Q1 2020 Macy's Inc Earnings Call
Ladies and gentlemen, thank you for standing by differently on hold for the first quarter 2020 earnings call.
First time, we're assembling today's audience and trying to get underway. Shortly we thank you for your patience. Please continue standby.
[music].
Please standby we're about to begin.
Good morning, everyone.
Macy's Inc. first quarter 2020 earnings call.
However, long conference is being recorded.
Now, let's turn the call over to Mr. Michael.
<unk> head of Investor Relations. Please go ahead Sir.
Thank you Alan good morning, everyone and thanks for joining us on this conference call to discuss our first quarter 2020 results with me on the call. They are just about our chairman and CEO of College, London aren't interim CFO.
We just simple prepared remarks to share.
We'll host.
Sure.
Given the time constraints the number of people who want to participate we ask that you. Please limit your questions one quick follow up.
Additionally, this call window press release, we posted a slide presentation called Investor section of our website. If you think dot com the presentation summarizes the information in our prepared remarks as well some additional facts and figures regarding our operating performance.
I do have one housekeeping keeping them to sure we'll be releasing that second quarter results and wholesome your associated earnings call on Wednesday September stuff before market open.
This was a couple of weeks later than our typical does not assume that went to the delayed funding up. This current call at that time, we'll be providing up to two up below strategy. In addition to the second quarter earnings report. So please mark your calendars.
And that all forward looking statements are subject to the safe Harbor provision public private Securities Litigation Reform Act with Nike maybe thoughts.
Forward looking statements are subject to risks and uncertainties that could cause actual results could differ materially.
Expectations and assumptions mentioned today, a detailed discussion of these factors and uncertainties is contained to the company's filed.
Ladies and Exchange Commission.
Discussing the results of our operations, we will be providing certain non-GAAP financial measure you can find additional information regarding these non-GAAP financial measures as well others use in our earnings release adult presentation, well catering I mean, that's <unk> investor section of our website.
Agreements in place called being webcast on our website a replay will be available approximately two hours. After the conclusion of this call an archived on our website for one year.
I would like to turn this over to Jeff.
Thanks, Mike and good morning, everyone and thank you.
So I want to start by briefly touching.
Oh, the restructuring that we announced last week that'll get you know knocking on what we're seeing in the business as or surgery open I.
Couple of weeks you will walk you through our final first quarter results and that will get you a quick update.
Strategy and then we're going to open up a lot for your questions.
As you know from our previous communication [noise].
Cobot 19 significantly impacted Macy's as our stores were closed for marching through Mayport. That's we reopened stores sales starting up strongly than we initially modeled.
However, with the we can cope itself.
We anticipate a gradual recovery now that most stores are open makes me think will be smaller more leverage company for the foreseeable future.
Taking a series of actions over the past three months to get the company on a stable financial base.
We cut our weekly cash burn rate, including significantly reducing payroll through the furlough process.
You got from it.
We can hear you now Jeff.
Okay, Great Hugo.
On the beginning.
Yes, so we stopped at the final process.
Oh God.
So we got all equally cash burn rate.
Secondly, when do you see payroll during the hurdle process, we refinanced for liquidity it gives us the flexibility we need to navigate through the next several years.
Last week, we kept the painful but necessary actions wider across states with anticipated sales.
He concluded what you've seen our corporate and supports headcount by approximately 4000 colleagues that's walls reductions in staffing levels across the stores customer service and supply chain network.
I want to express my gratitude cheap at a party colleagues for their service and her many contributions to me. She thinks we said goodbye some really strong retail challenge.
Beginning next week, we welcome back most of our remaining for loved colleagues. It's got a top few months for organization, but I'm glad that we have a culture of resiliency and I know that our colleagues and come back together to support the distance recovery.
Couple of weeks, just going to take you through the details first quarter and that's when you're now one of the second quarter I want to give you any sense of how business is looking.
Nearly all of our store.
In fact, only six Nike brand stores remain closed.
As mentioned earlier initial sales trends that stores real time were stronger than we model, but a few encouraging signs in both stores, we saw steady modest improvement in sales on a weekly basis.
Total sales remained strong in each market, that's our stores reopens.
Customers were very happy Bakken or stores, both customers and colleagues have adapted to the new health and safety standards.
So we felt momentum as we work through the second quarter and we've seen much in Macy's bloomingdales and the Bloomberg.
[music].
But I want to remind you that there's still a high degree of uncertainty in the market. The causes us to take a conservative approach to the back half of the year.
Reaping, some particular I won't call Austria.
First the cold at 19 pandemic is still in full swing in some parts of the country and while we do not expect another national shutdown, we do anticipate regional impact as consumers are encouraged to change home. Most of our stores are currently on reduced hours and will remain flexible to meet demand.
The health and safety of our colleagues and customers use our top priority.
It was surgeons game plan in place that will guide us if we need to temporarily closed a single store or regional group of stores.
I want to recognize our stores came to the incredible flexibility and resilience they've shown throughout this crisis I have a high degree of confidence in their ability to work through any future disruptions.
Second while our store.
We opened maybe the malls, which we operate our closed or maybe we close in areas where called at 19.
