Q3 2019 Earnings Call
Today's conference call at this time 70 today's audience sometimes.
Thank you for your patience on things.
Good morning, and welcome to Macy's incorporated third quarter earnings.
Earnings Conference call.
The conference is being recorded.
Knowledge on the color Mike.
Mcguire head of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and thanks for joining US on this conference call discover third quarter 2019 results and our full year 2019 outlook with me on the call today, our joking that our chairman and CEO , Paul price, our CFO and how long [laughter] John Pollok several prepared.
Remarks to share after which I'll join them for question and answer stuff.
Hi can strengthen a number of people who want to participate we ask that you. Please limit your questions to one with a quick follow.
In addition to this call in a press release, we posted a slide presentation on the Investor section of our website <unk> Dot com presentation summarizes the information in our prepared remarks as well some additional facts and figures regarding our operating performance Guy.
Additionally, our Form 10-Q will be filed in a few weeks and that two will be available on our website and Uh huh.
Keep in mind that all forward looking statements are subject to safe Harbor provisions.
Securities Litigation Reform Act of 1995. These forward looking statements are subject to risks and uncertainties that could cause actual results could differ materially from the expectations and assumptions mentioned today.
Detailed discussion of these factors and uncertainties is contained in the company's filings with Securities and Exchange Commission.
Discussing the results of our operations will be providing certain non-GAAP financial measures you can find additional information regarding these non-GAAP financial measures as well others use in our earnings release on the Investor section of our website.
As a reminder, today's call is being webcast on our website a replay will be available approximately two hours. After the conclusion of this call and it will be archived there following the call for one year now I'd like to turn this over to Jeff.
Thank you Mike Good morning, everyone and thanks for joining us as you saw our press release. This morning after seven consecutive quarters, a positive comparable sales Macy's and kind of tough quarter with comp sales down 3.5%.
While we anticipated a negative comp as we were lapping a very strong quarter last year sales deceleration was steeper than we expected.
However, having cleared the excess inventory we faced earlier in the here, we were able to take a more balanced approach to sales and profit in the quarter versus the first half of this year. This resulted in a significantly improved margin compression on lower sales.
Let me share some detail the drivers of our sales decline.
Third quarter sales were impacted by continued soft international tourism weaker than anticipated performance in our lower tier malls and the late arrival of cold weather.
Even macy's status as a destination for cold weather apparel, we saw an impact in both cold weather merchandise and the same trick purchases that our customers typically a pat.
The cold weather has arrived we're beginning to see those sales flow through.
We also experienced a temporary impact on ecommerce business due in part to the work on the site in preparation for the fourth quarter. The team is completed that work the side is updated and our customers can expect an improved experience this holiday season.
Based primarily on the impact of our third quarter sales trend, we are lowering our annual sales guidance to down 1% to down 1.5% and adjusted EPS guidance to $2.57 to $2.77.
Call. This morning, Paula will take you through the third quarter results and provide additional detail on our outlook for the year. After Paul's comments I will take you through our holiday plans and give you a preview of what to expect from our Investor day in February .
A lot.
President of Macy's is also on the call today and will join me and Paul After the question and answer session.
Now going to turn the call over at Apollo.
Thank you Jeff Good morning, everyone. So let's jump right in sales in the quarter were $5.2 billion a decline of 3.5% on in license comparable basis death explain the key drivers behind this performance in his remarks, but while sales overall were disappointing our 2019.
Strategic initiatives continued to deliver the result that bode well for our future performance.
During the quarter, we continue to make progress on each initiative.
Within the growth 150 stores, we completed the work on the addition of 100 story the growth stores continue to outperform the rest of our store fleet, both validating our investments in this initiative and giving us great confidence in our outlet for this important segment of our store fleet.
We achieved our full year goal of expanding backstage to another 50 story.
We exceeded our backstage expectation in the quarter in backstage locations open for more than a year continue to perform well up mid single digit and have improved both margin and time.
Next stage continues to add recognizable brands that our customers expect in the off price arena.
It is offered to a lens for fashion and value and our customers are responding.
The strength of our backstage visit isn't ready to wear which is performing across all segments fruit sportswear in Missy contemporary and junior as well as did an intimate apparel.
The kids category has also been a standout backstage customer is responding to a mix of brand and classification in uptown as well as to light.
We have seen strong improvement in the backstage shoe business, which is always a major draw for our customers.
Turning to categories across the broader business, we have strong performance in mattresses fine jewelry fragrances dresses NIM acted and then Taylor.
A weaker businesses in the quarter included women's and men's sportswear, especially the cold weather items handbag elsewhere in furniture.
In terms of digital as expected we experienced the slowdown in growth from the second quarter into the third quarter as we lap a very strong third quarter last year.
My business also suffered from the delay in cold weather. In addition to a temporary impact we saw from significant 19 gets rolled out in time for the fourth quarter.
These updates are critical for improving the customer experience and as Jeff said, we are confident heading into holiday with an improved digital experience for our customer.
So let me touch in a few of the many experience and feature improvements that we have made.
We improved the speed and usability of our digital properties with a re platform of our App and a redesign of our but in the variance to a more modern elevated design with improved user navigation.
We also added numerous side enact featured particularly App features to help our customers with in store navigation and shopping.
We continue to see your online growth fueled by then do direct Ami pickup and the mobile App all outpacing the overall digital performance mobile remains our fastest growing channel outpacing overall demand growth by nearly four times.
We've seen triple digit growth in our downloads year to date and significant growth in our mobile active users and we continue to improve the experience.
Vendor direct is fueling online growth through increased selection with the addition of nearly 1000 vendor and 1 million SK you year to date across many categories, especially in home men's and kids intend to core.
Omni pick up or Boston got continue to grow as our customers love the security and convenience of picking up in store.
We are pleased to have relaunch same day delivery to complement our same day in store pickup option.
Let me deal so its strongest sales performance in its stores year to date and experienced growth in both its digital business and outlet stores.
Luxury fragrances, so on shoes, and contemporary ready to wear led growth in the quarter.
With only six weeks since launch Mylan is performing well, it's millennial penetration into subscriber base is currently more than double that of the total bloomingdale's ready to wear millennial penetration.
While still small these are promising results.
Little Mercury had another strong quarter with double digit sales growth and we opened four stores in the quarter Importantly, the brand also launched its first loyalty program blue rewards and more than 30% of the customer base has already enrolled.
With regard to our company sales transaction metrics overall transaction, Phil 0.4% compared to the same quarter last year.
Reversing our positive trends. This was the main driver of our sales comp performance, reflecting the factors Jeff discussed.
Items per transaction were down 1.8% and in line with trends average unit retail fell 1.4%, which represents a trend improvement.
Decreased and you are is in part due to the expansion of backstage, which reduces you are but increases transaction.
