Macy's Inc

Greetings and welcome to the Macy's Inc. First Quarter 2024 Earnings Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Pamela Quintiliano, Vice President of Investor Relations. Pamela, you may begin.

Thank you, Operator. Good morning, everyone, and thanks for joining us. With me on the call today are Tony Spring, our Chairman and CEO, and Adrienne Mitchell, our COO and CFO. Along with our first quarter 2024 press release, a presentation has been posted on the investor section of our website, macysinc.com, and is being displayed live during today's webcast. Unless otherwise noted, the comparisons we provide will be versus 2023. All references to our prior expectations, outlook, or guidance refer to information provided on our February 27th earnings call, unless otherwise noted. In addition, all references to comp sales growth throughout today's prepared remarks represent comparable owned plus licensed plus marketplace sales growth and owned plus licensed sales growth for our store locations, unless otherwise noted. 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 on the investor section of our website. Today's call is being webcast on our website. A replay will be available approximately two hours after the conclusion of this call. With that, I'll turn it over to Tony.

Thanks, Pam, and good morning, everyone. On today's call, we will provide updates on our bold new chapter strategy, as well as our first quarter results and second quarter and full year outlooks. But first, let's discuss the current macro climate. our customers across all three nameplates continue to benefit from strong wage and job growth. However, inflationary pressures persist, and they're feeling that pinch. The outlook provided on our fourth quarter earnings call, as well as today's update, assumes our customers will continue to carefully scrutinize their discretionary purchases. We are reading and reacting to the dynamic economic environment and competitive promotional landscape in real time. Regardless of income tier, we know our customer responds to fashion newness at compelling price points in an engaging environment. We continue to evaluate inventory depth and composition to ensure we strike the right balance. Despite the ongoing pressure on the consumer, we are confident in our ability to return to profitable growth as we execute on the pillars of our bold new chapter strategy, which are, one, to strengthen the Macy's nameplate, two, to accelerate luxury growth, and three, to simplify and modernize end-to-end operations. This morning, we are pleased to report that although early days, we are on or ahead of plan across all three pillars, and that our first quarter EPS results exceeded our outlook. Now a brief update on our bold new chapter progress. At our largest nameplate, Macy's, the customer is responding well to our omnichannel initiatives across product, presentation, and experience. In luxury, we are pleased with Bloomingdale's advanced contemporary growth and acceleration of digital. While at Blue Mercury, skincare remains a differentiator and a standout. For both nameplates, we are evaluating new store opportunities that will strengthen our ability to accelerate omni-growth. In end-to-end operations, we are actively advancing on solutions to consolidate capacity, increase automation, and reduce costs across the network. And for our non-go-forward Macy's locations and distribution centers, given our strong balance sheet, we are able to be thoughtful and strategic with our approach to monetization. We have good traction thus far and are encouraged by the pace of dealmaking. The entire Macy's Inc. organization is focused on understanding and meeting the evolving needs and preferences of our customers. They are committed to our future and making sure our bold new chapter is a success. The level of enthusiasm and engagement is palpable and every single function is working together to get a better result. I'm pleased to report that the first quarter net sales of 4.8 billion were near the high end of our outlook and adjusted EPS of 27 cents was above our outlook. By nameplate, Macy's was in line with our expectations. Comps were down 0.4% and were led by our first 50 locations, which registered a 3.4% comp gain. The first 50 serve as pilots to test new ideas that are based on customer feedback. Results are encouraging as they are an early indicator for the go-forward Macy's fleet and ultimately the entire Macy's Inc. go-forward business's ability to return to growth. The first 50 represent what we can do when we deliver on our customers' expectations. During the first quarter, we enhanced merchandising through elevated product rollouts. Full price and planned promotional sell-throughs of new and expanded assortments has been strong. Importantly, our vendor partners are embracing our journey. They are joining with us and helping us raise the bar on both the quality and the differentiation of our assortments, and we truly appreciate their commitment and support. During the quarter, we also piloted new marketing and animation, bringing retailers theater to life. Activations included personal styling sessions, fashion shows, beauty services such as fragrance bottle engraving and craft stations. Our customers were engaged and these events serve as strong traffic and sales drivers. Rounding out our first 50 conversation, during the quarter we shifted store staffing to key merchandise departments and to the checkout area and added visual merchandise staffing. These changes were well received by our customers. Net promoter scores improved roughly 500 basis points year over year and were over 250 basis points above all other Macy's stores. Improvements are not limited to our first 50. Across the entire Macy's nameplate, we are offering product newness in our most important categories. Within apparel, we introduced and expanded distribution in several market brands, to address areas of opportunity where we have experienced softness in both women's and men's assortments. Customers were responding well to Donna Karan, which is a new brand for us, where we're seeing no price resistance. We also expanded distribution and content of Free People, French Connection, Karl Lagerfeld, and Hugo Bost, just to name a few. Positive customer response to fashion newness was partially offset by weakness in select warmer weather categories. Our private brand apparel initiative is moving forward as planned. We have completed