Macy's Inc

Greetings and welcome to the Macy's Inc. First Quarter 2025 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 first quarter 2025 press release, a Form 8K has been filed with the Securities and Exchange Commission, 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. Unless otherwise noted, the comparisons we provide will be versus 2024. All references to our prior expectations, outlook, or guidance refer to information provided on our March 6th earnings call. 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.macy'sinc.com. 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. Go Forward Macy's Inc. comp sales includes 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 includes the approximately 350 Macy's Go Forward locations and Macy's Digital. 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 FCC. 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. Today we'll begin with a discussion of our first quarter results. We'll then share our thoughts on the current environment and how it's informing our view for the second quarter and the remainder of the year. First quarter net sales comparable O plus L plus M sales, and adjusted diluted EPS were all above our previously issued guidance. Results benefited from better than expected omnichannel performance at each of our nameplates and continued progress on our three pillars of the Bold New Chapter strategy. At Macy's, our reimagined 125 locations outperformed the remainder of the fleet. Our luxury businesses, Bloomingdale's and Blue Mercury, Both delivered another quarter of positive comps. And in end-to-end operations, we improved our in-store inventory allocation and leveraged generative AI to further modernize our supply chain. Macy's Inc. achieved net sales of $4.6 billion compared to a guidance of $4.4 to $4.5 billion. Comparable O plus L plus M sales declined 1.2%. compared to the guidance for a decline of 4.5% to 2.5%. International tourism negatively impacted comps by about 30 basis points. Go-forward business comps outperformed total, declining 0.9%. Momentum built in the March-April period, which we look at on a combined basis given the later Easter, and has improved quarter to date. I am proud of how our teams are navigating the current environment. We are working closely together and maintaining a high level of flexibility. We are sharing ideas and leveraging relationships across departments, nameplates, vendors, and channels. And as a result, adjusted diluted EPS of 16 cents was above our guidance range of 12 to 15 cents. We entered the second quarter with inventories down 0.5%. We have ample open to buy for the remainder of the year and remain committed to providing a healthy flow of high-quality, relevant assortments at a compelling value proposition. Now let's discuss progress on each of the pillars of the Bold New Chapter strategy, starting with strengthening and reimagining Macy's. In the first quarter, Macy's NPS continued to improve year over year. Customers appreciate our renewed emphasis on the shopping experience and a commitment to providing relevant fashion and newness at a compelling value across the good, better, and best price spectrum. Recently introduced contemporary apparel brands, Good American, Theory, and Nick and Zoe have been well-received, and Coach and Donna Karan continue to resonate. Our off-price concept backstage and our Macy's marketplace remain strong. Backstage outperformed the full-line stores in which they operate by several hundred basis points, while marketplace achieved approximately 40% GMV growth. Backstage and marketplace fill white space in our assortments and help us retain customers seeking more price and brand variety while we maintain our commitment to limit redundancy. During the quarter, the reimagined 125 posted a negative 0.8% comp versus a negative 2.1% comp for the total Macy's nameplate. These locations outperformed across all categories, and we expect momentum to build as the year progresses. The second pillar of our strategy is accelerating and differentiating luxury. In the first quarter, both Bloomingdale's and Blue Mercury continued their positive comp trend. Bloomingdale's posted a positive 3.8% comp, benefiting from brand launches such as Prada shoes and handbags online, Reformation ready-to-wear, and Burberry men's and ready-to-wear, as well as improvements in availability and pricing. Bloomingdale's continues to emphasize special capsules and exclusive partnerships that align and reinforce its core identity, including the White Lotus and Aqua Collection, Coach Topia's Carousel, Alice and Olivia's Flagship Takeover, Mother's Boogie Woogie Boardwalk, and the Farm Rio Wedding Capsule. It's an exciting time at Bloomingdale's. As strategic initiatives bear fruit and the competitive landscape continues to shift in our favor, there's no question we are taking shares. are aspirational to luxury positioning, compelling on-trend assortments, and service orientation continue to attract new customers and new vendor partners. In addition, our Bloomies and Bloomingdale's The Outlet concepts are allowing us to enter new markets and expand our presence, as well as share of wallet in existing markets. Our other luxury concept, Blue Mercury, achieved a positive 1.5% comp, its 17th consecutive quarter of gains. Results were driven by the 24 new and remodeled locations opened last year, ongoing strength in dermatological skin care, recent brand launches, and a more targeted approach to loyalty and communications and offers. The third pillar of our worldview chapter strategy is simplifying and modernizing end-to-end operations. Our efforts to drive meaningful change to our customer and for our operational and financial performance remain on track. We are challenging the complexity of our business model, containing the cost to serve the value chain, and streamlining our asset portfolio to deliver profitable sales growth, all while reinvesting the benefits captured to self-fund improvement in customer experience. I like where Macy's Inc. is positioned today. The bold new chapter continues to gain traction, and our multi-category and multi-branded model provides a high level of flexibility to read and react. Our three nameplates span off-price to luxury and cater to roughly 40 million active consumers. When combined with our strong balance sheet and limited near-term debt maturities, these serve as positive differentiators in discussions with our vendors. Now let's turn to tariffs. Our teams and partners are in active dialogue as we navigate this uncertain environment together. At the end of last fiscal year, roughly 20% of total Macy's Inc.' 