Turning to credit revenue, we generated $183 million in the quarter down 1.1% from last year credit card penetration with 48.3% in the quarter slightly below last years level.
Gross margin in the quarter was 40%.
Down 30 basis points versus last year. This represents a significant sequential improvement over the second quarter in indicates we are making progress in our effort to combat margin compression and improve profitability.
Merchandise margin also benefited from the traction we are beginning to get from our productivity initiatives such as hold in flow.
These benefits were offset by delivery headwinds of approximately 40 basis points.
Terrible inventory was flat to last year, representing an improvement versus the prior quarter.
Within ask anyway, we recorded $2.2 billion of expense in the quarter $53 million less than last year in up 90 basis points on a rate basis.
Yes, DNA dollar reduction reflects both disciplined cost containment and lower variable cost associated with sales.
Adjusted net income in the quarter with $21 million versus $83 million last year included in these net income figures in the impact asset sale gains of $13 million and $31 million respectively.
Adjusted EPS was seven cents in the quarter compared to 27 cents last year, which asset sale gains represented about four cents and 10 cents respectively.
Year to date cash flow from operating activities with $172 million compared to $429 million last year.
The variance is due primarily to timing within accounts payable and also lower EBITDA offset by lower tax payments and did not indicative of the strength of our CFO your expectation.
Capital expenditures were $812 million compared to $677 million last year, and we remain on track to achieve our full year guidance of approximately $1 billion of capital expenditures.
Cash used by financing activities with $276 million less than a year ago at 2018 included $344 million up early debt repurchases.
We continue to expect to use excess cash to further reduce our debt in fiscal 2019 through voluntary debt repayment.
We remain committed to paying inappropriate cash dividend to our investors into paid $349 million year to date at the same per share amounts as we've been paying.
Let me now turning to guidance.
For the full year, we expect comparable sales to be down 1% to down 1.5% on an owned plus licensed basis. We continue to expect our sales performance in the fourth quarter to be sequentially better than the third quarter as we not only remain confident in our holiday plans, but also will cycle the disruption caused by the.
In our West, Virginia make a center and the underperforming pre Christmas promotional event last year.
Gross margin for the year is expected to be moderately down to a year ago and we continue to expect comparable inventory levels at the end of 2019 to be below last year.
With a greater sales decline than previously anticipated, we expect our annual SDMA rate to de lever moderately but as we continue our disciplined cost containment efforts in the business. We expect our full year SDN $8 to be slightly below last years level.
Our real estate team continues to do an excellent job of monetizing our valuable real estate holdings appropriately and Opportunistically, we now anticipate about $150 million of asset sale gains for the year well ahead of expectations.
Taking everything into consideration, we expect 2019 adjusted EPS to be in the range of $2.57 to $2.77 for $2.20 to $2.40 with asset sale gains are excluded.
Our revised guidance also includes our expectations for Kara as we have been able to successfully mitigate nearly all of the seven cents impact that we previously anticipated.
Well, we had fruitful discussions with our vendors and suppliers and were able to minimize the 2019 impact on our visits and our customer discussions are still underway for 2020.
Well be able to share more insight from those discussions when we provide guidance for next year.
You can find our complete guidance in the slide presentation, we posted on our website earlier this morning.
In closing, while we anticipated third quarter comps to be significantly lower than the fourth quarter due to the cycling of a very strong quarter last year. Our sales performance was certainly weaker than we expected.
That said, we navigated the quarter with discipline and we're confident in our ability to continue to moderate our gross margin compression to container expenses and importantly to execute at a high level to deliver a strong holiday season, and fourth quarter and with that ill turn it back over to Jeff.
Thanks, Paul So again, while our sales performance for the third quarter did fall short we feel good about the improvement in margin compression and remain confident or strategies for the holiday and our path to the updated annual guidance.
So the team has been hard at work all year, and we are definitely ready to deliver holiday in 2019 with the following so we have an expanded gifting assortment at strong balance our gifts under strategy ensures that we will reach the breadth of our customer base with great brands and products at quarter price points across all categories.
We have a powerful marketing calendar that addresses the cadence of a shorter holiday season importantly, we are engaging with both our best and our occasional customers with targeted events.
Our stores are set for the holidays and work on both backstage and the growth 150 stores was completed by the end of October product and visuals are strong and our colleagues are ready to serve our customers.
We've enhanced our digital properties, including mobile to both promote online sales and drive in store activity.
We're on track with our seasonal recruitment and having improved our onboarding and scheduling systems, we are seeing lower turnover in our seasonal colleagues.
And these strategies are underpinned with a strong operational plans or distribution centers and stores are ready to deliver flexible secure and convenient fulfillment options whether customers are shopping online in store on mobile or across channels.
We also expect bloomingdale's implant mercury to hit their stride for holiday and both brands also have strong gifting strategies. Additionally, bloomingdales is continue to amplify the experiential edge of its brand with exciting events and personalized service for both customers and visitors. This holiday season last week, we opened our 39 Bloomingdale.
This new store Norwalk, Connecticut will help us build on bloomingdales strong presence in the northeast.
All of the season officially kicked off for the Macy's brand next week with a 90 Threerd annual Macy's Thanksgiving to correct. This is a time for us to engage with the more than 50 million viewers tune in line for the correct all large around Macy's and the increased media weight, we're putting around the parade is part of our strategy to drive can.
For the ration with occasional customers.
As we announced this morning, we will hold at Investor Day on February fab to share our growth strategies and our three year plan. We remain intensely focused on areas of the business that are working and there are many but we're also taking a fresh and hard look at the things that aren't working.
Investor Day, the team and I will take you through first abuse at Macy's customer franchise and actions, we're taking to drive further engagement with our existing customers. While we will also bring new customers under the brand. This will include our merchandising strategy to deliver quality fashion at affordable prices.
Next a detailed view of our omni channel growth strategies built through the lens of our customer journey. This will include an update on our store segmentation. We will also share plans for our digital business, both mobile and Dot com and the steps were taken to further strengthen this engine of growth and profitability.
Just an update on the productivity program that we shared in September we've seeing positive early results and have a roadmap to significantly accelerate these savings. This will include detail on our supply chain transformation.
And lastly, we will also share other actions, we're taking to build a playbook to compete effectively in today's retail environment.
Resales evolving at a rapid pace American consumers love, the Macy's Inc. brands, Macy's Bloomingdales, and Bluemercury and while we've made good progress on how we do business Theres more work ahead, we are taking significant steps and decisive action to change our course and to return to profitability growth.
Our brands are stronger than our performance reflects we have a roadmap to close this gap and we havent clear vision for our future.
With that we're going to open up the line for QNX.
Thank you.
Thanks to ask a question you may signal by pressing star wound on your telephone keypad.
