Macy's Inc

Greetings and welcome to the Macy's Inc. 3rd Quarter 2024 Earnings Conference 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 call is being recorded. I would now like to turn the call over to Pamela Quintiliano, VP of Investor Relations. Pamela, you may now 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 third quarter 2024 press release, a Form 8K has been filed with the SEC, and a presentation has been posted on the Investors section of our website, macysinc.com, and it's being displayed live during today's webcast. The Form 8 includes revisions made to its historical consolidated financial statements that were impacted by the immaterial misstatements that the company has previously disclosed. 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 August 21st earnings call, unless otherwise noted. In addition, all references to comp sales throughout today's prepared remarks represent comparable owned plus licensed plus marketplace sales and owned plus licensed sales 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 Investors 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.

Thank you, Pam, and good morning, everyone. As previously reported, Macy's first 50 locations, Bloomingdale's and Blue Mercury, all come positive in the third quarter. We maintained effective expense controls, generated above plan asset sale gains, and are encouraged by our quarter-to-date comparable sales trends, which remain above our third quarter levels. Year to date, we have made progress in our bold new chapter strategy and remain on track to achieve our long-term goal of sustainable profitable growth. Before we get into our third quarter financial performance, I want to discuss the independent investigation into the issue related to small package delivery expenses in one of our accrual accounts. Our investigation is now complete. we've determined that the individual responsible for the issue intentionally made erroneous accounting accrual entries beginning at Q4 2021 and in subsequent periods, acted alone, and did not pursue these acts for personal gain. As noted in our press release this morning, we've concluded that these erroneous entries had an immaterial impact on our cumulative financial results and no impact on our cash position as all vendors were fully paid. As a reminder, our delivery expense is recorded in cost of goods sold, which falls within gross margin. To provide transparency, adjusted numbers for fiscal 2021, 2022, and 2023 and quarterly periods for fiscal 2023 are in today's form 8K filed earlier this morning. Adrian will also provide detail on the impact to our financial statement metrics in his prepared remarks. But I want to be clear. Integrity is paramount at Macy's Inc., and we promote a culture of ethical conduct. When discovered, we move quickly to investigate and address the issue. The responsible individual is no longer with the company following the discovery of their actions. We've also identified and begun to implement additional controls to be a stronger and more disciplined organization so that an action like this could not happen again. Now let's turn to the third quarter results. Net sales of $4.7 billion were in line with our outlook provided in August. Momentum in first 50 locations at Macy's and Bloomingdale's and Blue Mercury were offset by weakness in Macy's non-first 50 locations, its digital channel, and its cold weather categories, all of which have registered sequential quarter-to-date comparable sales improvements from their third quarter levels. Inclusive of delivery expense impact, Adjusted third quarter EPS of $0.04 benefit from a pull forward of non-go-forward asset sale gains into the third quarter from the fourth quarter. We are pleased with our third quarter results. Our teams did a great job. They thoughtfully responded to the extended warm weather conditions and an active hurricane season. We took proactive steps to address the dynamic environment and best serve our customers through reprioritizing categories, marketing, in-store presentations, and adjusting go-forward orders to provide more newness. At the same time, we continue to invest in and execute our bold new chapter strategy. Three quarters into the strategy, initiatives continue to gain traction across all three pillars. We're using data to test, iterate, and refine our initiatives. Our healthy balance sheet and ample liquidity allow us to deploy capital that supports our long-term aspirations without compromising our financial health. Turning to the first pillar of our strategy, strengthening the Macy's nameplate. First 50 locations delivered a positive 1.9% comp, representing their third consecutive quarter of comp sales growth and 410 basis points of outperformance relative to the total Macy's nameplate. These results reflect positive customer response to investments in staffing, merchandising, visual presentation, and eventing, which led to a 400 basis point improvement in net promoter scores compared to last year, representing our third consecutive quarter of improvement. We've also been testing women's shoes and handbag staffing at about 100 other go-forward locations. Having dedicated runners to get shoes from the stockroom and salespeople available to assist in handbags allows our colleagues to spend more time with the customer. Compared to non-First 50 Macy's locations and those that did not receive additional staffing, women's shoes and handbag sales outperformed by roughly 600 and 700 basis points, respectively, year over year. This illustrates the importance of dedicated customer assistance in high touchpoint categories. These learnings, along with those from the first 50, are being used to inform our plans for expanding initiatives to additional go-forward locations in 2025, which will be discussed in more detail on the fourth quarter earnings call. Improvements have not been limited to our first 50 and 100 test store locations. Across the Macy's nameplate, we continue to take active steps to improve the customer experience. We are training colleagues to be more helpful by leveraging digital tools and in-person coaching. And our merchandise revitalization is gaining traction. We've reduced exposure to less