Macy's Inc

Greetings and welcome to the Macy's Inc. 4th 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 conference over to Pamela Quintiliano, Vice President of Investor Relations. Thank you. Please go ahead.

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 Adrian Mitchell, our COO and CFO. Along with our fourth quarter 2024 press release, a Form 8K has been filed with the SEC, and the presentation has been posted on the investor section of our website, Macy'sInc.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 the information provided on our December 11th earnings call or our January 13th sales and earnings press release, unless otherwise noted. On today's call, we will refer to certain non-GAAP financial measures. Reconciliations of these measures can be found in our earnings presentation and SEC filings available at www.macyzinc.com slash investors. All references to comp sales throughout today's prepared remarks represent comparable owned plus license plus marketplace sales and owned plus license sales for our store locations, unless otherwise noted. And Go Forward Macy's Inc. comp sales include the approximately 350 Macy's Go Forward locations in digital and Bloomingdale's and Blue Mercury nameplates inclusive of stores in digital. Go Forward Macy's comp sales include the approximately 350 Macy's Go Forward locations and Macy's Digital. Lastly, to further improve year-over-year comparability, we are providing quarterly and annual 2024 sales contributions for store closures. 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. 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.

Good morning, and thank you for joining us today to discuss our fourth quarter and fiscal 2024 results and our 2025 outlook. It's been one year since my first call as Macy's Inc. CEO and the introduction of a Bold New Chapter strategy, our three-year plan designed to return the company to sustainable, profitable growth. The Bold New Chapter is different from recent strategies as it firmly places our energy and focus on the needs of the roughly 40 million customers annually who shop our three iconic nameplates. It prioritizes an improved store environment and omni-channel customer experience as we reallocate capital from underproductive Macy's stores and focus our resources and investments on our go-forward business. In fiscal 2024, we realized substantive enterprise-wide improvements. These give us confidence in the long-term viability of the Bold New Chapter. In light of year one progress, I want to extend my gratitude to all of Macy's Inc.' 's colleagues for embracing this important work and delivering a better experience for our customers. For the year, we improved Macy's Inc.' 's annual comps by 510 basis points to down 0.9% versus 2023. We posted four consecutive quarters of positive comps at Macy's first 50 locations. We returned to positive annual comps at Bloomingdale's and had four consecutive years of positive comps at Blue Mercury. We achieved record annual net promoter scores at Macy's and Bloomingdale's, rising 160 and 90 basis points, respectively. We closed 64 of our approximately 150 non-go-forward Macy's stores ahead of our annual plan of 50 closures. We lowered capex by $111 million to $882 million, representing the second consecutive year of reduced spend. We generated $679 million of free cash inclusive of $283 million of asset monetization proceeds, up 71 percent from last year. We ended the year with $1.3 billion of cash on our balance sheet, up $272 million from last year, and we returned $192 million to shareholders through cash dividends. We are pleased with our accomplishments, but recognize there is still more work to be done. Recent results give us confidence that we've made the right strategic shifts and investments to successfully improve the overall Macy's Inc. customer experience. Now we must scale these changes in order to achieve our long-term goals. For the fourth quarter, Go Forward Macy's Inc. had its strongest comp of the year at plus 0.6 percent. This, along with positive Bloomingdale's and Blue Mercury results, drove total Macy's Inc. to a 0.2 percent comp gain, its highest of the year and best in 11 quarters. We maintained a disciplined approach to margins and cost controls. As a result, fourth quarter adjusted EPS of $1.80 was above our most recent guidance range, primarily due to better than expected SG&A, credit card revenues, and to a lesser extent, improved shortage and asset sale gains. Now let's discuss the fourth quarter performance and full year progress of each pillar of the Boldew chapter strategy, starting with strengthening and reimagining Macy's. Total Macy's nameplate comps declined 0.9% in the fourth quarter, a 380 basis point improvement from the prior year. The first 50 locations achieved a positive 1.2% comp. At these locations, Ready to Wear Beauty and Women's Shoes outperformed the rest of the fleet by approximately 320 basis points on lower discount rates and higher initial tickets, reflecting positive response to our improved product assortment, visual presentation, and staffing. Beyond the first 50, the incremental 100 doors that received enhanced women's shoes and handbag staffing in the fall continued to outperform locations without those