This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk12: 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.
spk13: 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.
spk00: 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.
spk06: Thank you, Tony, and good morning, everyone. Let me start by thanking our teams for their support of our bold new chapter strategy. As I've been out in the field visiting our stores and distribution centers, I've been impressed with the dedication and commitment to our customers. As Tony mentioned, we're encouraged by early progress across all three pillars of our strategy and the positive impact our investments are having on the Go Forward Macy's Inc. Enterprise and our largest nameplate, Macy's. Total Macy's Inc. Enterprise comps were down 0.3% year over year and net sales were $4.8 billion, down 2.7% to last year and near the high end of our outlook. For the Go Forward Macy's Inc. business, Defined as Macy's, Bloomingdale's, and Blue Mercury Go Forward locations plus digital, comps rose 0.1% year over year. We are pleased with the emerging trends. We view our first 50 locations, Go Forward Macy's nameplate, and Go Forward Macy's Inc. business as evidence that our bold new chapter investments are working, and they are what we are tracking most closely as predictors of our ability to return to profitable growth. At the Macy's nameplate, comps were down 0.4% and net sales were down 3.3%, while Go Forward business comps were flat to last year. Our first 50, which we view as the leading indicator of Go Forward store growth, achieved a positive 3.4% comp. To size that business, these locations represented about 15% of the Macy's Inc. Go Forward enterprise, and close to 20% of the Macy's nameplate go-forward sales last year. The first 50 comp results compare to a negative 1.3% in the remaining go-forward locations, which have not yet received growth investments, a positive 0.1% for all go-forward locations, and a negative 4.5% for all non-go-forward locations. At our luxury nameplates, Bloomingdale's comps were up 0.3%, and net sales were up 0.5%, and Blue Mercury comps were up 4.3%, and net sales rose 4%. Turning to the rest of the P&L, other revenues were $154 million, down 19.4% from the prior year. Net credit card revenues declined $45 million, or 27.8%, from the prior year to $117 million. Delinquency rates and net credit losses were both higher than last year, but in line with our expectations. Macy's median network revenue rose 27.6% to $37 million as the team continued to increase vendor engagement. Gross margin rate declined 80 basis points to 39.2%. The decline was steeper than our outlook, primarily reflecting additional discounting for slower moving warm weather products. We recognize that our customer is searching for newness at the right value, and we're responding appropriately to ensure we deliver on both. Discounting pressure was partially offset by better delivery expense, which improved 20 basis points as a percent of sales. End of quarter inventories were up 1.7% year over year. Entering the second quarter, we are delivering fresh goods and are well positioned for the summer season. Next, SG&A expense was $1.9 billion, down 2% from the prior year and better than our expectations, reflecting our continued cost discipline. As a percent of total revenue, SG&A was 38.2%, 50 basis points higher than last year due to the decline in total revenue. Adjusted diluted EPS was 27 cents. This compares to our previously provided outlook of 10 cents to 16 cents and 56 cents in the prior year. Turning to cash and capital allocation. For the quarter, cash generated from operating activities was $129 million, while capital expenditures totaled $229 million. Free cash flow was an outflow of $96 million a year-over-year improvement of $70 million. And we paid $48 million in cash dividends. We will continue to deploy capital prudently to ensure financial flexibility and a healthy balance sheet that supports our longer-term growth aspirations. With that, let's discuss how we are approaching the remainder of 2024. We are raising our annual EPS outlook and narrowing our sales range to reflect a portion of our first quarter earnings beat. While we are encouraged by recent results and early traction of our bold new chapter strategy, we're also cognizant of the dynamic macro environment we are operating in. With continued pressure on the consumer and the majority of the year ahead, our second quarter and full year outlook provides flexibility to respond to the competitive landscape and the promotional environment. For the year, we now expect Macy's Inc. comps, inclusive of non-go-forward locations and digital, to be down approximately 1% to up approximately 1.5%, with both Macy's nameplate go-forward locations and digital and our luxury nameplates to be roughly flat to up 2.5%. Net sales of approximately $22.3 to $22.9 billion. Total revenues of $23 to $23.6 billion. This includes other revenue of approximately $665 to $680 million. Credit card revenues of approximately $490 to $505 million, which is above our prior forecast due to better than expected profit share, resulting from higher balances within the portfolio. We continue to exclude any potential impact for the late fee ruling. We also expect gross margin rate as a percent of net sales