So using the speakerphone. Please make sure your mute function is terminals.
You see moved to return equipments.
Hey, good enough to start I want to ask your question.
So just a moment.
Have you an opportunity to signal for questions.
Thanks.
Your first question.
Thank you Matthew boss of Jpmorgan. Please go ahead.
Thanks, and thanks for all the color, Jeff So Jeff maybe outside of your growth 150, what's the turnaround timeline for the remaining 50% of the business and given your comment today regarding lower tier malls any update to the fleet size over time or just how you're thinking about some of those lower tier centers.
Yes, Hi, Matt.
Just I'm going to start with just when you look at the initiatives that we haven't played are driving our our business right now so destination businesses backstage group 150, all those are working and I'm going to have that how add some color on the initiatives as well as was the things that we've been under reassess.
Which is really the ready towards this in some and haven't talked about that.
When you talk about the other opportunities that we have with our store fleet.
We will also give you a sense of where that is by each year and so how is also going to address that about where our businesses. What I would say about our mall says that we're we're investing at or mall developers are investing we're getting great outcomes.
You look at the gross 150 strategy, which basically touches over 50% of our brick and mortar business.
Complete with all that work and we're taking these revitalized stores into the fourth quarter with us and in most cases, you've also got mall developers that have also enhanced those small properties. So we're ready for thermal developers are ready.
The point I'd make on the rest of our stores is that we're all dressed and ready for a very successful fourth quarter. So loans on the two until the first or really the how we're trying to give you some more color about some of the initiatives that we're working on right now as well as what we're rebuilding and ready to wear and then also asking to comment on.
At the store segmentation some of the malls that are you're referring to.
Hi, good morning.
As Jeff mentioned, we remain confident in our strategic initiatives, specifically on our growth doors. We've completed 100 this year and they are ready for the holiday season, the trend variance the performance our growth doors continues to be strong embedded in the rest of our store base with a nice uplift that we that is significant in nature.
As it relates to backstage backstage continues to exceed our expectations that specifically exceeded our expectations for the quarter on this very much driven by locations in men opened up for more than a year. Those locations are running up mid single digits year over year.
And the locations are also improving in margin in turn it we remain very confident in our backstage initiatives, making it gets stronger and stronger in off price every single day.
Bought our destination businesses, while they did not grow in the quarter in aggregate.
As our business traded below our expectation they did outpace the rest of the business.
We did see outsized growth in parts of the business Paul mentioned some of our straight earlier in categories like mattresses and fragrances.
As it relates to our mobile initiatives, yes, very much remains our fastest growing channel. We continue to see very strong growth in downloads and users in the quarter and we added a number that new features to approve the in store experience drive traffic engagement onto our mobile web site under our mobile App.
And also enable.
Less friction in the ecommerce experience.
As it relates to our fifth initiative vendor direct it continues to be very strong and meaningful driver of our digital business.
We've exceeded as Paul mentioned, our goal for new vendors in office use onboarded for the year.
And in our mind Theres only upside for our vendor direct initiative as it AD sales and profits as well as increases customer satisfaction with very minimal capital.
And inventory investment.
Turning to ready to wear.
Look at our ready to wear business, while it continued to underperform in Q3, we're very optimistic as Weve look ahead.
You mentioned on our previous earnings call in the spring, we made adjustments to the structure of the new leadership in place.
Team has been passed away working on Sachin and trends and really rejuvenating. Our exclusive brands are working closely with our market brands and reestablishing our private brands.
Well they want me to able to influence a small portion of our buy in Q3, there were number a bright spots in green shoots that really give us confidence in this business as we move board couple of examples that I'll call out was our animal plant and animal Green giant the vast and dropped it had delta is well above average.
I'd also call out our back until the bar three collaboration it was a very big success with our customers.
And then turned into Q4, they've been able to have a bigger influenced on Q4. This sorbents had just hit the stores in the last few weeks, but we're really excited about the early performance and example, with very high sell throughs is our eye and see holiday Party assortment. That's just a brief update on our initiatives and are ready to wear.
For the last thing that I'll, just referenced as Jeff commentary on malls.
As Jeff said, we've been investing in it all works developers are investing and that specifically with our growth strategy and we feel really good about that initiative and those stores continue to outpace the breadth of our fleets.
As we've talked about before we have very much of store segmentation strategy. It starts with our flagships Dominantly Herald square, our national flagship 10 regional Black ships are magnet doors, and then our neighboring stores, we've been watching the trend across our mall for quite some time I specifically in the C.
He malls, which are our neighborhood doors and we did see a steeper decline in these doors that we anticipated in the quarter.
The majority of our business is in the malls, we've talked about that several times and again that is where we're investing.
And that's where our growth strategy of having a big impact.
As we move forward, we as we've talked about on previous calls we will be communicating our plan for our neighborhood stores and providing an update on our store segmentation strategy and our analyst day in February .
So just in a in summary, we feel really strong about our strategic initiatives in the APAC are having on the business. We are optimistic about are ready to wear business. As we looked ahead to Q4, and we'll be providing a more thorough update on our store segmentation at our upcoming analyst day.
Great and then just maybe as a near term follow up on the change to your for Q1 holiday forecast versus three months ago. I guess, how much of this is mifi specific versus any change that you have on the U.S. consumer and then just last you mentioned commitment to paying an appropriate cash dividend what do you see as an appropriate yield.
Why don't we started with the what we thought that on the third quarter in the fourth quarter was really just to be prudent on what our current trends in third quarter looks like and so when you look at that and take that into the fourth quarter and then layer in the pieces that we know where incremental too.
What we had in the third quarter, so again cycling through the things that Paul talked about in her comments about what happened to us in West Virginia last year in the warehouse fire as well as the change that we made to the promotional events. We know those are additive. We also have the benefits of the higher penetration of the dot com business going into fourth quarter.
So when you layer those no opportunities that we have on top of the third quarter print trend you get to the prove arrange that we are now directing I'm on on fourth quarter.
So I met with respect to dividends I always like to put that in the context of our capital allocation framework and just again to remind that really hasn't changed and we start with investing in our business.
And then the second priority is make making sure that we continue to maintain a healthy balance sheet.
And then third is continuing to pay inappropriate dividend cash dividend to our shareholders and then finally, the fourth priority would be to become the share buyback program.
So you know specifically to your question around dividends, our board approved or dividends quarterly review that with them and that we don't have that plan you turn to change our dividends that we continue to evaluate it into context of our capital allocation as well as their strategic.
Plan.
More broadly and so you know, we're well aware that with the drop in our share price our dividend yield being is now outside but having said that dividend yield is but one metric that we think about a when we're thinking about our dividends in our dividend policy and it's not one that we wholly controlled.
And so when we think about what is appropriate again, we evaluate that in the context of our capital allocation framework and in our water strategic plan.