investments. Performance of both the first 50 and the 100 test stores illustrate that when we invest in the customer experience, we can grow sales. While pleased with the customer response to the first 50 and 100 test store initiatives, Another key component of the Boulder Chapter Strategy is closing underproductive Macy's stores. These closures allow us to focus our resources and attention on our go-forward fleet. We are executing store closures methodically. Of the approximately 150 announced in February 2024 as a part of our strategy, we took advantage of favorable dealmaking to remove 64 underperforming stores from the Macy's base in fiscal 2024 contributing to annual asset sale gains of $144 million. Although the closed locations benefited 2024 sales, gross margin, and EBITDA dollars, they are no longer as financially or operationally viable, especially when you compare their contribution to their monetization value. Merchandising, digital, and marketing are also imperative to the Macy's nameplate success. For the year, the merchandising team continued to assortment matrix evolution, including the ongoing private brand enhancements, adding more relevant national brands, scaling other brands to additional doors, and editing brands that are no longer serving our customer. Digital improved its site navigation, search engine optimization, and introduced a more competitive pricing algorithm, leading to a return to positive comps in the fourth quarter. In marketing, we put the customer top of mind, going to where they spend most of their time, During the fourth quarter, we reallocated marketing dollars to live events and top-rated programming and increased the use of influencers. Throughout the year, we leaned into the iconic Macy's IP to allow for deeper and more integrated storytelling across our digital platforms and stores. Turning to the second pillar of our strategy, accelerating and differentiating luxury, in the fourth quarter, both Bloomingdale's and Blue Mercury continued their positive comp trends. This gives us further confidence in their organic growth profiles and store expansion opportunities. Bloomingdale's achieved a positive 6.5% comp, the strongest fourth quarter volume in its history. Our exclusive Wicked partnership garnered roughly 15 billion media impressions, which was three times higher than last year's holiday campaign. This, along with From Italy With Love program, are prime examples of how our customers appreciate and respond to our unique product curation and differentiated brand DNA, which is aspirational, approachable, and distinctive in a luxury landscape. For the year, we opened three Bloomingdale's stores, including our first Bloomy's women's only location, which has been very well received. Our team continues to be methodical in their approach to Bloomingdale's physical expansion, triangulating markets where there is strong existing demand. At Blue Mercury, we achieved our 16th consecutive quarter of positive comps. The team leaned into the gift of self-care for the holiday, capturing demand for beauty trends, including everyday well-being, clinical skin care, and fragrance layering. In September, Blue Mercury had kicked off its 25th anniversary celebration with the introduction of revamped website and updated store prototype. With each new and remodeled store, our team is elevating its service model, and product mix curation to further establish Blue Mercury as the authority in its space. For the year, we opened 17 new locations and remodeled seven. At the end of the year, roughly 15% of our Blue Mercury store base has been updated. The third pillar of our strategy is simplifying and modernizing end-to-end operations. It's focused on creating a more efficient network that benefits the entire organization. In fiscal 2024, we meaningfully improved our ability to meet customer demand. We improved both the percentage of orders delivered in five days or less and replenishment in stocks by about 400 basis points and shortened the amount of days from when an order is placed to shipped by roughly 1,100 basis points, all while maintaining strong inventory discipline, which enabled us to end the year with improved inventory composition and lower-aged inventories. In fiscal 2024, we made progress on all three pillars of a bold new chapter strategy, but we are not yet where we need to be. In fiscal 2025, we will work to improve the business with greater focus and determination. As the business evolves and we implement changes to strengthen our performance, the annual metrics we're holding ourselves most accountable for the beginning this year are Macy's Inc. Go Forward comp sales and core adjusted EBITDA on a dollar and percent of total revenue basis, as defined as adjusted EBITDA excluding asset sale gains. These two metrics represent our future state and we believe are the best proxy to measure the fundamental improvements as we stabilize our business and move closer to profitable growth. As we focus on go-forward business performance, we are cognizant of the external environment and the ongoing myriad of unknowns. We remain committed to taking the necessary actions to meet our customers where they are and deliver an improved experience. We will continue to reduce CapEx while prioritizing investments