to be 39% to 39.3%, benefiting from ongoing inventory controls, higher full-price sell-throughs, and private brand expansion, partially offset by elevated discounting of warmer weather spring product and targeted promotions to address a value-conscious consumer. SG&A rate of 36.3% to 36.4% of total revenue as we continue to effectively manage expenses to properly support our new strategy and the associated areas of opportunity. And full-year adjusted EBITDA as a percent of total revenue of 8.7% to 9%. There is no change to our capital spend, asset sale proceeds, or asset sale gains assumptions for the year. After interest and taxes, we expect adjusted diluted EPS of $2.55 to $2.90, which does not assume any share repurchases. For the second quarter, we expect net sales of 4.97 to $5.1 billion, total revenues of 5.1 to $5.25 billion, with other revenue at about $155 million. Credit card revenues are expected to be flat with last year's $120 million. As a reminder, 2023 results included the pro rata adjustment for the mid-year increase in our annual net credit loss outlook due to the normalizing credit environment. Gross margin rate to be at least 170 basis points better than last year, reflecting the lapping of heightened clearance markdowns on excess seasonal goods, quarter-to-date discounting of the remaining spring assortments, and the planned liquidation of select men's private brands as part of our broader reimagination strategy. Adjusted EPS of $0.25 to $0.33 and end-of-quarter inventories to be up low single digits to last year as we reinvest in private brands and conduct additional national brand tests in our first 50 and go-forward locations. To wrap up, we are encouraged by the momentum in our bold new chapter strategy and our future growth prospects. Despite ongoing macro pressures on our consumer, we remain committed to our previously stated fiscal 2025 financial targets and are excited to return Macy's Inc. to profitable growth. I'll now hand it back over to Tony.
spk00: Thank you, Adrian. A bold new chapter sets us firmly on a path to change our trajectory. Although early days, our investments are gaining traction and reinforce our belief that Macy's Inc. can return to sustainable profitable growth, accelerate free cash flow generation, and unlock shareholder value. Our focus on serving the customer is unwavering. We are confident that we have the right team and strategy in place to achieve our goals and look forward to updating you on our progress. With that, operator, we are ready for questions.
spk12: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up. Again, that's star 1 to register a question at this time. Today's first question is coming from Matthew Boss of JPMorgan Chase. Please go ahead.
spk09: Great, thanks, and congrats on the progress. Thank you. So, Tony, could you elaborate on the key initiatives which you saw drive the 3% to 4% comp in the first 50 doors? Maybe what you're seeing between traffic and AUR in these doors, and how quickly could you scale this playbook? And then, Adrian, Just maybe drivers on second quarter gross margin expansion and any change in your back half merchandise margin expectations.
spk00: Thanks, Matt. Appreciate the question. Look, we're excited by the early innings of first 50. It's a combination of the things that we have talked about in people, product, presentation, and experience. You know, people, it's having the right people in place at the right time. It sounds easy, but using technology and the data we have on traffic and conversion by day, by hour, making sure that we have people in the shoe department, people in the ready-wear fitting rooms, people in the big ticket area and fine jewelry. But the team is all over it, and I think doing a great job in leaning into the opportunities to increase the quality of the experience in our stores. That's why we saw 500 basis point improvement in net promoter scores in the first 50 stores. It's the product, you know, the team feeling the obligation to meet the needs of the customer, and whether that's the rollout of new brands like Donna Karan or the expansion of brands like French Connection and Free People and Karl Lagerfeld and Hugo Boss. We need more variety. We need less redundancy. We need more interest within the assortment. And I think that's making a difference in the customer's reception to the stores. The experience, you know, it's adding animation and events into the stores, and it's also making sure from a presentation standpoint we look crisp, we look compelling. That's the partnership with the brands to make sure that the impact is in each of the categories of business. And, again, I would add that, you know, we're in the early innings. So we're going to study this. Capital is something that we care a lot about, capital allocation. We're going to be very discerning in terms of what we decide to do and where. But I feel good, and I think opportunities exist to expand this as the year progresses, as soon as we see another quarter or more consistency amongst the stores and the overall results. Traffic is good. The AUR is up about 4%. So, you know, conversion I think is reflective of, you know, the discerning customer who feels under pressure and is going to wait to buy the things that they love. So we accept the challenge and we'll respond to it appropriately.
