Q2 2020 Macy's Inc Earnings Call

Good morning, and welcome to Macy's Inc. second quarter Twentytwenty earnings conference call and.

Today's 90 minutes loan confidence is being recorded.

I would now like to turn the call it over to Mike Mci Your head of Investor Relations.

Please go ahead Sir.

Thank you operator, good morning, everyone and thanks for joining up.

Oh, that's got a quarter 2020 results.

Me on the call today are just given that our chairman CEO and Felicia Williams, our interim CFO.

That's what we should have several prepared remarks sure after which we'll close the question answer session. Given the time constraints in the number of people who want to participate.

Please limit your questions one with a quick follow.

In addition to this call in our press release.

Slide presentation on the Investor section of our website <unk> Dot com.

The patient summarizes the information in our prepared remarks.

Some additional facts and figures.

I do have two housekeeping items to share burst.

Third quarter results will be resumed normal earnings report cadence will be releasing results in hosting the associated earnings calls on Thursday November Nike before market open.

Second Jacqueline Felicia will be participating in a fireside chat Goldman Sachs Global retail in conference on Wednesday September died at 730 am Eastern time, both events will be webcast on our Investor Relations website. So please mark your calendars.

Keep in mind that all forward looking statements are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Forward looking statements are subject to risks and uncertainties that could cause actual results may differ materially from the expectations and assumptions mentioned today.

Detailed discussion of each factors and uncertainties is contained in the company's filings with the Securities and Exchange Commission.

In discussing the results of our operations, we will be providing certain non-GAAP financial measures.

Additional information regarding these non-GAAP financial measures as well as others used in our earnings release and our presentation located 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 on our website for one year.

Now I'd like turn this over to Jeff.

Thanks, Mark and good morning, everyone. Thank you for joining us.

Thank you saw in a press release this morning, despite the challenging environment, Macy's Inc. second quarter, even better than we'd anticipated.

Want to thank the Macy's Bloomingdales and Bluemercury teams for their efforts in these extraordinary times.

Today's call Felicia will take you through the second quarter results and provide some perspective on how we're looking at the back half of the year, then I will provide some context on holiday 2020, and give an update on the Polaris strategy, which we launched in February. We we'll then open up the line for your questions with that I'll hand, it over.

Felicia.

Thank you Jess and good morning, everyone, that's yet but.

You quite a CLO stronger than we anticipated and this trend I think across all three Blaine maybe.

Ill answer the Macquarie.

Overall, we delivered sales.

3.6 billion dollar.

Hi, a 35.1% on its own looks like.

Okay.

Yes, very some ups and downs during the quarter.

[laughter].

Aspects of our business because it quickly because of the originally modeled such as our stores, which we hope it stronger than anticipated.

And our digital business remained strong throughout the quarter.

Luxury, particularly at Bloomingdale also outpaced our expectations.

These factors contributed to the outperformance that meets all against our expectation.

Hi, Dan and I started warts loyalty program the foundation of our custom any trade shows migration in acquisition strategy.

Year over year, we saw I remember, it's been a slightly by our non bought a pickup in the quarter.

We thought building momentum in August 31 week, one our star muddy event.

So far even bold a quarter or the middle East people in the first three weeks of the fall season, and art tender neutral blonde here.

She has been approximately 40% increase over prior year.

Our next door, so sales declined 61% in the quarter versus last year. As you know we began the opening a store it gradually during the first because the quarter, but almost all stores. We opened by the end of June.

The trends in store result closely correlated with the paper <unk> opening at the one that they could sequentially. Each month, that's the quarter progress and we exited the quarter, but July down 40%.

We saw this progress despite the lack of July being negatively impacted by pockets of cold It sure up in various parts of the country, Florida, Georgia, and Texas among them.

However, in many areas what did we forget slowed the stores recovery digital business helped to partially offset the pressure.

Overall, our digital specific celebrated its strong performing.

Out of the end of the first quarter and grew by 53% <unk> second quarter.