relevant brands and expanded our offering in ones that customers are responding to, including Anne Sasson, Donna Karan, Steve Madden, Yvette Lafitte, Dolce Vita, just to name a few. We're providing compelling fashion and value in our women's private label brands. such as Charter Club and Style & Co. Beyond women's apparel, fragrances continue to be a standout, while men's non-active apparel, handbags, and home sales, although still weak, sequentially improved in the third quarter. Customers have taken notice of the better product and experience with total nameplate net promoter scores up roughly 230 basis points year over year and representing our highest score ever. Rounding out the discussion on Macy's, we're encouraged by the pace and economics of our non-go-forward store deals. We now expect to close roughly 65 locations this year. In line with our typical cadence, closures will occur post-holiday. The second pillar of our Bold New Chapter strategy is accelerating luxury growth. Both Bloomingdale's and Blue Mercury posted positive third-quarter comps. Customers continue to respond well to their breadth of product, price points, market and private brands, and we remain confident in our ability to grow sales at each of these nameplates. At Bloomingdale's, our aspirational to luxury positioning and associated price points are key differentiators. Comp sales rose 3.2%, driven by women's advanced contemporary apparel, which continued to be a standout, as well as beauty and digital. Customers responded well to new brands, including Skims and Jenny Kane. And handbags have begun to show signs of improvement, with strength in Tory Burch, Coach, Longchamp, and Rebag, which is our recent pre-owned luxury accessories launch. These improvements were partially offset by the softness in certain areas of the home store. During the third quarter, Bloomingdale's had its From Italy With Love campaign, which was a strong driver of traffic and a brand amplifier. It brought the best of Italy to the U.S., embracing its fashion, design, cuisine, and culture through 300 exclusive products from 150-plus renowned partners and 30 new brands, and garnered roughly 2 billion media impressions. From Italy with Love is a tangible example of how Bloomingdale's remains close to and connects with its customers through unique product and experiences, empowering it to be the local leader in the markets it serves. We recently opened our fourth Bloomy's location, located in Shrewsbury, New Jersey. This store was informed by extensive customer and market research. It's our first women's only store and offers a highly curated assortment that's been well received. Blue Mercury achieved its 15th consecutive quarter of positive comps, posting a 3.3% gain. During the quarter, we expanded popular lines such as Sisley Paris, SkinMedica, Augustinus Bader, and introduce Victoria Beckham Beauty. The quarter also benefited from Blue Mercury's 25th anniversary celebration, which kicked off in September with the unveiling of an elevated website aesthetic that offers improved navigation, an educational blog, and new logo. Blue Mercury's 25th anniversary celebration is not limited to its website. We've also introduced a more modern aesthetic to our new and remodeled stores. During the quarter, Blue Mercury remodeled four locations and opened eight for a total of five remodels and nine new stores this year. New and remodeled locations can continue to outperform the total fleet. We plan to open an additional nine and remodel two more stores in the fourth quarter. Moving to our final pillar, simplifying and modernizing end-to-end operations. We are pleased with the work our teams are doing to phase out legacy technology across the organization, improve our search platforms, and deliver and improve customer experience. In our supply chain, we remain focused on creating a more efficient and effective network. Through the third quarter, speed of delivery and fulfillment have each improved by roughly 800 basis points compared to the prior year-to-date period. As a result of our multi-year investments, we're realizing lower fulfillment costs, optimized cash flow generation, and seeing improved net promoter scores for product availability, in-stock rates, and fulfillment of packages. Before I turn over to Adrian, I wanted to share more on quarter-to-date trends and how we're approaching the remainder of the year. Consistent with our press release commentary, quarter-to-date comparable sales trends remain above third-quarter levels. We're listening to our customers and believe our compelling product, marketing, value, and experiences, and, of course, frontline colleagues are giving them a reason to shop our nameplates. Our marketing teams, in conjunction with Merchandise and Digital, have developed exciting holiday strategies with multiple touchpoints and events. We're leveraging our Macy's Thanksgiving Day Parade and gift-giving destination status. Heading into Thanksgiving, our Parade of Deals event built excitement with 24-hour specials that culminated in our 98th annual parade, which had about 32 million viewers, a new record. And this year, we've brought our gift guide to life in human form with actress Alison Brie, who stars in our holiday campaign, which is supported by a team of high-profile social content creators with over 24 million followers, and we call them the Macy's Gift Fluencers. And the excitement is not limited to Macy's. Bloomingdale's holiday campaign and iconic windows are inspired by its collaboration with Universal Pictures' Wicked. The Wicked Good Holiday Campaign includes 100 exclusive products, 150 brand participants, and our biggest aqua collection to date. And at Blue Mercury, we're emphasizing the gift of self-care and unique skin and beauty products, including new perfume offerings and gift sets from Perfume de Marly, Creed, The Manicurist, and Flamingo Estate. As we look to the remainder of the year and beyond, we are well positioned across nameplates to capture mindshare through curated assortments, relevant messaging, enhanced customer service, compelling value and promotions, all supported by improved end-to-end operations. With that, let me turn it over to Adrienne.