Great. Thanks for all the color.
Thanks.
Thank you.
Your next question comes from Paul Trussell Deutsche Bank. Please go ahead.
Thanks, and good morning.
When it comes to tourism.
And that being softer.
Could you give any color on what kind of impact you saw from the softer truism money here will be your base is maybe just juxtapose that again I believe you mentioned that bloomingdales actually maybe had its best quarter as a year.
And then when it comes to the gross investment model as well as backstage.
That is ultimately the percent of the store base you believe those formats can be in.
Thank you.
Hi, Paul I'll start with the first part of your question. So I tourism was down 6.3% in the third quarter and that was actually slightly better than you expected when we exited the second quarter, but even still quite negative on an easy compare versus last year, when tourism was down 4%.
That being said, we're acutely focused on our holiday 2019, and prepared Jeff and how.
Talk about and their ability to execute at a high level for all of our customers.
And so you know when we think about it and we'll continue to use somewhere between six and 9% down as a run rate and ask where that's where the remainder of the fall season, and you know in terms of bloomingdale's at in the third quarter and it was impacted differently and versus.
He bloomingdale's was down low single digit so around 2.2, 0.9%, which represented a significant improvement from from the set from the second quarter.
And then a poll, we just set up the backstage conversation. So we're obviously very optimistic about what we have been able to accomplish backstage since we opened a freestanding format back in 2015 is now brought it into Macy's stores and was now over 200 locations. So to answer your question I don't.
We see the limit yet in backstage, but we see backstage complaint every single one of our Macy's mall footprints and we're looking very carefully AD free standing as well and I look at how we get a little more detail about what we're learning about backstage and and what buoys our confidence.
Thanks, Jeff.
I just said we are very excited about the opportunity and the impact that it's already having off price at Macy's. This year, we opened up 50 store within store locations that puts our total at 215 store within a store locations a significant growth over what we were two years ago as Jeff.
Mentioned.
We have plans to open maybe more in the future. We also this year as we've talked about on previous calls opened up an 800000 square foot distribution center in Columbus, Ohio.
And I'd, just say more broadly we're now at scale in off price with our backstage business.
Macy's.
And our as I mentioned earlier I backstage locations continued to perform very well into quarter.
Once the were open up over a year were up mid single digits and we continue to see improvement in not only our sales, but also our margin and turns that are associated with the business.
Our customers really enjoy shopping backstage opt for example, our net promoter scores in the business our are very strong and well above a number of the other businesses inside of a macy store.
Jeff mentioned, our free standing back stages, we opened a number of these in 2015. Those also remain quite strong with strong positive comps.
Just stepping back and talk look if we look at Q4 with our backstage business. We are locked and loaded we have some amazing holiday deals in our backstage businesses.
Including things like family PJ slippers, swayed boots or the access inventory has been strong we have great brands that are backstage business.
We feel really good about that business as we head into Q4 and just in summary, Jeff mentioned, there's a lot of runway and on and off for off price at Macy's and we're very bullish about the future of our backstage business and Paul just to add we also have lot of runway bloomingdales bloomingdale's outlets. So we definitely found the right formula There you see is adding stores.
There and we're very satisfied with the results.
Thank you for that color. It's just one follow up and I know you're going to discuss this much more in February but you did mention.
The presentation that you saw some early positive results on the productivity program. It anything you can elaborate on in that regard.
So so what I would say there Paul.
We have been very much hard at work on our productivity initiative and what we are seeing is that the organization has taken both the cultural and a mental shift when you think about cost saving so we're a you know we're looking at it more equate that to positive we changed the way we work, how we move our product and so forth into as I said.
And in September and productivity savings to be get productivity savings and that's what we're seeing a which isn't a cat in opportunity to really accelerate those savings versus the roadmap that we laid out and at the conference in September and then just to remind you said that he would deliver 400 to five.
Hundred and $50 million the savings on top of the $100 million to $200 million to savings that we do normally and instead of its part of our normal DNA. So that will impact gross margin I It will impact that's DNA.
In working capital and again, we see opportunities to accelerate that and we look forward to describing that in more detail at the conference.
Thank you and best of luck.
Thank you.
Thank you.
Can I moved your next question comes from Lorraine Hutchinson of Bank of America. Please go ahead.
Thanks, Good morning, Paul you talked about the free cash flow year to date that being indicative of what you expect for the full year could you walk us through some of the puts and takes there and then just maybe share your and commodities and what that free cash flow number should look like this year.
Yeah, and marine as you know, we don't typically guide our free cash flow, but we expect it typically to be commensurate with and the way, we deliver EBITDA and so I'm, just saying that it was a function of the timing Oh the tables that we saw in the quarter.
Okay, and then just to follow up on the gross margin. This quarter Ah you mentioned 40 basis points of delivery headwinds.
The ongoing expectation or was that maybe a little lower because of some of the problems that you had an ecommerce business.
I would say Lorraine that you know that sales growth rate of our digital business slowed in the quarter and so commensurate with that lower than expected growth, we had a lower than expected headwind.
From a delivery expense associated with or did you know.
Business and loyalty program. So I was just look at it in terms of that.
Okay and then.
Fourth quarter expectation for gross margin can you just share a little bit of detail behind that.
Sure.
No I would just backup a little bit and say that we're pleased with our gross margin performance that in the third quarter and how we navigated the environment from a margin perspective, and which resulted in significantly improved gross margin compression in the third corner as you saw down 30 basis points versus down 160 basis.
Good point in the second quarter.
And 120 basis points to the spring, albeit on lower sales and so our goal is to always to be able to balance sales and gross margin and profit performance at similar to or better than the way you did in 2018 as we move forward you know why we also are beginning to see some product.
Tivity come through we expect that add to come through even more selling 2020, <unk> and beyond but you know in terms of our gross margin we guided it to be down moderately on the full year, which would imply that fourth quarter. It would also be down moderately as well but.
Not near the the compressors that we saw in the spring.
So what were just to get a little more color on that I think there's when you're a fashion retailer promotional retail like Macy's, there's two things that we look out with respect to gross margin.
The first one is that we always want to be at the right stock to sales ratio because we're always flushing out the older fashion is we're bringing in the new and as a second pieces, there's plenty of your promotions and stuff. So I think one of the benefits that you saw in listed in the third quarter for US was that we didn't change some of our competitors promotions and we really held the line.
And those categories that frankly, we're not perishable that were not fashion. There were several replenished based on sell through when we look at the fourth quarter were locked and loaded every single promotion has been plan ever specials that planned private brands our market brands. So we have flexibility to respond to what is going on into competitive.
Event.
Because our stocks are now in line or start to sales ratios are at the right balance we recognize the importance of the gross margin opportunity that we have and we're well positioned in the third quarter going into fourth quarter.