Digital penetration across the company increased 54% up approximately 30 percentage points, both gets the first quarter.

However, with doors, improving as the quarter Congrats digital stressed moderated at the ended the quarter with July penetration coming in at 42% on digital growth of 25% <unk>.

We expect this moderation continue into the fall season, as we've discussed on our last call.

In sum urban markets, including New York City, San Francisco and Chicago, We continue to see these declines in traffic driven by the school, we kind of walk there could be city center and erosion in both international and domestic tourism.

Yes, that's expected international tourism sales were down significantly in the quarter ended the fine impacted our Macy's inc. crop by about 210 basis points.

Looking when they think brands, we saw strength and many other categories that are in demand.

Oh, Im, particularly houseware of in textiles, as well as fine jewelry fragrances active wear and sleep there.

We also continue to see softness in men's tailored and dresses, which is indicative of the work from probably world in which we now there as well or slowness in luggage speech it greatly reduced travel.

At Bloomingdales home and accessories were the strongest performers.

How were drilled the home trend followed by textiles and Paypal.

Handbag fine jewelry and women shoes were also among the best performers as what they think brand apparel continues to be challenging in both men and women.

Interestingly, we believe we are benefiting from the current move away from anything on experience.

Sure spending on CRADA, especially because of luxury.

I'm textiles shoes handbags matches the guidance luxury proved to be strong across almost every category of the bloomingdale business significantly growing penetration of the business year over year.

Given our threat in this area, we are leading harder into luxury in order to capitalize on the shift then Dave.

And after the Mercury Mercury Dotcom experienced a gone hundred and 5% sales broke in the second quarter at least on our total lets customers grow by more than 50% year over year with the strongest growth in that moderating each mark thereafter at retail locations began.

Right.

Turning to off price.

The quarter backstage performed better than our main boxes, but still fell sales erosion of nearly 45% due to closures.

We took appropriate markdowns during the quarter to clear through seasonal merchandise and backstage entered the third quarter in a clean inventory position.

The sales recovery is expected to improve in the third quarter actually late interest stronger trends and Homer casual and basic.

We generated credit revenue in the second quarter of $168 million found $8 million versus last year.

Our proprietary card penetration was down 590 basis points in the quarter at 40.8% this year compared to 46.7% last year. This year over year decline, but largely due to a recent shift by consumer could debit card in cash which appear to be tied to it.

Economic stimulus and unemployment checks they deposit it directly into consumer bank account or loaded onto a prepaid bank account.

In addition, we derive about 85% of our new accounts from customer base that they engagement with our store colleagues.

As for adult what the majority of our stores open for only a portion of the quarter as well as reduced in store traffic launch the stores. We opened new accounts were down significantly in the second quarter Twentytwenty, let's get the second quarter of 2019.

Gross margin was 23.6% down more than 15 percentage points from last year, but up significantly from first quarter that a P. 21% at retail margin benefited from good sell through a clearance merchandise as well as an improved mix.

In fact, not only did you sell through our clearance merchandise much faster than we did in the first quarter, but we also sold through our regular price merchandise at a faster pace.

As a result, and importantly, we ended the quarter with inventory down 29% year over here and we are entering the third quarter with clean inventory and inappropriate fails to stock ratio.

As a percentage sales SGN expenses improved by 10 basis points in the quarter over last year to 39.2%.

We recorded nearly $1.4 billion SGN expense and improvement of approximately 36% from last year second quarter, driven largely by strict expense management.

Recall that we announced a week that about cost base in February as part of our Blair strategy and that was the primary driver of the improvement.

The furlough of many of our colleagues in May and June and beginning in July the subsequent long term and more prominent restructuring also contributed to the improvement.

Overall it this quarter, we look very disappointed with our variable costs, which we fully control and we'll continue to limit and monitor.

Given the current rose eight in Barnett real estate transactions were minimal during the second quarter and we expect that the current environment will continue to weigh on what the originally targeted this year.