spk06: Good morning, Matt, and thank you for your question on gross margin. Let me set a little bit of context as we think about the second quarter gross margin because I think what we observed and how we navigated the first quarter is pretty important. As you look at our first quarter results, we're very much pleased with how we navigated the first quarter. And as you saw, we delivered earnings that exceeded our outlook. Now, the key thing, as Tony pointed out, is that we're very much focused on delivering on our customer experience. But we also recognize that the customer is under pressure, the macro environment remains uncertain, and that we can only control what we can control. So as we navigated the first quarter, we're balancing a number of different variables given that context. We're balancing sales growth, delivering value for more value conscious customers as we thought about our markdowns and discounts, ensuring healthy inventory turns, and also managing our operating expenses, particularly our variable expenses pretty effectively. But really the headwind in the first quarter was really warm weather products that just simply didn't move as fast as we had expected. but we had to respond to maintain the health of the inventory. If I pivot to the inventory, as you know, we have a proven track record on inventory discipline. This is something that we've really leaned into the last several years. And what you saw in the first quarter is that we took the actions needed to maintain the health of our inventory in terms of volume and composition. What I can tell you as it relates to your question about the second quarter is that we're entering the second quarter with less aged inventory than last year. and more transitional product relative to last year. So we feel that we're well positioned for the summer season as we enter the second quarter, but also well positioned as we enter the balance of the year. And what we're trying to do here is provide ourselves the appropriate level of flexibility to respond to an environment that's more competitive, that's more promotional, so that we can be able to navigate and adjust based on whatever is on the horizon. To your pointed question about the Q2 outlook in the back half of the year, As we look at gross margin outlook forecasted for the second quarter, we expect to be at least 170 basis points above last year. We like that trajectory, especially as the weather gets warmer and we're well positioned on warm weather goods. And as we think about the composition shifting to the fall season, it's all about inventory discipline and inventory control. Watching that level as we enter the third quarter and the holiday season and making sure that we have the right composition.
spk09: Great color. Best of luck.
spk06: Thank you. Thanks, Matt.
spk12: Thank you. The next question is coming from Michael Bonetti of Evercore ISI. Please go ahead.
spk07: Hey, good morning. This is Warren Chang on for Michael. I wanted to follow up on your comment that the vendor partners are engaging with the enhancements you're making in those first 50 stores. Is that driving a lift in the vendor mix or allocations versus what you had planned? And also curious if that's driving any impact on the full price sell-through or margins you're realizing in those first 50 stores.
spk00: Thanks, Warren, for the question. I think the vendors feel a sense of partnership, and there is a natural obligation that we have to each other. We do well when the vendors do well. The vendors do well when we do well. And I think that we have seen a level of engagement relative to these first 50. I think as we talked about on the last call, We hate closing stores or even rationalizing the store base, but the vendors were very supportive of that idea, meaning they wanted to focus on our most productive assets. They wanted to invest with us. They wanted to offer us better assortments in those stores. They see higher full-price sell-through in those stores. And that's really all kind of coming to fruition. Again, it's early innings, so we're going to be careful, but We wouldn't do these weekly events if our vendors weren't partnering with us. We wouldn't be able to add the level of staffing if our vendors weren't partnering with us. We certainly wouldn't be able to offer the distinction and variety within our assortment if our vendors weren't partnering with us. And so I feel it's a story of two mutually dependent partners. I think we said private brand was 15% last year. Maybe one day we'll get it back to closer to 20%. But ideally, we're going to lean into the partnerships where 80% of our businesses to make sure that they feel Macy's, Bloomingdale's, and Blue Mercury are the best places to do business.