the majority of our brand exits and reimagined and launched several new ones. During the quarter, INC and Style & Co., which have led the initiative, continue to outperform the Macy's women apparel segment. This summer, we are refreshing our kids' brands, epic threads, and first impressions. And later this year, we'll introduce a new men's contemporary private brand, which will be the last launch of this phase. In the near term, as this transition continues, we expect private brand sales volumes to remain depressed relative to historic levels and to realize improvements beginning later in the year. As a reminder, in fiscal 2023, private brands represented about 15% of Macy's sales, reflecting the exit of several heritage women's brands. Beyond apparel, accessories was better than expectations, with strengths in women's shoes and fine jewelry offset by ongoing weakness in handbags. Beauty continued to be a standout and key traffic driver, driven primarily by fragrances. Our selection of brands, including Chanel, Dior, YSL, Carolina Herrera, and Valentino, as well as our strong presentation online and in stores, keeps our customers engaged. In big ticket and home, the overall business remains challenged, although we've seen some recent traction in certain categories. We believe there is an opportunity to recover lost sales. The team is actively working on the market brand matrix and we plan to begin a complete refresh of our home private brands in fiscal 2025. Digital is also an important part of our Bold New Chapter strategy. It serves as both a gateway to the Macy's brand and as a source of commerce and omni-engagement. Under new leadership, The team is making progress on optimizing the customer journey, including addressing places of greatest friction and enhancing and expanding the shopping experience across platforms. Recently, we launched an online baby registry with over 150 new brands, which has been well received. In addition, Marketplace provides an opportunity to serve our customer better and gain a greater share of their wallet. For example, this year we're offering a compelling selection of electronics for Father's Day and the graduation season. Our digital and marketing teams are working together closely to leverage Macy's iconic events and create a modern and cohesive experience. We kicked off the spring season in Herald Square with our 49th annual Flower Show, where we partnered with Christian Dior Parfums to create floral installations using 16,000 individual plants representing over 50 varieties. The installation centered around different Dior scents and were supported by interactive components, including an online activation about the origins of Miss Dior. We are excited for our newest marketing campaign, The Greatest Hits of Summer, which represents the beginning of a modern interpretation of the Macy's brand and is the first under our new head of marketing. Finally, during the quarter, we opened a 31,000 square foot small format Macy's in Mount Laurel, New Jersey. With each new opening, we continue to learn and adjust. We remain on track to introduce 11 more this year, bringing the total to 24 by year end. Turning to luxury, Bloomingdale's and Blue Mercury continue to be bright spots within our portfolio. Both foster brand love and loyalty through the unique customer experiences and curated selection of market and private brands across price points. At Bloomingdale's, first quarter results were in line with our expectations. While our customer is not immune to macro pressures and has become more judicious with their spend, the power of Bloomingdale's position in the upscale market is its diversification across categories and price points. It has the flexibility and the tools to quickly adjust to the market, allowing it to gain wallet share even as there are shifts in popular categories and brands. During the quarter, Bloomingdale's top two household income brackets and loyalty tiers increased their total spend. Contemporary apparel, including brands like L'Agence and Mother and Sankosette, just to name a few, continued to be well-received. Along with the beauty category, they serve as powerful engines for growth. And our private brands at Bloomingdale's are a complement to our contemporary matrix. During the quarter, Aqua registered a double-digit year-over-year increase in its ready-to-wear sales. benefiting from the quiet, luxury-inspired collaboration with celebrity stylist Liat Baroque. Looking ahead, we have several exciting upcoming collaborations on the horizon. We remain committed to growing the Bloomingdale's physical footprint and associated digital presence and are on track to open roughly 15 new Bloomy's and Bloomingdale's The Outlet locations through fiscal 26, including three later this year. Comps at both concepts are continuing to outperform the broader fleet giving us confidence in our expansion strategy. Digital continues to be a strength and great expression of the Bloomingdale's brand. We have a highly engaged customer who appreciates the depth and breadth of our offering across price points. This has been complemented by Marketplace, which enriches our assortment and content, helps us gain wallet share amongst loyal customers, and introduce new customers to Bloomingdale's. At Blue Mercury, we experienced our 13th consecutive quarter of comp growth, driven by continued strength in skincare and the expansion of key brand partners including Cicely Paris, SkinCeuticals, and Augustina's Butter. Our plan is to open at least 30 new locations and remodel about 30 others are underway, with one new location and three remodels slated for the second quarter. These stores will incorporate learnings from our recent Bronxville and New Canaan remodels to inform our future stores, including an elevated aesthetic, which improves the luxury perception of Blue Mercury, an expanded assortment, and an enhanced selling model, which has had a positive impact on the client experience. Overall, we continue to view fiscal 2024 as a transition and investment year for Macy's Inc. Although early stages, we are proud of the progress we are making on our bold new chapter strategy. Our teams are collaborating to make quick and strategic decisions, and we're making investments to create an improved experience that will better serve our customer and sets the foundation for our future. With that, I'll hand it over to Adrian to provide more detail on our recent performance and our outlook.