We are still selling assets, but we are being more selective given that the market slowed and we got being very thoughtful about with the go to market on certain assets in order to maximize value.

Year to date, we've recognized $16 million and asset sale gains and the current expectation is that we will recognize about $50 million for the fall here.

We recognize there's not going to $42 million of restructuring impairment and other costs of which 154 million bucks for severance associated with the recent restructuring of our workforce.

Additionally, we are extremely pleased to have completed approximately $4.5 billion of new financings during the quarter much of which occurred before first quarter call.

To summarize this included $1.3 billion of senior secured note as well as a new Creek like 2 billion dollar asset that credit facility.

Recall that the proceeds of note when used to repay the outstanding borrowings under predict existing unsecured credit facility.

Additionally, we successfully executed.

And exchange offer intrinsic solicitation for $465 million of our previously issued unsecured note, allowing us to create greater financial flexibility for future neat.

But all of these completed we expect to have sufficient liquidity to fund our business for the foreseeable future, while we paid upcoming debt maturities in fiscal 2020 and fiscal 2021.

Notably we finished the quarter in a strong liquidity position with approximately $1.4 billion in cash and approximately $3 billion untapped capacity and the new asset backed credit facility.

We incurred net interest expense $69 million increased from $47 million in the prior year period, driven by the additional debt during the quarter.

We recorded a tax benefit of $298 million, representing an effective tax rate of 40.9%.

Hi rate reflects the impact of the carry back up net operating losses as permitted under the care Act.

Summing it all up we talk $251 million of adjusted net loss in the quarter versus income of $88 million last year.

Adjusted EPS was a loss 80 wants to in the quarter compared to income of 28, but last year, Oh, which asset sale gains represent the EPA has about a penny last year.

As you all recall, we withdrew actually 20 guidance in March given back there remain many I know and uncontrollable factors impacting consumer behavior and the retail landscape can be unprecedented times, we are not providing you guided at this time.

However, as we get on our last call I'd like to update you on our current thinking as it relates to the rest of the year.

We continue to model various scenarios for the back half a year and ultimately it can pay you could take a conservative approach to our forecasting in July and close out the second quarter bomb in the face of various challenges nave, which we previously outlined and there are a number of factor that will likely impact.

Our business in the back half of the year.

I'd like already noted the possibility of pockets of code at night seen resurgence and erosion of international tourism remains headwind as does the floor recovery of our stores get focus areas.

In addition, while we see probably get eclipsed no more reliably they are sluggish as a result under plan to man from the global and National supply chain and that's what the five chain open up we are seeing bottlenecks and support as well as challenges grounds rate.

As you know back to school season has been smoke and Youre anticipating possible impacts for the recent challenges to the federal unemployment assistance.

The combat fee, we are adjusting our plans and placing more emphasis on key areas of the business such a third it values marketing product mix and supply chain.

Encouragingly into markets, where we saw the initial regional research it well stores have seen a dip in sales they had been regaining momentum in pockets.

Let me be expectations, we've laid out on our last call. The length of stay and you can view those but then to fly Susan patient posted on our website <unk>.

To briefly summarize we expect total company crocs, the culminate into third and fourth quarter down in the low to mid Twentys range.

Our forecasting slightly stronger digital growth and slightly weaker store recovery given some of the disruption around the country.

While the underlying parts that changed slightly but some of the park remained the same.

Gross margin expectations have not changed for the back half of the here the quarterly margin might peak and looked at the quarter at slightly stronger digital growth expectation and recently I now holiday surcharges in the fourth quarter will lead to higher delivery expenses that weigh more heavily on fourth quarter barges.

We continue to expect elevated levels at DNA as a percent are lower sales base, despite including year over here in the second quarter.

For the fall season, this could be low couldn't mid single digit percentage points higher than last year as we said on our last 30 call.

Remember that the second quarter benefited from a partial quarter furloughs of our corporate colleague.

Now nearly all of our colleagues have returns. However, our stores are still ramping up difficulties, though at a higher S. DNA rate in the back half will be here, but we expect the rate continued to improve at these leveraged our fixed cost it's built in crude.

