands and preferences of a broad, diverse range of customers. For example, during the second quarter, casual and home categories continued to see the strong demand levels they experienced during the height of the pandemic, while categories that were quiet during the same period, such as traditional where to work and dressy, showed increases. As a department store, with our breadth of offering, we were able to analyze data to drive cross-category shopping within our ecosystem. Think about exposing our significant customer base in fragrances to all the newness we have in denim or connecting with that millennial mom when she's in a store for back-to-school apparel. She can also pick up new sneakers at finish line, toys for when the homework is done, and cosmetics for herself. And if she's enrolled in Star Rewards, she has star money to make her feel like she's not only checked everything off her list, but has also been a savvy shopper. Our commitment to delivering a dynamic, seamless, omnichannel experience across a customer shopping journey has never been stronger. And that journey increasingly begins with research and initial exploration online. We have a fully integrated business with a portfolio of product categories and brands that allow us to meet our customers based on who they are and how they want to engage with us. To me, it is clear that a comprehensive retail ecosystem with physical stores in the best malls, and the most productive off-mall locations integrated with the best-in-class e-commerce offering is a powerful combination and is moving us forward as a strong digitally-led omnichannel business. With all this said, the pandemic is, of course, still very much a reality as we move into the back half of the year, and we'll keep a watchful eye on headwinds. We'll pay close attention to the COVID variants and make decisions with the health and safety of our colleagues and customers in mind. We'll continue to mitigate supply chain shortages and other disruptions through surgical bind, close collaboration with our key brand partners, and reduced reliance on manufacturers without transnational capabilities. We'll also continue to chase inventory to help us achieve higher sell-throughs, turnover, and AUR. I'll also mention that our scale has allowed us to provide support for our brand partners because we were able to take on more of their inventory. Anne will navigate the labor shortages and intense competition for talent through multifaceted recruitment strategies, including incentives for our hourly colleagues to make referrals. And now let me turn it over to Adrian, who will walk you through the financial details. Thank you, Jeff, and good morning, everyone.