19 resurgence in the malls that are open many other stores in services remain close this does impact our store traffic.
Third we are seeing that our large urban flagship stores are opening more slowly than the earlier stores. There are two reasons for this first deep stores are located in dense urban areas that were most affected by the pandemic and second the virtual gifts appearance of international tourism spending, which we do not expect to recover anytime.
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So overall, we're shooting for me to open reopened stronger than we model.
The weekly improvement, but when you were saying that's started to model modulation. Our stores are now running down about 35% and based on where the pandemic may or may not go we're taking a conservative view and pulling back trend through the back half of the year trends improve we will react aggressively to meet customer demands.
Conversely, the digital half of our business has shown very strong performance and we expect us to continue at a healthy double digit growth rate through the back half of the year.
Hi, all metrics sales traffic conversion mobile engagement and new customer acquisition. We're pleased with the results for digital business in a few encouraging to see that the newly acquired customers, how many brands through dot com or younger and more diverse and report customer.
Working hard strategy sort of Chinese new customers and overtime convert into omni shoppers, which are our most valuable customers you furniture soft home sales second, particularly strong online and we're also seeing purpose across all areas of the business, including any pockets of right away.
I also want to provide you a brief update on or Dot Com organization. As you recall in February we announced that we would be closing or San Francisco office and consolidate into digital team into our New York in Atlanta facilities, while everyone has been working remotely since mid March we had continues with the dot com restructure and rebuild.
We appointed than you had to digital in late March that bear a strong leader with extensive retail ecommerce experience not just hit the ground is putting together a very strong team, but it's a mix of experience, making colleagues and you acquired challenge.
So without having to turn it over to police tried to take you through the quarter and give you.
Sense of how we're looking at the moment.
Felicia.
Okay. Thank you, Jeff and good morning, everyone. As Jeff noted, we are reporting our full first quarter financial results inclusive of impairment.
Were excluded from our previously reported results I.
I will touch on these impairment charges in just a moment.
As previously discussed exploring other post quarter dictated by the cold Nike pandemic its effects have been far reaching and we will continue to feel its impact on our results for the foreseeable future.
To summarize the third quarter, we think of it sales of $3 billion. A decrease of 45 like wealth effect on an old stuff like that comparable basis as our fourth look though that March 18th sort of end of the quarter.
We generated credit revenue of $131 million down 44% some last year.
Gross margin was 17.1%.
Now more than 21 percentage point come back here and include an approximate 300 million dollar inventory write down primarily on fashion merchandise [noise].
We recorded nearly $1.6 billion, that's DNA expense in the quarter, an improvement of 24% them last year, given that store closures and our fellow colleagues.
It is an increase of 15 basis points on a weight basic compared to last year.
Also recorded asset sale gains of $16 million in the quarter close to $43 million in the first quarter of 29.
Additionally, we recognized impairment and restructuring costs more than $3.2 million net interest expense of $47 million any tax benefit of $576 million, representing an effective tax rate up 13.9%.
So I mean, it all up we fall $630 million have adjusted net loss in the quarter versus income of $137 million last year.
Yes, but there was $2.03 in the quarter compared to income of 44 cents last year, which asset sale gang recklessness picky P.S. about fourq that and 10 cents respectively.
There are several items, which has lots of call. Your attention first let me briefly touched upon the impairment charges, we took into first quarter.
He said the cold 19 pension that has impacted many aspects of our business, including causing a sustained decline in our market capitalization and requiring us to update our long term financial projection.
These impacts requires us to test for impairment I long life assets goodwill and other indefinite life intangible assets during the quarter.
The adult a b has approximately $3.1 billion a bit when a pair mix doesn't recognize the vast majority of the goodwill impairment related to widen they seek reporting unit, while the remainder that's associated with absolute Mcqueen pointing in it.
In addition, we recognized approximately $80 million a long lived asset impairment that was primarily related to the group of stores that we anticipate anticipate closing of the next couple of years.
Secondly, I want to mine to other financial implications of the restructuring Jeff Jeff discussed.
To share we expect the actually cut to better align our cost base with our anticipated near term sales performance at the business because really the impact of a pandemic.
I think we expect our we laid it entirely to a reduction in headcount both in our corporate and management area as well as in our stores call centers and distribution operation.
If the business because with the levels above our expectation, we will be in a position to layer in additional headcount, but for the near term we've got plenty of the permanent reduction to our cost they.
Assets, we are expecting expense savings of approximately $365 million each year, and approximately 630 million on annualized basis.
Additionally, we expect smoker approximately $180 million for these restructuring activity largely related to severance of which the majority will be in cash. These calls will be recorded ethnic structuring charges in the second quarter of this year.
In addition, the anticipated savings from this week structure will be additive to the $1.5 billion in annual expense savings, we are targeting by European tools. He told me to do at Polaris strategy.
They called it out on Investor Day in February we said that the Rightsizing the organization in expense, they said Polaris, but allow us to better battle topline and Bottomline.
Accordingly, some of the targeted savings, which now totals approximately $2.1 billion will be taken for the bottom line, allowing us to stabilize and then well our profitability and some of the savings will be invested back into the business, allowing us to drive growth through our strategic initiative.