Thank you.
Thank you.
Next question comes from Onyx woes of Goldman Sachs. Please go ahead.
Good morning. Thanks, So much for taking my question. My first question is on me.
On the inventory can you talk a little bit about the composition of inventory in the level of comfort that knows we got into the fourth quarter and holiday season with few I'm you know days between Thanksgiving and Christmas is that the right level.
Hi, Good morning, we feel really good about or inventory position going into the holiday season, as Jeff just mentioned.
Minute ago, a and then specifically on the inventory we feel like we have a really strong gifting assortment many of them exclusive we've got excellent and strong values out there.
It was instead of several times on the call today, we worked hard all year to put together a fantastic holiday set up for our customers.
As you've heard mothers is a highly promotional retail environment.
In Q3, we were able to take a much more balanced approach to sales and profitability. There that resulted in improved gross margin rate compression is Paula covered earlier, we were very deliberate on where and when we took a promotional markdowns in in Q3, and we will take that same strategy into Q4.
And the benefit is that we've been planning for Q4, all year and we're going in with a very good inventory position as we've said previously we expect full cost inventory. We said previously that we expected cop inventory to be up entering the fourth quarter.
And actually we ended with copy admits were flat at the end of that Q3 here. So I'm slightly better I'm. We've also said, we expect inventory to be down at the end of the Q4 and our guidance takes all that account and that's still very much our guidance.
Okay. Thanks. Thanks, So much you one question on the home category I think you mentioned that you know housewares and Sanish underperformed in the quarter can you talk a little bit about what's going on there. It seems like it's a pretty competitive category at the moment. So you know how how is how is that the business performing and what's the what's.
To find out for that.
So Alex as you heard very.
Very highly promotional environment in the quarter in particular, when you look at the or the home categories Housewares in particular, so there was a lot of pricing that was going on of extra promotions more affiliates spending and we made the decision basically to hold with our existing promotional cycle and not compete.
Fair it didn't cost us some sales, but it also result, where resulted in much less margin compression in the quarter overall, so well that was the decline in the quarter. We're gonna be very competitive if you go into the fourth quarter, we plan for that.
But I think just as an aggregate where do we need to be promotional here and were don't we what we were responding to the competitive cycle and again, we would I just mentioned earlier, we want to make sure that when you're in fashion categories that are perishable check your WEX, though when you have to be at the right inventory level as you enter the new season, but in areas that a replay.
Shapell many of the home area as far Replenishable. A these are evergreen products to continue from season to season, you're going to see use a demonstrate more balanced in the future as we saw has been demonstrated in the third quarter.
Great. Thanks, So much and then Jeff maybe maybe one more for me you talked previously about.
About you know the ability to take price I'm in the event of Paris can you talk a little bit about pricing on those categories that have seen parents, so far in any kinda updated thinking.
On your house price might be used as a lever in me in the event that we see incremental Paris.
Yeah, So just to kind of dovetail on withheld talked about so if you look at where we put value being the products.
And we have some opportunity, particularly in our fashion goods and our apparel goods in our exclusive products to be able to put more make into these products. We can get a higher retail that can absorb if there is a is if there was a tariff impact as a Paul mentioned in her opening comments, we've worked very closely with our private brand partners and our national partner.
First on mitigating costs, we have they obviously a strong position in the market and we were able to mitigate we've talked to be ended the third quarter or the end of the second quarter call that we thought it could be up to seven cents of Oh overall, EBIT impact and that it for the full year, you were able to mitigate virtually all of that in the second in the third quarter and.
Elsewhere anticipating for the balance of the fourth quarter. So right now we're hard at work with all of our partners on the 2020, Assortments and where we will raise retail just because we're putting more making this in these products, we're having better fashion the customer will accept that that's how I mentioned earlier like the I can see a brands seen how that's performing.
Fourth quarter at higher average unit retail I was more make that gives us some confidence in our strategies will work, but in general if the content. It's the same as the previous year I don't believe customers will take a price increase what but we're working with our manufacturing partners very carefully on bad and so far we've been able to mitigate all those increases.
Perfect. Thanks, so much for what kinda.
[noise].
Thank you.
When I moved for next question comes from Kimberly Greenberger Morgan Stanley . Please go ahead.
Great. Thank you so much good morning, I wanted to just follow up on the discussion on your stores in particular neighborhood stores I'm wondering.
Why not close more stores, particularly in light of the underperformance or continued underperformance in C and D.
Type malls, and then I I Wonder if you just follow up if I could chats on on the improvements made to the E Commerce site or could you just talk about Vicki improvements you feel like you made that will matter to consumers here in the third quarter.
Good e-commerce sales actually grow in third quarter and that if if you have any thoughts on one day delivery.
That would be super helpful. Thanks.
Okay, well take your first part question in two parts will answer the first one and on a turn it over to how to talk about E. Commerce enhancements on the site as well as an update on a same day and delivery in general Let me just talk about the lower tier malls. So it is how mentioned in his comments under we were committed to ending the year with a plan for all of our name.
Brad stores. They are important in the neighborhood that they serve a they haven't very develops fulfillment business that goes out of that customers are going in there for basics. We are very mindful of every one of our store footprints about how it influences our digital business and the entire omni channel ecosystem. So.
We are going to be very thoughtful about.
How we deal with that and how we addressed that and as mentioned we will be talking to everybody about that in early February since investor day about how we're going to go forward with that and how much talk take on about E. Commerce enhancement, yeah. Thanks, Yes, and Jeff one Paul or referenced earlier, we did experience to slow down in our digital business, but it.
Absolutely did grow in the quarter or we just did not achieve our customary double digit growth.
Some of the trends as Jeff mentioned, not only did they affect our brick and motor business, but they also affected our line business, including a weather and some of the promotional intensity as we've talked about earlier, particularly in the home category.
We continue to be very strong traffic to the slight Ah Ah, but we really what we saw the softness with their conversion and again that was oh, primarily due to some of the weather and the promotional intensity that we saw that it wasn't part as Paul mentioned due to some of the enhancements that we made for holiday a we released a number of advance enhancements.
In advance of holiday didn't have really had a big customer explored this improvement experience.
But it took a from time to work through these I'll call. It gave you a strong listed he's earlier some of them, though included same day delivery, which really increases our customers fulfillment options.
We didnt made several updates in our checkout process, including the addition of its safe to later bunch in which improves convenience in check out.
And we also made a number of taxonomy updates and make the site easier to navigate a and improve the customer shopping journey Oh, you know if we look as we look ahead. The team has completed this work the site upgraded the customers already enjoying this now and our conversion rates are back in line with with normal trends as it.
It's about a same day delivery just provide a little bit more color there.
We offer same day delivery to our customers and 33 markets. This covers about 40% of U.S. households, and about 60% of our online volume either just a brief if we step back customers really expect a variety of fulfillment options, sometimes they want things faster, sometimes they want they G.