spk07: Thanks. That's really helpful. And I wanted to ask a follow-up on your credit card revenues. OneQ came in a little bit better than he expected. You also raised the rest of the year slightly. Can you give us an update on how you're seeing credit losses and delinquencies trend over the last three months?
spk06: Yeah, I'll go ahead and take that one. You know, when we think about our credit card results in the first quarter, we're pretty pleased. And to your point, Warren, we did increase our annual outlook by about $15 million. The reality is that we saw higher balances in our portfolio. In terms of the delinquency metrics, the payment metrics, they're very much in line with our expectations. But also what contributed to our beat in the first quarter was also better than expected profit sharing with Citi as well.
spk12: Thanks.
spk06: Good luck. Thank you. Thank you.
spk12: Thank you. The next question is coming from Ashley Hogan of Jefferies. Please go ahead.
spk02: Hey, good morning. For the first 50 locations that were up 3.3%, how much was ticket versus traffic? And then maybe you could talk about the level of promotions at those stores versus the rest of the fleet.
spk00: Sure, Ashley. You know, there was no difference in the level of promotion in those stores versus the rest of the fleet. So no change there. The difference was in traffic, a higher conversion rate, and a comparable increase in average unit retail. The customers are responding, as we said, to the right recipe. And I use the analogy of a recipe because a recipe means you have to get all the ingredients right. Sometimes in our business, the merchants want to do their part only if the stores do their part, and the stores only want to do their part if the digital team does their part. In first 50, we're all doing our part. And we're getting credit for product improvement. We're getting credit for visual animation. We're getting credit for the experiences we're adding. We're getting credit for the service experience. Those net promoter scores are a great indicator, and we drill down to perception on availability of size and color. We drill down to the inspiration from visual animation. We drill down to have the brands and styles and products that I like. We're seeing meaningful increase across all of those metrics. And I think that's a good indicator, early innings, but the team working together and improving the overall experience in our first 50 stores.
spk06: Tony, if I may just add, I just want to amplify Tony's point about this being early innings. On one dimension, we're 90 days in, and we're still practicing around things like selling and service. We're getting better every day on staffing, on moving the team around the store. But also there are a number of changes that have not been implemented in these first 50 yet. So to amplify Tony's point, it's early innings. We're still experimenting. There's still more changes coming into the store based on what our customers expect of us. But overall, we're encouraged by the early wins.
spk02: That's super helpful. And if I could just squeeze in one more. So what does the high-end of your comp guide for the fiscal year assume in terms of the health of the consumer versus current levels, I guess? said differently, would the consumer need to get better to hit that range?
spk06: Yeah, you know, from our perspective, we've been pretty consistent that the pressure on the consumer is a given in terms of how we think about our business. So as we think about the range of our comp this year, it does not assume any improvement in the consumer. What it doesn't assume is improvement in how we're executing our business and how well we're serving the customer, given the growth investments that we're placing in our stores, in digital, and the acceleration of growth within our luxury nameplate. The range that you see is really reflective of the competitive environment and the continued pressure on the consumer. But from our perspective, we feel that what we can't control is really what we're going to be focused on. But the consumer, we believe, will remain under pressure for the balance of the year.
spk02: Great. That's helpful. I'll pass it off.
spk06: Thanks, Ashley.
spk12: Thank you. The next question is coming from Paul Lejouet of Citi. Please go ahead.
spk03: Thanks. It's Tracy Cogan filling in for Paul. I had a question on SG&A. It came in below your expectations this quarter, and I was wondering what the drivers of that were and then what kind of expense initiatives you have for the remainder of the year. Thank you.
spk06: Good morning, Tracy. So to your point, we are pleased with how we're managing expense ongoing. And, you know, from a cost-saving standpoint or an SG&A control standpoint, there are really two things that we focused on. The first is managing variable expense as well as we progress through the quarter, as well as really making sure that we're gaining traction on the structural cost savings initiatives that we spoke about on the last call as it relates to the end-to-end operations. The good news is that with regards to end-to-end operations, we're gaining traction. We're seeing the benefits flow through from the consolidation of our tech vendors on routine service contracts. We have fortunately transitioned through the offshoring of a large part of our finance team. We're better balancing fulfillment activities. But, you know, we're still in the early innings on end-to-end. But it's nice to see the progress that we're making and the value that we've been able to deliver in the first quarter. But I would say, you know, to your question, Tracy, the combination of how we're managing variable expenses day-to-day and the traction gained on the longer-term transformation work we're doing on end-to-end operations.