Lastly, we are benefiting from the care Act.
As you know act provide payroll tax credits for employee retention, the full payroll taxes and several income tax provision, notably the allowance for carry back certain operating losses.
Given the income tax impact we see from the carats at our current annual effective tax rate estimate, it's between 35 and 38% and this excludes the impact of the impairment and restructuring charges.
As you all recall, we that's true arch the T 20 guidance in March that's a cold 19, pentair, Nick really began to take hold.
Given that we can pay to operate in an unprecedented I'm quite because the environment and that there remain many I know uncontrollable factors impacting consumer behavior and the retail landscape.
Not providing new guidance at this time, however, I would like to share some of our current thinking as it relates to the rest of year.
We have modeled and we'll continue to model various scenarios for the back half of the year.
Ultimately, we are taking a conservative approach to our forecasting.
While we are not planning for Smbs locked down it's called it might team work should occur in the fall.
So what we've already seen in certain parts of the country.
As such we had planned for and ongoing but slowly covering that may be impacted by regional flare up here and there.
As always had been pleased with our Sportsbook form. It says they have we open we remain cautious about unpredictable headwinds in the back half of the year.
For example, our flagship and urban centric store, which has only recently opened are at higher with for limitations on operations and be doors are disproportionately impacted by the decline in international tourism that Jeff mentioned.
We saw a 50 basis point drag on comp from the international tourism drops into first quarter and we are assuming no international tourism sales for the remainder of the year.
In total 19 international Truism accounted for just over 4% of ourselves. So the impact is quite significant.
Taking all of this into account, we expect our comp performance to improve sequentially each quarter bearing in mind that the second quarter started at all with no stores open and did not have all store open until the middle of the core.
And the second quarter, we expect roughly six to seven percentage point comp improvement over the first quarter.
Stuart exiting the second quarter at approximately 35 to sit down as Jeff said.
Taking into account strong digital growth.
That caused the culminate in the third and fourth quarter with a total company down and low to mid Twentys range.
Reflects significantly lower sales than we expected in the pre pandemic Twentytwenty scenario, we shared with you in February but these comps all studies, what convenience of our branch, where this crisis and position us well for the feature.
We expect our digital business to continue to outperform in the first quarter fish here, we saw digital sales penetration of approximately 43% and we currently expect that our annual digital penetration will address in the mid Fortys.
While we saw a low single digit reduction in year over year digital sales in the first quarter, we expect a high teens increase in the fall season as customers continue to shift to online shopping at the pants and it continues.
As such we are projecting a low nicotine increase in full year digital sales.
The associated the live we call something a mix shift toward digital are expected to go to actually a slow recovery in gross margin despite expectation from merchandise margins improved quarter over quarter.
Our outlook on merchandise margin has improved from when we last spoke as a result, we now expect gross margin to improve in the second quarter from first quarter levels with improvement in each quarter thereafter.
Well positioned from an inventory perspective for the back half of the year and they came back into the third quarter third quarter in a clean inventory position.
We've been committed declaring our spring seasonal inventory and we've seen strong sell through on our clearance merchandise.
So given all the moving pieces both margin rate in the fall season are expected to be lower than fall last year by mid single digit puts said she's point.
With regard to S. DNA, even with aggressive action to small our weakness cash burn rate and our recent restructuring measures because here, we expect to see elevated levels at key today as a percent of our lower sales base.
Fall season, this could be low to mid single digit percentage points higher than last year.
And to help you better think about interest expense, we are anticipating approximately $300 million 40 year due to our secured debt financing unexpected utilization of our new asset backed facility.
Finally, as previously discussed we anticipate that income from our credit portfolio pockets here will be negatively impacted by higher consumer bad debt trends potential customer credit tightening and the loss of benefit from the government stimulus spending in July.
The effects of the cold at 19% and it has had and we'll continue to have far reaching effect on our company into retail environment. Overall I am proud of a quick and decisive actions we have taken as a company that mitigate many of these challenges we are taking a prudent approach to the remainder of the year and I'll be kept position.
Our sells well to what it depends on mix, we anticipate that we'll continue to feel the impact of its continued headwinds.
With that I'll turn it back over to that.
Thank you Billy sure. So before we open up a one questions I do want to get your sense of how we're looking at the polar strategy that we announced in February including.
You can expect combustion a detailed update on September sockets. So.
So courses the right strategy for us, but the cold at 19 pandemic intensified and accelerated customer behavior shifts that were already underway.
Sales and tuck ins caused us to rethink work best to invest our resources.
There are parts of the strategies, so we will likely accelerate or willing source digital certainly topped the list personalization, having a very flexible ambitions departure.
There's parts of the strategy that we will continue but perhaps refocus tactics like loyalty.
<unk> loyalty reporting on February as well as our merchandise category.
And there are parts of the strategy that we will Pos including our plans to expand off mall in new formats, we'll get you all the details.
<unk> earnings call again on September sockets.
In closing Macy's Inc. and make you can bloomingdale's brands have a long history of wasn't any crises sprint 2020 will certainly go down just want most challenging seasons and our company's history, but along with his challenge French opportunity, we've known for some time, but she's over retail and as we see the competitive landscape.