's product originated in China. National brands, which represent the majority of our sales, sourced approximately 18% from China. Private brands, where we have more direct control of the supply chain, sourced roughly 27% from China. This is down from 32% last year and over 50% pre-pandemic. We are confident that we can continue to diversify countries of origin for both our private and national brands. With the recent announcement of these tariffs, we've renegotiated orders with suppliers. We've canceled or delayed orders where the value proposition is just not where it needs to be. Beyond China, we're closely monitoring Southeast Asia and Europe, and we've had limited sourcing exposure to Canada and Mexico. In this evolving environment, we are controlling what we can control. Based on actions taken through today and our assumption that current tariffs remain in place, we estimate a combined tariff impact to Macy's Inc. annual gross margin of roughly 20 to 40 basis points. This incorporates inventory previously bought under the 145 percent China tariffs, those bought more recently, shared cost negotiations, vendor discounts, and selectively raising tickets. It does not include a potential increase in tariffs from the EU or any other country. As of today, we have a good handle on the tariff-related costs, but we're cognizant that the environment is fluid. The impact on demand is less clear. Quarter to date, Macy's Inc. comps are above the March-April period. We believe this reflects improvements in product and experience, more seasonable weather, and some pull forward of demand. We are encouraged by the first quarter in May results. which are another proof point that the Bold New Chapter initiatives are working and that we remain on a path to achieving sustainable, profitable growth. Yet, the majority of the second quarter sales volume is still ahead of us. Given uncertainty regarding the tariff impact on consumer health and demand, we believe it's prudent to incorporate a more choiceful consumer into our outlook for the quarter and for the remainder of the year. Our second quarter and full year guidance ranges, which Adrian will discuss in more detail, assume that The promotional landscape intensifies as the year progresses. International tourism does not rebound. And we continue to reinvest savings from closed stores and distribution centers in the initiatives that support our long-term growth. Reflecting these assumptions, we are being disciplined with our inventory commitments. If trends remain at the May levels, inventory is available, and we have the flexibility to chase. Looking specifically at the second quarter, there are two unique factors impacting gross margin. First, we're taking markdowns on early spring product that arrived late in the fourth quarter and in February. This will ensure we continue to provide newness throughout the summer and are well positioned for the fall and holiday season. Second, a meaningful portion of the product bought under the 145% tariffs flows through the quarter. Regarding our full year guidance, the low end assumes sales trends soften from first quarter levels, and we take additional actions to maintain a healthy inventory to sales ratio, including canceling receipts and taking deeper markdowns. The high end assumes a continuation of the March-April sales trend and only moderate gross margin pressure. In this environment of uncertainty, we remain focused on navigating the near term while executing to our long-term goals. We are in a unique moment. and we will not be complacent. This is our time to take advantage of the disruption in the market and capitalize on the opportunity to further build share of wallet across all of our nameplates. At Macy's, customers are responding well to our redefined product and experience. The reimagined 125 locations are outperforming the rest of the Macy's fleet. Backstage provides an off-price offering, while marketplace and concession allows greater inventory flexibility. Finally, we closed 64 underperforming locations under the Boulder chapter last year. At our luxury nameplates, our customer is responding well to the accessible through premium product. And we have proven growth strategies firmly in place with small format Blumies, Blumy Nails the Outlet store, and updated Blue Mercury store format. And in our supply chain, we've become more nimble, leveraging knowledge and relationships across the business to increase our responsiveness while creating a more efficient, diverse, and productive operation. We are resilient. We have successfully navigated macro and geopolitical uncertainty in the past, and we will do so again. Aided by our guiding principles, we plan to, one, be flexible so that we can react to the consumer demand and make purchasing decisions as late as possible. Two, maximize gross margin dollars through strategic pricing decisions. being mindful of the price-value relationship between our market brands and private brands and the broader marketplace. Three, partner with our suppliers on alternative sourcing and pricing options. And four, manage inventory to protect against markdown risk, set us up for success, and ultimately return to sustainable, profitable growth. With that, I'll turn it over to Adrian.