spk12: Great. Thanks, guys.
spk06: Thank you, Tracy. Thank you.
spk12: Thank you. The next question is coming from Dana Telsey of Telsey Advisory Group. Please go ahead.
spk10: Hi. Good morning, everyone. As both of you think about the health of the consumer and having come through the first quarter with the unseasonable weather, staying the same, getting better, getting worse, what are you seeing and does it differ by income levels? And lastly, can you expand on the small store format, any tweaks or adjustments, what's working, what will be adjusted or tweaked? and how you're thinking about it. Thank you.
spk00: Thanks, Dana. You know, the health of the consumer, I never claimed to be an economist. I would say, as we've described, under pressure, discerning, very choiceful. There are certainly categories that are stronger than others. The great part of being a department store is that we can move inventory. We can move people. We can move our marketing and assets and homepage exposure. And the key thing is for us to just keep our ear to the grindstone, making sure that we understand where the business is happening and move our resources there appropriately. I think the teams in general are doing a very good job. We are reordering. We are canceling. And that's what you'd expect from a good merchant and planning organization, that they are active in the market making decisions based on what they're seeing in the business. I expect the consumer to remain under pressure. We've got a big year in front of us. Maybe there'll be rate cuts. Maybe there'll be... you know, one more ending, but it's an uncertain environment. And I think our job is not to assume anything different on the things we don't control, but to play our game with strength, to play our game with confidence, to play our game with agility. And I think the team is doing that. With regard to the different income levels, we're certainly seeing at the high end, the Bloomingdale's consumer is interested in purchasing and but she's being very thoughtful in the category she's purchasing in. So I think we said that luxury handbag and shoe business is much softer than it was, still up strong to 2019, but she's investing now in advanced contemporary. She's investing now in parts of the beauty business. She's investing now in aspects of the home. So there's just a difference, I think, as you look at income tier. The customer at the lower tier has to make choices based on rent and family obligations. The customer at the higher tier is going to do it based on where she has interest or they have interest and passion and something that we are doing, I think, that creates the motivation to buy. You want to comment, Adrian, on small format?
spk06: Yes. Thank you, Tony. You know, we continue to remain very encouraged by the rollout of our small format stores. On the Macy's side, we just opened up a new store in New Jersey, but we have 11 more openings to go. We continue to be pleased with the small formats that we're seeing on the Bloomingdale's side. They continue to exceed our expectations. So we continue to believe that we expect to have one additional Bloomingdale's this year. My apologies, Dana. But look, we're encouraged. We're learning a ton. We're seeing how the customer is responding, and we're going to continue to lean in.
spk10: Thank you.
spk00: No problem, Dana. Thank you.
spk12: Thank you. The next question is coming from Chuck Grom of Gordon Haskett. Please go ahead.
spk04: Hey, good morning. Congrats on the success with the first 50. Curious how quickly you guys can roll these efforts out to more stores to help the total company comp. And curious what categories in those stores you're seeing the greatest lift in those locations.
spk00: Sure. Thanks, Chuck, for the question. I don't think it's a question of if we can. It's when we can. All of these are Capital Light decisions that we've made. They really revolve around variable SG&A. And so, you know, we're going to roll them as soon as we see enough continued results. And the good news is we're seeing them in the majority of the stores, so it's not a handful of stores. That's a really good sign. We're seeing it in the merchandise content. That's a really good sign. We're seeing it in multiple FOBs. That's also a really good sign. As I mentioned, again, the Net Promoter Score, the customer is voting both with her wallet and her commentary, taking the time to give us a lot of feedback. So I would say it's not a question of if we're going to roll out. It's a question of when, and that when is going to be we're not going to trip on our way to success. As an organization, we are highly committed to delivering on our commitments to the streets and our commitments to our colleagues. So I think that we will have green shoots. in this first and second quarter. It will allow us to do some things later in the year, and I hope we're in a position to talk to you about more stores in 2025. Okay, great.