Yes, we know that there's opportunity for us to pick up market share with the actions that we've taken over the past few months, particularly the refinancing and last week's organizational restructure we're ready to compete.
Well then open up the line for your questions are thinking in advance.
Thank you Sir if you look to ask a question on the phone can do so with this time pressing star one on your telephone Chicago.
Make sure that your mute function has turned off to an all your signal to reach our equipment.
Again, everyone that star one portion to limit yourself to one question.
Well take our first phone Matthew boss with JP Morgan. Please go ahead Sir.
Great. Thanks.
Jeff maybe relative to the negative 35% comps at brick and mortar that you're seeing today.
What's the range between your top 150 doors relative to maybe the neighborhood stores and is it your mall based and tourist flagship location, that's leading you to hold the negative 35% store comps for the back half a year at this time.
Yeah. Thanks.
Well first off the situation.
Yeah, I did not change as you know game by day, you know most recently as an example that kind of our stores in Texas, Arizona and Florida.
So based on kind of the cold that surge in those particular states, we've seen to noticeably worse trendy brick and mortar dose shapes versus where where we started and what we were gradually getting better to.
Conversely, each of those particular states the dot com business is improvement so, but an aggregate to two to your question I see a couple of things out. So first off there's regional differences there just kind of the performance of our stores. So the heartland is the strongest.
The close or that were booked.
Are the ones that are coming back more slowly answer your question about kind of mall grades what's interesting about goods versus previous times in our neighborhood stores are performing gosh.
That's you know you would expect some of that because they are not as traffic that some of our more popular you know mad men or flagship stores. So.
Good about social distancing.
Communities have been very focused on those.
Lets stores for years that goes there for basics a younger it just a comfortable place for them to shop.
Versus the past, where they would take some of their shopping trips and going to regional malls. So you won't get kind of.
Flagships.
These and many of these stores have reopened certainly.
And yet the services, particularly restaurants speakers entertainment some specialty within those bacnet balls that not real than expected some traffic and when you look at the magnets and you look at the flagships, that's where the tourism business is really being done both domestic what you definitely curtailed as well as.
Much worse, and which has disappeared so.
When those things I would tell you that thought but short term effect on somebody's magnets and black ships is he's on the lower side of the recovery, but we still have huge faith and b malls over the longer term and as a as we mentioned you historic trends improve we are ready to react to it very quickly we're taking a conservative view in terms of.
Howard.
Versus the at the moment you know business is a shift and change we're on top of it. So that's my direction, but I'm I'm very hopeful that though it will be better than the down 35 to we wanted to pick up a prudent approach to how we you know expense the business.
So we're we're staying flexible to what we want every day.
That makes sense and then maybe just a follow up on a gross margin. So inventory is relying to demand exiting the second quarter and top line trends stabilize by late 2021, or I think you said, maybe even into 2022, I guess, what's a reasonable timeline to target for gross margin I get back.
Back to where we entered the pandemic, meaning I think 2019 year was 38.2% gross margin how long would it take to get back to a gross margins similar to what we saw before the pandemic in your view.
We could do you want to take that one.
Yes, Hi, Hi, Matt Matthews, it's nice to I mean, she virtually and so I I you know we've had as just discussed we because they are.
Modeling a low recovery include talked about the fact that we may not get back to our normal environment until the end of 21, possibly entering in Twentytwenty too and as you can imagine modeling. It's a good thing beyond the current year, it's very difficult given the headline said.
Hi, a outside earlier and so I wouldnt, if I can't tell you precisely how long they could get back that 38.2% level, but I can tell you that you know reiterating that for Q2 gross margins. We are expecting to include a relative to Q1 thinking and then get.
Well actually better there after the Q3 Q4, if it's a cheap so forgive me any definitive projection, but not all of this year.
Right.
Well give you a update on this on gross margin cute coupon on our Q2 calls.
But obviously the penetration of digital has certainly increased penetration virtual editions and so were we got wants to strategies about how we covered but we certainly had wants which like historical gross margin levels and we're very committed to gauge success.
Okay sounds good thanks, Jeff.
All right next we'll go to Oliver Chen with Cowen.
I had the merchandise margins momentum of words was encouraging up what was driving that and what are your thoughts for inventory planning as we think about threeq and fourq, given where your what you're planning and your scenario analysis was a you monitor promotional environment.
Competitors. Thank you.
Yes, Hi, Oliver Ah, Yes, our merchandise margin improved in the second quarter, or what's seen improvement and and Sally Mozart in the thousands of our clearance merchandise in our last act category. You know if you recall Oliver in the first quarter, we took a 300 million dollar write down.
On inventory primarily related to fashion merchandise that we reverse that as we go into the second quarter to allow our normal pricing and promotional activity to occur and so we have been pleased with the sell through of the clearance merchandise, which really drove the improvement and I'm looking guy margins.
I think a into the back half of the year. We are really confident that are softer sales rate till the end line in the back half a year and with our inventory down in line with [laughter].
I'm, sorry to get a lot of feedback sorry, we'd have appropriately seek levels in line with our fashion expectations. So we really expect it took a third quarter with clean inventories at limits impressionist for the customers.