Sometimes they want big Super accurate.
And that means we need to be offering our customers. The same day delivery in Q3, we updated our as I've mentioned all of our digital properties to make it easier for customers to identify navigate in select items that were available for same day delivery.
Additionally, in the month of October we offered of limited time test for free same day delivery for orders above $75. Our current price for same day delivery in our typical prices $10. A we were one of the first retailers to offer a kind of just free same day delivery ever $75. The customers responded well to the.
<unk>, but also just more broadly the customers really responded well to same day delivery.
We're pleased that we've been able to make it more prominent do our customers as I mentioned, there gapped into it quickly I, we're excited about having available for holiday as not particularly as we get closer to the end of holiday.
Thank you.
Moved around next question.
Some Chuck Grom Olive Garden Mascus.
He's going to take so good morning, just a few questions for me just one just wonder if you could speak to the cadence throughout the quarter and potentially speak to how November start off and number two just on the lower tier malls and he is the first time you'd call, but I'm wondering if you could quantify what you think that drag was and then third and probably most importantly, you know you guys are pretty upbeat.
But your comp guide for the for the year, which implies about it down to 100% comp in the quarter, what's pretty conservative on the stock. So given that your cycling that's 70 basis points of onetime items from last year can you just frame out for us your thought process and where there could be some potential upside here in the fourth quarter. Thanks.
Oh, yeah, yeah, So I will I'll start with T. a is that the first question or two questions. There in the first one on cadence I would say our cadence that in the quarter I was fairly consistent at August through through October and then since I'm I'm speaking and I'm sure that.
Either Jeff for how come on to and the malls.
Let me just take the and the Q4 I Guide I certainly check we're confident as we've been saying in our holiday strategies, but if we look at are yet to be performance into Q3 trend, which Jeff discussed in his remarks.
We have to recognize that our strategies are being built kind of a weaker baseline and but the trends are weaker and so we're building on top of those.
And also just sort of as Jeff mentioned, the sales and add the more tier malls slowed.
You know, we saw digital AD growth moderate and certainly lots of strategies in place that should provide the opportunity there to be accelerate and but we also want to be mindful of the uncertainty in the environment. The macro uncertainties. The consumer is certainly solid but we want.
To be prudent and a defensive our FFO range about guy.
<unk>.
And then try to your question. It was about 30 basis points, a drag to our overall cost when you look at the the lower tier malls versus what we what we had in the first half of the 2019 years.
Okay, great. Thanks, a lot and then just just a quick club for fiber Parliament. When you think it's the back and look at the the deal real operating margin structure, along with your targeted a 400 department a million of annual savings you beauties of offsets to the future investments and I just promotional actions, where do you think that operating margins can begin to expand.
In 2020, assuming you know more of a stable topline backdrop.
Yeah, I mean, that's the way I would think about our productivity savings is that we're looking at then as ways to mitigate a headwind I find that our investments and improve our profitability in time I said that we're looking for them to do all of those things and again, we do see operates.
Kennedy to accelerate that savings and we're looking forward to telling you about that in more detail on investor day in February .
Okay, great. Thanks, Good luck.
Thank you.
Your next question comes from Paul did use of Citi. Please go ahead.
Yeah. Thanks, guys I'm curious how much vendor direct helps the comps this quarter or what your expectations or how that business can help you in before too and also curious has a number of undergrad skews gold is there an opportunity to take inventory lower or to make the business less capital intensive swing.
Oh.
Hi, good morning.
Yeah, I'll start with just customers have a really high bar for retail experience and that's you know in our brick and mortar stores, but across digital and also the way They cross shop, and then on the way across but and that means we need to have a compelling digital properties. It's easy to shop offers filled an option appeals to both as we talked about earlier the time into.
Cost as a customer.
But also means we have to have a great product assortment honor site, we want to have all the best and we want to have all the rest on our site and what we want to do is help cure rates our customers selection, but also provide great personalization to allow them to quickly find the items, they're looking for.
As you mentioned the advantage of vendor directives allow stats on vastly expanded assortment without holding the inventories are real win for us and for our customers.
In the quarter of indirect made up about 13% of our digital business as Paul mentioned, we added over 1000, nearly a 1000 vendors and over a million, we'll be adding over a million skews to decide this year.
And year to date, we have exceeded those goals in time for holiday well, we look at our competitors that we know that our peers have a much larger ratio of online skews. The in store skews, a and that continues to make us feel like we have a meaningful opportunity to expand our vinaigrette program and we see our customers engaged with it and we think.
Our vendor direct program only has upside in AD sales and profit increases customer satisfaction drive traffic to the site you're just to your to your kind of part B of the question. When I was just say is here we're constantly looking at our assortment a we're looking at this sort of when we haven't or stores.
We're making sure we've got into the rights doors seasonally relevant location relevant. We're also looking at the inventories that we havent or distribution centers and how that services online and we're very focused on inventory productivity and where we can find ways to take inventory out of our distribution centers and asked our vendors to fulfill that are we.
You're doing that and where we find opportunities sometimes when we haven't been or direct item that selling really well and it's more beneficial bringing in house, a we're doing that as well. So it's it's like it's something we're constantly looking at it's something we're constantly assessing and.
And this is a must do we have well developed and Paul just on on February since you will hear more detail about the transformation of our supply chain.
How is giving you some textron.
Good Thank you could go.
Okay.
And I'm in for next question comes from Omar Saad of Evercore ISI. Please go ahead.
Thanks, a couple of clarifications or you know I think most my questions have been asked you mentioned a couple of times of the colder weather area of the store isn't doing as well obviously, there's been a turn of web turn in the weather that one of the factor that gives you confidence in the fourth quarter and and gives you confidence and where you're going to end the year in inventory.
I also wanted to kind of get a bit better understanding what the digital slowdown in the quarter worse than the bricks and mortars outside of the business or did they both kind of is that perform in lock step and then my third question. My last question is on the neighborhood stores and those local markets a second tier third tier user an opportunity to really run those business.
Those those locations with a lot less inventory, maybe a local assortment in kind of always in stock basics their chance to kind of think about inventory in those markets differently than you do in the 150 in the top markets, where the we have the full assortment stores in their destinations. Thanks.
So let me take on the but the first one on this Omar so on the cold weather, we definitely did get a jolt of customers and business based on the cold snap a that happened in the country in the in the really the first two weeks of November .
So as we mentioned added material effect not just on the categories of cold weather, but also in the appendix sales both online and in stores, what we were up against from the third quarter of last year, we saw a nice piece of that coming back to US right now in the first two weeks in November .