spk04: And then one for you, Adrian, just can you talk about the cadence of your comps throughout the quarter by month and any early reads on how May and the second quarter has started? Thanks.
spk06: Yeah, good question. Look, we have not commented on the monthly cadence. You know, we're navigating the quarter We navigated the quarter as best we could. We felt good about how we navigated the quarter, and that's certainly reflected in our performance. As we think about quarter-to-date results, we're just simply not going to comment on that either. We have a lot of the quarter ahead of us, Chuck. You know, we've got graduations. We've got Father's Day. We've got Fourth of July. So I think it would be premature to, you know, think about the balance of the quarter based on just a couple of weeks into the quarter.
spk04: Okay, great. Thank you. Thanks, Chuck. Thanks, Chuck.
spk12: Thank you. The next question is coming from Alex Stratton of Morgan Stanley. Please go ahead.
spk08: Hi. This is Katie Delahunt on for Alex Stratton. My question was on the CFPB credit card regulations. Can you give us an update on what your latest view is there and then maybe remind us of your mitigation efforts and as well as if you've had any success so far with those?
spk06: Sounds good. Thank you, Katie. You know, our perspective is that it remains uncertain. You know, and so what we plan to do is to disclose the impact of the late fees once it becomes certain. The size of the impact is uncertain. The timing is uncertain. So once the final ruling comes out, we'll be able to share more information at that time. We've not shared a lot of specifics with regards to mitigation strategies, but definitely know that we're exploring them with our partner city. We're exploring a variety of strategies. Some of those strategies are in development. But from our perspective, you know, we're really waiting and seeing what the final ruling will be and be able to proceed at that time.
spk08: Great. Thank you so much.
spk06: Thanks, Katie.
spk12: Thank you. The next question is coming from Oliver Chen of TD Cowan. Please go ahead.
spk05: Hi, Toni and Adrian. I would love your thoughts on targeted promotions ahead and discounting pressure that you're seeing. I know you've been making really good strides on pricing analytics. Also, as we think about apparel, there's great changes in the private label portfolio. What are your thoughts on apparel comping positive and timing for that to happen in relation to the newness that you're introducing? And finally, as we think about marketplace model as well as digital advertising, you've made nice strides there. What should we know about modeling that and how material works? it'll be as you continue to make progress there as well. Thank you.
spk00: Thanks, Oliver. You got a number of questions in there. Let me take them one at a time. On promotion, you know, I feel good about the team's work and we're obviously looking at our discount rate on a daily basis versus last year and comp events and trying to, again, through our personalization engine, apply the value where it's necessary to either incent the customer to buy or to move aged inventory. And again, as Adrian talked about, we come into the second quarter in a healthier inventory position from an age standpoint, but there's a long game. And so we're playing it on a daily basis to make sure that we're making the right decisions on promotion to attract but not overinvest in value. In terms of readyware growth, I tell you, this learn from each other without becoming one another has great application. When I look at the readyware business at Bloomingdale's, which right now is terrific, and it gives me optimism that we are in the early stages of that opportunity at Macy's. We have to get through the remainder of the private brand disposition that we're up against. We have to roll out more of the newer brands to gain the level of materiality to our overall business. But the impact at Bloomingdale's is really good to see, and I think it will be helpful as it relates to the opportunity at Macy's. In terms of marketplace, we had a great quarter, and that was on top of a great year in 2023. I'm excited about the Baby Registry launch, which puts us in the Baby Registry along with Reading Registry. launching over 150 brands with a start and getting good reaction from the consumer. And I think as Adrian mentioned, MMM, our media network, is up more than 20% to last year. We're seeing good vendor engagement that goes beyond just the important beauty category where we had an immediate impact. And we're diversifying what we're doing in MMM to include search, and other facets of the way in which we engage the consumer. So marketplace healthy, MMN growing, promotion discerning and thoughtful and targeted, and ready-to-work growth happening at Bloomingdale's and determined to see that result at Macy's as we progress. Thank you. Best regards. Thank you.