For Jeff regarding the consumer environment, and the evolving a stimulus payments as well and as you monitor unemployment what are some doctors that you're you're looking at in terms of you know what's in control with you planning your business and how much the stimulus may have helped in the near term.
So I think as Ah, we just said in her comments when you look at stimulants trucks, and we certainly think that that helped our business look online.
Well sources they reopened so we're watching that carefully obviously watching the unemployment rate is carefully.
Watching all the customer behavior, I think one of the encouraging things about what's happened to our business. During cold. It is the amount of new customers that are coming to work.
And 60, particularly see it.
And what we're seeing is no longer more diverse customer that have slightly lower income their core customer. So our big opportunity is how do we hold onto those customers beyond that first transaction, how do we get them to be an omni channel customer overtime and so we're very.
Consumer marketing personalization technique to to going to see.
Great. Thank you.
All right well take our next question from truck problem with important industry.
Thanks, Good morning Chip just wondering if you can elaborate and your comments at the recent flare ups I believe them publicly Arizona, Florida, Texas, I haven't got to track or just wanted to get to speak to that.
Yeah. So.
Truckers that there really two weeks and doesn't rabbit.
Made the comment about at the same to stay inside we definitely saw your Texas was one of the first markets that we reopened.
When we opened on me for Texas moves that first state that we really saw widespread you know so we were opened that before most of the malls, but we were right there with the state has reopened and a as as you heard US comments you know in previous calls actually im.
Our second shot you know what we commented on how is that where we expected it to be at a low levels actually came down 50% to based on what we were seeing in Texas, and Georgia, which will go into two states that we opened burst it sounds like a three to five point sequential improvements in that trend each week and that was that was humming along.
And then when you look at about two weeks ago. When you know Governor Rabbit made but made that comment we saw about a 15 point drop in hard, Texas range or brick and mortar sales rate based on that helps modulators is gets coming back a little bit but you know that's what we're watching carefully is just in saga in the digital business went up.
You didn't cover the whole gap between that 15 point were brick and mortar wasn't where it became a but it didnt cover some of it. So that's what over watching carefully to see you know, we're dependent I guess going and and while we're not I think we're not anticipating a national shutdown, but we do expect expect regional flare ups that.
You know, we don't know fully where they're going to go down.
Okay. That's what that's helpful. And then under that took place you spoke of this all this question, but obviously getting from your customers into <unk>.
We plan to I'm curious you know what steps, you're taking well today to try to convert them to permanent misunderstood to Macy's.
So you know when you look at all [noise].
[noise] just artificial.
Exactly.
Usually.
Peter.
We are pushing those there she techniques about smoking cohorts that there might be.
And what they purchase and we're starting to see that constantly be now.
Messaging to.
We're really focus.
Purchase or digital experience has gotten much better for all customers and a it's certainly more attractive to our new customer so people.
Peter just if you look at our Chicago Bridge <unk>.
Click through rates have been better or sell through rates, but better we're really focused on having more seamless checkout.
What are we getting these customers and all of our core customers all fulfillment options.
So were settled right now were weak in 2019, we had about 9% or digital demand was being satisfied from Boston boss, a that has gone up dramatically.
As a result, herbicide and we suspected or stores will fulfill about 30% of our digital business. You know some go through the port core so the opportunity to get these new customers you know.
With more transactions online and then also starting to get done reasons to come in stores. So with these customers were really focused on items like backstage since that Scott.
You know we look at the value cost structure that you look at doesn't break down that business demographically for us it fits the profile of customers are coming down and because we got back stage in so many of our store units were talking about that so those are some of the examples of what we're doing to make sure. These customers we get them for a second third.
And.
One relationship.
That's helpful extra.
Your next question will come from one of Bob Triple with Guggenheim.
Hi, Good morning, just a couple of follow up questions on the inventory side.
Turns or vendor support or how you're addressing and getting the inventories and want to where you kind of or you you know utilizing a lot of vendor support or you because one of them moving to you know from backstage are using less that you just.
Elaborate a little bit more in terms of how you're approaching getting to that more normalized though.
Hi, Bob beginning more normalized load of inventory.
Yes exactly.
Yeah, and and so if you think about what happened and at the close our story for then began to the open but it's just that we started teaching them up and that's a store inventory or store fulfillment into art art ecommerce facilities to handle the increase they know the man, but at the same time.
Let me open or we accelerated curbside, where we could ever really using the store inventory fulfillment as well and so as you think about the second quarter and what was happening on the other side, we were aggressively taking down the street in the month of May and then again in June and given the B.
The pricing and promotional activity that we took particularly in the clearance in fashion a in age merchandise and the ability to get some really nice sell through because I still think opened a combined with the receipt take down we actually were able to managed very well see where our inventory position in the store, especially.
That we anticipate buying back into replenishment and newness and limit beginning into my thanks, a lot on and so Bob what I would say big picture I've been departments have been amazing insulated as Jeff said, a thin and that stronger categories <unk> beauty of furniture and soft home or we have had.
Amazing partnership with our with our brand Bender, that's very clearly trying to service our share customer base.