that best support a healthier enterprise, improve profitability, have a strong ROI, and benefit our stakeholders. At Macy's, our focus is on go-forward growth through a smaller, more productive store fleet. In early February, we overlaid successful initiatives from the first 50 locations to an additional 75 stores for a total 125 reimagined Macy's locations. The additional 75 stores have continued emphasis on customer experience, and they build on our year one learnings. The 125 reimagined locations represent 36% of the Macy's Go Forward store base, compared to just 14% of the base with initiatives at the beginning of last year. As we scale these initiatives, we're actively negotiating deals for the next tranche of non-go-forward closures as well. Our investments in stores and customer service are most valuable when paired with a compelling assortment. Fiscal 2025 represents the first full year that Macy's Nameplate has bought under the cost accounting method, which brings more transparency into item-level profitability, including the cost of goods and discounts, and should result in better buying and execution. Our teams are in market and working closely with our brand partners to increase variety and reduce redundancy. We are applying learnings across private brand reimagination to deliver more compelling assortments complemented by an established footprint of contemporary brands like Avec La Fille, En Saison, and Free People, as well as new brands like Good American and Theory. In addition, we continue to improve our private brands and leverage our online marketplace to test and discover new opportunities. Beyond merchandising, we also intend to better balance top and bottom of funnel marketing. We'll invest in branding that complements performance marketing and further strengthen our messaging while capitalizing on peak periods that are synonymous with Macy's, including key holidays. The Macy's Thanksgiving Day Parade is a perfect example. The 2024 parade reached 32 million viewers. It was our most watched parade ever, the number one program in the holiday season. and one of the largest entertainment specials of the entire year. We recently signed a new 10-year rights deal with NBC to unlock exciting content opportunities for both the parade and the 4th of July fireworks. Proceeds of our new rights deal, which is multiples of our prior agreement, will help us fund growth while maintaining our strong balance sheet. Turning to luxury, Bloomingdale's recently introduced its White Lotus and Aqua collaboration. The exclusive apparel and accessories collection is inspired by the hit series and has already sold out of several items. This builds on the success of the Wicca and Aqua collaboration during the holidays. These collaborations speak to how Bloomingdale's has its finger on the pulse of unique cultural moments, underscores its relevancy in the marketplace, and its appeal to a multigenerational customer. Bloomingdale's also recently launched their Flamingo Estate Carousel at 59th Street and online. It features curated lifestyle products from the brand and special events like product customizations. Both White Lotus and Flamingo Estate stay true to Bloomingdale's heritage, serve as strong traffic drivers, and put even more eyes on the brand. In addition to private label and pop-ups, Bloomingdale's continues to be a powerful partner to major brands in the marketplace. Throughout the spring, Bloomingdale's has activations planned with contemporary brands like Alice & Olivier, Mother, and Farm Rio, just to name a few. It will also be the first U.S. department store to launch Coach's viral Coachtopia concept and has the global lead on Mason Francis Krijakajan's new ascent, Kirky. Bloomingdale's is also actively introducing new points of distribution across its network with brands like Aquazura, Skims, and Reformation. At Blue Mercury, we are also pursuing new brand partnerships and opportunities to expand sales growth and continue to be encouraged by the performance of our new and remodeled locations. And in end-to-end operations, our state-of-the-art China Grove distribution facility is on track to open mid-2025. First announced in 2022, this 1.4 million square foot facility will leverage automation and streamline inventory fulfillment and management across all of our nameplates, creating greater supply chain efficiencies at a lower cost. To summarize, with one year of the Bold New Chapter complete, we are in a better position exiting 2024 than when we entered and believe that the recent results illustrate that this is the right strategy to return Macy's Inc. to profitable growth. We're taking a prudent approach to our outlook, reflecting the external uncertainties that both we and the consumer are facing. We will closely monitor sell-throughs, thoughtfully make adjustments, that reflect our demand throughout the year. At the same time, we will further scale changes across all three pillars in order to achieve our long-term ambition. And finally, we will continue to take a balanced approach to our capital allocation strategy, including returning value to shareholders through resuming share buybacks and consistent dividends, all with solid free cash flow generation. And with that, let me pass it over to Adrian.