Responding to income and bricks and mortar the degradation in trend was about the same relative going from the second quarter to the third quarter for the reasons that that we quoted ended the conversation about the third the tier stores will come back to you in February with what our plan is exactly how we're looking at those buildings. It's also for.
So to your question about inventory levels of profitability and sustainability of those locations.
Thanks, Good luck.
Thank you.
Thank you.
Your next question comes from Michael finishing of Credit Suisse. Please go ahead.
Hey, guys. Thanks for taking my question, it's Gonna my question's been answered as well but.
Could you just speak to where you know, maybe where you're seeing some of the incremental areas of real estate a in a real estate monetization recently I think you know as we've talked to you guys over over last few years and think that Youre thinking was it that those gains of slow a little bit going forward you stepped it up a little bit today do you view that more as a pull forward from something you were thinking about next year.
Or have you found something incremental in the strategy and it gives them working hard on that strategy for few years.
Yes, So hi, hi, here and so I would say that Ah you know in terms of our asset sale gains our real estate team as they keep abreast of the market and they help us monetizing assets at when the real estate values to pass into retail value and so and that's an ongoing process.
And in an ongoing a assessment of our store fleet and that you did this work we've been able to see some acceleration in asset sales. This year and so we raised our guidance to 150 million from 100 million a in asset sale gains and but I would say that you know, we still think a norm.
Will range between $80 million to $100 million. Then this is this is an active process. So from time to time, you will see a an acceleration second thing.
Okay, and then if I could just ask and if we if we try to look at the full ecosystem a little bit here of some of the brands that have bigger businesses with you on many of them as guided fairly conservatively for fourth quarter.
But I do want to do and ask you know do you feel like you got.
Maybe you could help us think about how much support you got from the vendors to help clean through some of the inventory you commented in third quarter as we as we think about the full piano. He just presented and and do you think that you know the vendor stand ready off of that in that same amount of support a fourth quarter comes in below or do you think that that you know how how are you thinking about the vendor allowances to help get through.
Thanks.
So Michael what I said in the first three quarters of the year our support from vendors is very similar to what it has been in previous years I think the most important thing we could say on the subject is how our vendors and or all of our merchants work hand in hand on opportunities for customer demand and we feel particularly.
Hi, good about the holiday timeframe and all the gift Assortments that the teams have been hard at work out over the past nine month getting ready. So a lot of ventas exclusive content. We know that it is customer wanted we've done either testing price points more content, we feel very aligned with our vendor partners a in a fan.
Accomplishing our goals together I think I'd say, it's it depending on sell through there's more room sales based on the stocks that we have just based on getting better sell throughs. So why we're ready we're now with young basically going to be they've got to be that's all comprehended in our guidance a fourth quarter margin. So we're in good shape with respect to where we are right now with our brands.
Okay and again, because that's one technical one you mentioned the the operational blip on the on the on the digital site and he says I was that was improved to get ready for the holiday experience with it you know just some timing of that does that affect it just to the recalibrated correctly did that affect anything in early November at all or was that completely done.
Before the end of the third quarter in back up and running I'm as you start the fourth quarter, just just help us calibrate how you guys are looking at thanks a lot.
Yeah, I would say that Ah, we have put the fixes in place and that that the customer seeing an improved experience at this moment.
Okay. Thanks again.
Thanks, Michael.
Thank you and then from that moved your next question.
This comes from Oliver Chen of Cowen and company. Please go ahead.
Hi, Thank you regarding a modeling question how are the merchandise margins this quarter and what's your outlook for fourth quarter.
Another question, we had its just managing that she man and long term investments.
Needed versus the short term and your thoughts on managing margins versus investing in the business something what needs to happen and then finally on women's and thinking about the women's category, it's been a challenge category across the industry.
What are your thoughts on what needs to happen to women's and also attracting a younger customer as well.
All right. So I wouldn't I would start with Ah Ah gross margins and so what we I wouldn't look at our crop that compression in the third quarter, which was down 30 basis points and I would describe that is due to the delivery of headwinds that at that we expected to see.
In terms of S., DNA and I would think about that in terms of our productivity program at impacting that as we move forward to that and so you'll hear more about that Ted we give you details of that further details at the program on investor and on Investor Day.
And then I'll, let me pick or where do your question. So as Hal mentioned. This one has been we've been hard at work if that's not only with the new team and new structure, but really addressing our existing customer base as well as and new customer.
That we are a hockey pursuing and so the first I'd say is red with respect to brands really making sure that all of our key brands or are under under construction and so those that had issues with sell through a we really went back and make sure that we had to DNA right.
The other like cost structure of the classification, Max and what I was describing in terms of some of the impacts were seen in early sell throughs on what they were able to effect, which was really fourth quarter. We're encouraged by some of what we're saying we have this opportunity with the under 40 customers. So we've been looking at that in terms of content about do you do it by.
Okay and use do you mix spreads have you merchandise. It have you marketed you know where do we where do we stand up in terms of telling the customer about it. So we've got experimenting we've got a number of stores right now that we're playing has different merchandise models different architectural of labels and brands that are coming into that we're encouraged by some of what we're saying.
This has been a lot of focus groups with respect to the under 40 customer and I were clear about what we what she needs to see from us in order to give us more of her allegiance she's already shopping with us in categories like fragrance in handbags, and many categories of women shoes, what do we need to do give me more relevant and when it's ready to wear so things like.
Well, we did with my listed Bloomingdale's things that we're doing what's right up there. So we're doing with what I've described in terms of new brands and be waste of merchandising and marketing them. That's all of where we're going to just under 40 customer and we know that we need to accelerate our efforts and you'll hear more about from us at the Investor day in February .
Okay, and think promotional prepared for fourth quarter, it's because the assumption that merchandise margins are going to be lower.
And would love for smaller Holden flow is.
<unk> is a very good strategy to drive speed and also pest read and react.
How are you thinking about holding flow across the range of.
Oh sure stores, you know lower productivity versus higher productivity.
So again with respect to gross margin in the fourth quarter and we're expecting to see some compression that is implied in our full year guidance, but compressing would be oh look a little bit more compression than we saw and a third quarter, but.
I'm not to the extent that we thought in the spring.
And season as we continue to take a more balanced that approach.
And then hold inflow, we began we have begun seeing some of the benefits of it and we expect to see more and more of it and as we move through the year, but certainly as we get to 2020. So we expect that to positively impact on margin and we continue to flow more and more products through the process.
And just over to what we mentioned earlier about the transformation of the supply chain expect a thorough review about in February .
Okay and the transformations.
Thank you need to materially steps your margins in revenue base down just to give yourself more breathing room.
To adapt to this environment.
But that is gonna be the idea of the transformation program. If we have sales growth initiatives, we have productivity initiatives and the idea is in combination to add to grow our revenue and our profit over time and again, we'll talk about that in great detail on Investor day.
Thank you.