He thought they said we feel really good about the actions we've taken in the second quarter, two really ballots, where what's the Philly how we're using our store inventory, how we manage pretty steep in order to give us a high degree of conflict that well into the back half a year with clean inventory.
Okay and then my follow up question is on can you just talk about do a forms of the credit business your expectation on credit revenue or you know what you're seeing.
Throughout the portfolio.
Oh, yeah, and so for the first quarter, our penetration rate of 26%, which is the same 46% tied it wasn't last year, but we're watching trends closely Bob because other stores were closed our new account activity was down significantly.
And.
You know I've looked at modeling our our credit portfolio profit share a we are watching.
No I remember practice, but mainly a bad debt trend because they tend to have a delayed impact on our portfolio and then also watching the banks as they make decisions about how consumer credit tightening.
Then to the point that.
There was some benefit with its hard to measure from being a unemployment checks that people received as well if the government stimulus package were thinking that that had a benefit for the spring and it's hard to anticipate one whether the government will the new though stimulus packages in the back half a year and if they don't what will that.
How would that impact consumer spending and crop and consumer behavior, but as we look at those metrics and many other metrics that you can imagine a we are cautious about consumer spend customer behavior upticks in Baghdad, no aging of Oh consumer portfolio.
Oh, it a different a category a credit category.
Let me leave looks like that we would face some headwinds, particularly as we all clear at the back half of the year and go up to 20 to 20 watts.
Okay, great. Thank you very much commission.
<unk>.
Next we'll go to Omar Saad with Evercore ISI.
Thanks, Jeff potentially chip for taking my question core areas I'd love to get a little bit more detail.
Your first almost 3900 <unk> corporate headcount reduction maybe you could talk a little bit more <unk> as a percentage of the total total corporate headcount you know what are we talking here and you know what types of positions adjusted broad based kind of percentage cut across the board.
Or is it more the merchant buying organization or you know financial planners and inventory planners and does it reflect.
Oh is it just isn't just an across the board move or does it reflect kind of a corporate restructuring and how you're going to reallocate the organizational structure.
Going forward given the ongoing changes an acceleration of changes and then I will follow thanks.
Yeah.
So yes, when he works with 3900 it was about over 20% a corporate headcount. After we took the Cubs from Polaris.
We announced in February so it was significant and ER and I would tell you that there was not a company that touch but to.
To your question are there were certain areas in which we said hey. These are areas that we got to be best in class. So we really look at the competition company you and you say, that's our focus has been to fortify and grow our omni channel advantage and that's enabled by digital by leveraging our brand banners when you pick up Macy's and bloomingdale's.
Sales from off price to luxury so we really looked at okay pizza business that we want to be best in class up. So you know best in class merchandising capabilities, which includes our private finance and that protects our crashing leadership are you need to build the cheering fashion online.
Really wanted to fortify.
Simple and can beach actions on our digital platforms and in our stores, so making sure that a digital full omni channel experience for customers continues to get better. So we wanted to make sure that we were investing the math and that was created those two things was really just focus on cost reduction in our opportunity.
Invest where the customer dollars. It so what you would see and the kind of a complication of 3900 was obviously digital was not affected much but other areas of the company, where we don't have to be best in class true deeper cuts and so all of them extremely painful we really focused on spans and layers you'd see it just a portion of the mine.
You know, the vice president and above range as well as a higher percentage at the and when you look at the manager and the director level and not nearly what.
On a colleague you know the customer facing colleagues are we really tried to keep those is intact as possible now those are aware elastic to sales and so when we have a lot of flux colleagues. We got colleagues that can go a it can expand hours so wherever the volume those opportunities with those colleagues.
But no the bulk of of our costs 30, not number was really a corporate level as well some of our regional leadership and it was really bad.
At the levels when I was talking about.
That's helpful. And then I also wanted to ask me I. Appreciate that you guys are giving an early view on the second half the by the 20 to 25, it's helpful context, but if we think about stores wondering it down 35 years Sizably commerce business is growing.
Yeah, we think about bridging that gap it seems like you're expecting get lucky as mentioned some of the flare ups and second wave is it more that's what's causing the kind of subdued.
Forecast.
Relative to maybe work to current trends could build over the second half or is it more do you have a view on a lack of demand as you know consumers are going to work and weren't fashion as much in the career business in other other wearing occasions, our aren't materializing.
You know you look at the composite of ourselves it definitely has shifted so what I'd say is that it's the pandemic, mostly that is affecting what I, what I would say as or is are you know told trends.
And so and I think that is that that will subside over time.
And what I'm, saying, what's the department store, we have a unique ability to basically really accelerate those categories that.
Our in favor and so when you think about you know home stores, having a golden Hill, but right now I think every retailer is talking about that when you look at how well big ticket.
I mean people are looking around the house and looking for opportunities to uptick so having full service opportunities in big ticket symptom <unk> retail brands like Bloomingdale's at Macy's soft home categories have been extremely extremely strong beauty is just still very very strong and when you look at the apparel categories looked interesting as you bring everybody talks about acted in cash.
Well those are stronger than they've been historically I mean, you've got you know categories dress categories for dress subcategories, soon beans, or dress shirts, or or social dresses that had definitely taking a hit logistic and perhaps a those categories or or or going to be compressed for awhile.