spk12: Thank you. The next question is coming from Brooke Roach of Goldman Sachs. Please go ahead.
spk11: Good morning, and thank you for taking our question. I was hoping you could talk a little bit more about the trends that you're seeing in luxury and some of those luxury initiatives that could be rolled out to the Macy's network in aggregate, especially in Blue Mercury as well. Thank you.
spk00: Thanks, Brooke. Appreciate the question. Yeah, I think that, again, this portfolio we call Macy's Inc. offers this benefit that we get to look at the business across different consumer income levels and different value spectrums. And the Macy's team and the Blue Mercury team and the Bloomingdale's team are talking and they're sharing more than ever before. And again, I have no interest in one becoming the other, but I do believe it's an advantage for us as we try and understand where peaks and valleys happen in the business. In terms of luxury trends that are happening right now, obviously a lot has been discussed about quiet luxury. So you're seeing less logo, and that's certainly playing out in the Macy's business at a more accessible level. So we're leaning into opportunities on products and categories and brands with less logo right now. You know our business is very cyclical, so the minute I say logos are out, it'll be six months or a year and logos will be back in in some meaningful way. We're all interested to see what Alessandro will do at Valentino, and certainly that won't be quiet luxury. In terms of Blue Mercury and the beauty category, I think what they've discovered is the appetite of the consumer for high-end skin care and regimens that the consumer has no price resistance to what will help them take care of themselves, help them look their best, help them to be able to retain their youth, help recognize the difference in people's skin types is just not the same when you're 20 versus 40 versus 60. And I think the other thing is Blue Mercury benefited from looking at the penetration of fragrances and other categories at Macy's and Bloomingdale's and has done an outstanding job at growing the fragrance business in a short period of time. So we're, as we said on the call, really bullish on the growth opportunities of Blue Mercury. We have 30 stores that we'll open over the next couple of years. We have 30 remodels. And that all begins in the second quarter. So opportunities for growth at Blue Mercury, learning between Bloomingdale's, Macy's, and Blue Mercury, and really trying to react and respond to where the consumer is interested and where she's stepping back.
spk11: Great. Thanks so much. I'll pass it on.
spk12: Thank you. The next question is coming from Bob Drupal of Guggenheim Partners. Please go ahead.
spk01: Hi. Good morning. I was just wondering if you could, you know, focus a little more on your asset monetization plans, you know, this quarter, I'm sorry, this year and over the next few years, just sort of what you're seeing, how you're approaching it, and just your visibility on especially the plans for this year. Thanks.
spk06: Absolutely. You know, the punchline on asset monetization, Bob, is that we're seeing a lot of traction. We're certainly encouraged by the deal making activity that we've been seeing. And our focus is very much on quality deals, finding the right buyers and offering, making sure that we're getting the right price. As you know, we have a very healthy balance sheet. We also have an apparatus of strong real estate partners and developers that we're working with to unlock value. for our shareholders, but we're very encouraged by the traction that we've seen since we announced the closure of approximately 150 stores back in late February. The strategic importance is still quite critical to us, right? Which is the sales proceeds that we are able to generate from a large portion of the stores that we will be closing and monetizing allows us to reinvest in the business and you see the performance of the first 50 stores. as well as return capital to shareholders. But I would tell you, we certainly recognize that we're in an elevated interest rate environment, but I gotta tell you, we're very encouraged by the pace of deal making that we're seeing, and very encouraged about how we think about the closures of these stores and the monetization impact that it'll have on our business over the next three years.
spk01: Thank you very much.
spk06: Thank you.
spk12: Thank you. This brings us to the end of the question and answer session. I would like to turn the floor back over to Mr. Spring for closing comments.
spk00: Thank you, Operator. We hope everyone has a great Memorial Day and summer. Spend some time with your friends and family. Hopefully get a good vacation in there. And we hope to see some of you or many of you at our amazing Fourth of July fireworks. Should be spectacular this year. Have a good rest of the day, everybody.
spk12: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and enjoy the rest of your day.
Disclaimer