You can I moved from our next question 'cause comes from Bob durable of Guggenheim Partners. Please go ahead.
Good morning, just a question on the gross margin where are you on the markdown optimization initiatives that you've talked about and then the second question. I have is can you just give us an update on some of your re commerce initiatives that you talked about the most recent call. Thanks.
Yeah.
So I would just say that with respect to our productivity initiatives, namely a hogan flow in markdown optimization again, we're beginning to see some of the benefits of those in 2019, but we expect to see them more than the phone. This adult ADHD in 2020, and again, we'll outline that for you on Investor day.
Okay and above on re commerce. So Fred up is a it's it's not what decisions in our stores is performing well. We're learning every day about how the second hand market you know.
Affects the balance of our Assortments word is adjacent to you know we're very careful to make sure what does it cannibalize you know how does the customer responding to it isn't a new customer. So we're going through all that data right now when I would tell you is that we're beating our plant sizably with respect to us right I'm.
There's only so far about how it's performing but we want to look at kind of thought on lifetime value of those with customers that are shopping around it so stay tuned it.
And can you update us on the rental initiatives that you have any could bloomingdale's and the opportunities with Macy's, yes, so to get used to that so that's what we call. My list. So that is launched word our first kind of six we've survived and it's sitting all that kind of a customer benchmarks that we expected and then to just.
The previous question is resonating with younger customer millennials make up approximately half of the customers.
There are a good are enjoying my list is also helping us reach customers that are out about a kind of the typical geographic reach a warm bloomingdale says dresses and some talk classification to form we launched within my list Gifting program that allows customers to get the subscriptions to move them numbers digitally and.
So why pilot locations. So like write off my list is off to a great start.
Great. Thank you very much.
Thank you.
We'll take your next question from Dana Telsey, sometimes you had ways.
Yes go ahead.
Good morning, everyone, you talked a little bit more about some of the destination businesses that one called out and how bad performance was led it was beauty women shoes anything that that was being there and then also on the E. Commerce portion of the business is it back up and running now what what is needed to be addressed and what do you.
The digitally this quarter versus last quarter, well it was categories sell through well so frequency. Thank you.
Oh.
Hi, This is help as I mentioned earlier, we with all the pressures we saw the quarter. Our destination businesses did also experiencing slowed down versus Q2, but they didn't perform better than the balance of the business. As we mentioned a couple of times, we saw some bright spots in mattresses fragrances dresses.
Fine jewelry, Nands et cetera, I think what I'd, just say about her destination businesses, they're great shape for the holiday.
Highlight things like our gifts under strategy beauty, a holiday party dress line up our elevated jewelry assortment things like cashmere sweaters stocky suffers.
Our destination businesses accounted for 40% of our sales we've got a top three market share and these are strong profit contribution.
And we're very focused on making sure that these continued to be destination businesses for made these customers as it relates to online.
But that a few times when I guess I'd, just say Oh, we implemented a number of releases and enhancements in Q3, Oh, we worked through those sites upgraded our customers are already enjoying these enhancements.
We're seeing good performance out of it or conversion rates are back in line and we're ready for the holiday season.
Thank you best of luck.
Thanks, Dan.
Thank you.
Our next question comes from Priya Ohri Gupta of Barclays. Please go ahead.
Hey, Thank you so much for squeezing me in Oh I was just wondering if you could speak a little bit too their level of confidence you have that you can still be within your leverage target at your land is given that third quarter performance I could just inside of that at the end of third quarter and how we should expect that that's going for.
Lord relative to some of that that they'll games that youre thinking.
Hi for yeah. So as I said that in my earlier remarks, we plan to use excess cash in 2019 to further reduce our debt.
And just to remind we've been paying down debt a $3 billion over the past that trailing four years and that we continue to move closer to our and leverage targets and again I just would put that in the context of our cabinet allocation framework, which I outlined earlier.
Investing in the business and second is certainly at continuing to maintain a healthy balance sheet piling think about it in that way.
Thank you.
Thank you.
I mean, I moved to David Swartz from Morningstar. Please go ahead.
Yes. He tells how the loyalty program in Mercury may affect sales and also if management chain change in two or three affects the growth prospects or strategy. If the company. Thanks.
So the new awards loyalty programs, just launched within the quarter talked to a great start and so that is that we've already got to about 30% of the bluemercury customers have signed on to that so excited about that is hitting our targets. We expect that to continue to go to go further.
We had some management changes so a very back was one of the original founders is no longer.
The company he's gone out to kind of an entrepreneurial venture we're very happy for him and the normal back is staying on with US until we have the appropriate transition strategy. We're currently actively looking for a <unk> chief Executive officer, but she's got a very strong team beneath her that is deeply committed to the bluemercury brands I do not expect any hiccups.
With this transition.
Thanks.
Thank you.
I'm trying to especially for burners, So think of medicine Global factors. Please go ahead.
Thank you Oh I'm, hoping that you can help me summarize some.
Some of the thoughts regarding the fourth quarter guidance.
We're trying to take away from your comment was based on the trending over the third quarter sales.
However, in the third quarter.
Oh, that's it for him.
Including like well like cold weather and you already said, there's been a joke cells from cold weather cells.
And up to me Oh suggests improved gross margin prospects on on cold weather merchandise due to reduction later in the season for milestones there will also cited.
The difficulty with improved the third or with the ecommerce in the third quarter.
Third the.
Things have been reconciled well, we know that e-commerce is comparing against difficulties last year.
And also with regard to international tourism.
There's a headwind because of the stronger was dollar but international tourism is been though because so many of you know that.
A low single digit degrees and international tourism is the luminous with regard to the overall impact on cells.
So oh, it's difficult for me to reconcile the very optimistic commentary because your made about your positioning for the holiday season or be a guidance. This book.
Taking into consideration that you want to be conservative because you flush that out a little bit.
So what I'm really not Bernie is that we ought to be type appropriately conservative and what I would say there is there's many things that are outside our control there is whether there's macros.
We want to make sure that when you look at where we went from third quarter into the fourth quarter. When you look at our annual guidance. It implies a fourth quarter Ranger being down one to the down to nine remember we were down three five in the sort of corner. So there's certainly some things that you are quantifying that we have confidence about.
We want to make sure that though we have a fourth quarter strategy that we're very confident then that we've been planning for the confidence that you hear is is everything that Macy's and bloomingdale's control on our side.
The macro conditions anything that we can't control. We believe we have gotten sick that can that fits within all of those those those dynamics.
Well. Thank you good luck on the Susan.
Thank you Brian .
Thank you we have no further questions at this time, so when the time to call back from speakers for any additional her closing remarks.
Thank you everybody happy holidays watched the parade [laughter] thanks, everyone.
This concludes today's call. Thank you all for your participation you may now disconnect.
Okay.
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