But not forever I don't.
And when you look at emerging categories like what we've seen online. We've got lots of you know vendor correct categories that are knew that we're going to expand and have a brick and mortar presses and so we're looking at as a department store opportunity to react to where the consumers going on this trip to the base. If your question I think the trends or not a shift against categories at apart.
Store. So I think it's really about depends on it and how can we make up what will drop in brick and mortar we're going to make up a chunk of that through our digital business. We think this is going to be the most powerful digital fall ever.
Good to be the most you know we're going to do more business, one digital than ever and it's going to test our entire fulfillment network and that's what we're laser focused on right now.
But I do believe brick and mortar will come back and I think to back off his question the idea about stuff flagships and the magnets that through the we're.
Think about the bulk of our sales in brick and mortar as most of profitability of a sales.
I think that short lived but I do think they're going to come back robustly overtime as well.
Thanks for the insights.
All right and next we'll go to William Reuter with Bank of America.
Hi, Good morning, I was just curious over the next year based upon your expectations of a decline in sales.
Working capital.
2021, and also in the fourth quarter I'm, assuming the give sales expectation, but that's because.
I'll take that when did and can you just think people last part of but she said I'm, sorry, I'm getting a little bit feedback.
Sorry, I was wondering what your expectations of working capital based upon the demand levels that you've assumed in your prepared remarks.
In the fourth quarter, and then assuming the commentary about 2021 continues to be somewhat challenging if we would expect that working capital could still be as a source of cash next year.
You know I when I would say, we'll definitely give me more on the outlook.
Beyond the fall out in the second quarter. When we go through the update with you guys in the second quarter, you know Big picture I will say, we're managing and thinking through many factors as you think about our working capital position and the pace at which we are really trying to move into that's a really strong inventory management in the back half.
The year, where in that situation here, where as I said, we're being conservative, but we also meet the ability to flex up.
To the extent that we see sales pick up and lean and two of these seats in categories that do well in the fall and going into holiday, we thought we need to get ourselves. Some flexibility. There you know if you think about on working capital part of the equation now its ability to access double the amount of liquidity.
We had last year with hard new asset backed facility, which gives us a lot more flexibility to make to make different decisions about how we manage the business going into the back half of it here and that's the goal to 21 within 22 until all I can't give you specific guidance at the moment on up projected working capital I would.
I'm, giving you a sense of how we're thinking about the back half of the deal and then and then indicating that they do have a complete flexibility.
Moving to because of a month, how quick one because that's how I imagine that inventory into just by the nature of the facility that gives us an opportunity to tall audit firm and pull down as needed.
Okay, and then just a quick follow up when I look at your current current liquidity it looks extremely strong however.
It looks like.
Really taking some actions, which potentially would probably increase your ability for additional.
Liquidity actions in terms of securing some other real estate or assets do you feel like the current liquidity situation is sufficient or would you potentially be looking for other opportunities to enhance liquidity throughout berman gerke or.
Okay.
Great question, and I would say big picture, we're very pleased with our nearly four and a half billion dollars have moved facility, we were able to leverage the strength of our asset portfolio like it was a somewhat complicated deal as you know that's extremely cost effective problem, we look at the Pope.
Paliotti of our liquidity situation the financing has given us flexibility and liquidity to really find our businesses operating weeks out really for the.
Really for the foreseeable future and that include pulled down the two towers that are coming up at the end of classical Tony and that's it for 21 and if you take a step back and just you know really briefly it was important that over the past several years, we have been aggressively managing.
And our capital structure like paying down debt on over the past three years. He has retired almost approximately $2.7 billion and public debt buyback and tenders and so the fact that we were able to you some highly valuable unencumbered assets that structure.
As one path and a half billion dollars up liquidity gives us a lot of confidence that we have as I said sufficient liquidity to fund the business back in the foreseeable future, but having said that I think they still have if needed. We still have a lot maybe portfolio assets had to do another deal.
So and on the work will always as part of our capital structure thinking when modeling.
Because that is that's never 100 put them off the table, but given where we watch, but I I look forward and political plus adult liquidity position.
Thanks, so much.
Good luck.
Thank you.
All right well going out to conquer somebody with JP Morgan.
Hi, Good morning. This is Derek Clark on for Carla Casella I'm, just wanting to go back to does the realistic view are you all considering adding more realistic itself.
Let me take that so when you look at so let's talk about what we talked about February which was.
Okay and natural.
Progression of what our real estate strategy has now.
And we at that point mentioned that we would have.
<unk>.
Real showed gains in 2020, we don't anticipate anything above that level in 2020, we're going to make sure that we know the value of these of these real estate assets during.
Normal times, and that's the right markets to to sell all of them. We're obviously look at every piece of our real estate against our overall retail strategy, how that brick and mortar.
Sites fits into our brick and mortar strategy on the national level.
Tire Omni channel a journey a in how a brick and mortar affects the overall a trade area demand for those particular ZIP code. So we're always mindful that we always been looking to sales and profitability of that particular store is valley in versus its value to operate when you look at the modernization value persisted for it.
We're looking at that with reduced levels of profitability and pulling back through Ah, but for we'd all that in our stores were being profitable and so we're not going to 100 million wont be higher Tonight.
Okay second quarter, if we see many modulation from that.
But when you're modeling don't think about it is higher.
Gains that you had built and from our February conversation.
Great that's super helpful. All tomorrow. Thanks.
We'll next go to another Bosqi with bank of America.
Hi, Thank you Sir for taking my question.
I guess with everything going line you now 125 store closures on at your Investor Day.
Are you thinking about your footprint today.
Assessing that they take two or the coverage to online.
So yes had their high I actually think about 125 amounts we probably have about another 95.
To close again far original timeline, but today, we are we opening the doors and we do expect them to generate a cash like what is happening because the pandemic, but at the moment, there's really two much them certain things to commit to any definitive level of store closings.
We who's Gonna as you can imagine we are a modeling all of our store closing metrics and really all of our stores are a part of those performance metrics watch list and closing model decision.
So we will consider or whether we're going to close additional stores and it's it's you know in my mind has its probably a question I need.
Just a question of how many but as they compete to go through that analysis, we will update and provide additional information, which is really in the process of a skill sets.
Good thing I would add that means we should just sat is a competitive landscape and how does that kind of got a sector calculus.
Obviously, when you look at the competitive landscape some kind of off price all the way through luxury there's been lots of changes. We don't think those changes are fully done any decision, we're making is with that in mind as well.
Thank you.
[noise], Oh and next well go to get it tells me with Telsey Advisory group.
Good morning, everyone I.
I just think about [laughter] why did you see differently, just insurance aforementioned bloomingdale's versus Macy's digital and bricks and mortar bricks and mortar reopened.
[laughter] 3900 employee reduction.
She's bloomingdale's and how much is Macy's is their percentage.
Thank you.
So ah so let's start with the Bloomingdale's Bloomingdales also had about the same percentage, but as I quoted.
So to Omar and his question. So it was about the size. So there was and it was very similar in terms of what we protected and what we want more impressively dr.
So the conversation about how bloomingdale's trended sun and skin business versus Nick it's remarkable in some more I mean, when you think about.
Every single category the Big difference if there's one big differences luxury so if you think about the luxury business right now as it reopens in this country.
You see huge demand and part of that is because they have more limited access on their web sites and part of it is because you have a lot of domestic tourist advised us that content that would go to other countries to do so we're now buying or here. So we're seeing big searches in the luxury business as bloomingdale's reopens.
But outside of that the other the composite about Russia, where is a little weaker home store is really in human computer was strong across both banners those those those are consistent.
And then holiday it'll be coming up before we know it black Friday and they can find deals before Christmas or Alabama people gathering and it's not as much older something how you're thinking about how many planning.
Yeah, So hey, thank goodness, we have the.
Figures website in the country and that we have a huge ambition to grow faster or when a customer centric way eliminating friction, but we'll do a lot of business on our website and so we have that as an outlet. We do think that you know and what we can do we have very strong game plan about how we're going to keep this trend of digital going.
Yeah, but when you look at the stores I would tell you that it's a big concern of ours about when you think about a black Friday you pick about the 10 days before Christmas you know what does that mean in terms of traffic if people are nervous about gathering crowds and so we're looking.
Everything's on the table right now, we're working with our merchandising marketing teams options within the marketing calendar to reduce cost for point bumpy ball users.
And we're looking to walk from the reopening of our stores most of our stores will not having issues. That's our biggest magnet stores here in the Black Friday timeframe. It's the piece that we're looking up so how do we thought you need a planful way, how do we kind of even out demand you know what does that mean porthole cyber week timeframe. You know are there opportunities for us to pull.
Some of that demand earlier, we do think that people are going to jump on black Friday earlier and earlier in the calendar and so we expect it to you know start in full force after Halloween and a lot of you know in Washington competitive cycle. So we're looking at that carefully when looking at store hours carefully on all of that so a very top of mind.
But you know our safety valve on this is how big can we get a the additional business and then we obviously had a very developed on being a settlement that work about how we satisfied that the maps curbside pickup is gonna be a big a secret weapon for for US. This holiday season, we didn't have less holiday season. When you look at the service scores.
A customer support going through the first off the speed and the safety of curbside pickup we think that's going to be huge for this holiday season, if they're not comfortable to walk into a store so and what we'll do with a level due within a store fulfillment is gonna be back. So we have all of our at your service when they pick up.
I wanted to buy something on one ship to store or its being pulled from store inventory. That's actually Asher service, we've been able to really cheap social just something there with wine control right at that main door Ah. So we're just like you committed to building, we're going to be able to protect even the most nervous customers with crowds.
Surgeons about that so that's how we're looking at it and Ah you know we're.
It's still a work in progress and Ah, we'll have more for you on the September 2nd call.
Thank you.
Oh.
We have no further questions at this time, so I'd like to turn it back over to our speakers for any additional or closing remarks.
[noise]. Thank you everybody for all your questions and your interest in mixes and look forward to giving everybody at more robust update.
Blair strategy.
On our September 2nd call. So so look forward to churn or started on.
Thanks, everyone.
And that does conclude todays conference we thank everyone again for their participation.
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