Credit revenues are expected to be depressed as we booked CODI here continuing into 2021, given potential consumer financial stress and the ongoing environmental factor I mentioned earlier, we are expecting could generate credit revenue as a percent upsells roughly in line with what region.

Generated in the back half of last year.

Finally, we continue to expect Capex spend this year of about $450 million being scaled down and required by our capital soon to support the digital business as well as our collaborative strategy.

As we look to God Twentytwenty, we're planning to have a moderating capex budget for the next year or two that reflects the fact that we already smaller company and again concentrating on those initiatives that will help us to transform but should grow such as digital.

And we'll be prioritizing our capital spending on very strategic projects that have return it clearly justified the Stan.

Overall, given that some multi list environment, we are pleased with our strain cook on it.

While we are planning the remainder of the year conservatively, we've had the most confident in our colleagues to successfully execute well on the things that we can control we have the ability to cool level everything disciplined with our spending and investment and he has also been illustrated that we can skillfully navigated the change.

Good environment with agility with that I'll turn it back over to Jeff.

Thank you Felicia.

So solution noted we continue to approach the back a couple of your conservatively or immediate priority is to control what we can control to deliver third quarter and prepare for the critical holiday shopping season.

There is uncertainty, but over the past several months or teams have learned a great deal about working with him to some works and we will continue to adjust or actions quickly to both address challenges and took advantage of opportunity as we go through the back half of your.

The holders for when they see shines and this year will be no exception. There are several things about holiday 2020, the ball church.

First America comes to Macy's and Bloomingdale's for gifting you had a successful gifting strategy for holiday of 2009 chip that we're building on that for 2020 and believe the shift away from experience will gifting provide some upside for us for older 2020, New this represents nearly 50% of the two.

Total gift Assortments led by out of them said beauty and home.

We have great brands that are introducing new categories in demand concert.

And whether customers are shopping in our stores more on dot com, we will have something for every person on or gifting list.

Next America comes to us for value, we've got great confidence and the best brands at all price points throughout the holiday season.

We further built out or gifts under strategy, which we believe will resonate with customers in this environment customers will find great value whatever price for just under $15 all the way to luxury gifts.

We are adjusting or promotional cadence to support them elongated holiday shopping season, and we are expanding our fulfillment options. So customers can better manage the tradeoffs between cost and convenience.

Third.

America comes to us for celebration.

He'll bring special moments with the season to watch both big and small we're re imagining or a chronic amounts to deliver the magical holders from the Thanksgiving day parade to local tree lobbies and holiday Windows will kick off the holidays in our communities.

We will help our customers celebrate at home with family and friends, whether its writing letters to say enough to support or believe campaign with Mega worse or better can you virtual visit to send toward.

2020, there's been a challenging year for the country and we need these moments enjoyed this year more than ever.

But there are other aspects of the holiday 2020 season, there will be different that's when you meet customer expectations around convenience and safety, let me cover some of those now.

The dramatic channel shift that we've seen from stores to dot com has required us to rework fulfillment strategies, we've taken a number of steps to mitigate both customer friction and financial impact, we're optimizing inventory placement to meet customer demand wherever and however, they're shopping center store curbside.

Bops and boss, then or direct dotcom or mobile same day delivery I couldn't wait delivery options.

In digital we're adjusting our assortment to meet trendy dominion's, including of leveraging the flexibility oberbeck or direct.

We're also improving product availability of promotion and providing more shipping options and better clarity on delivery dates.

You know stores older 2020 operations 11 emphasis on traffic flow to ensure that our customers and colleagues. Other says experience, we will be taking actions in our stores to disperse typical bottlenecks and control occupancy levels for instance, within Asher servicing or larger doors, we will have separate.

Areas for returns versus pickups, we're also adjusting our promotional calendar just spread out traffic to our stores.

Planning for holiday 2020 has done extensive every agenda provider customers with a great holiday experience strong execution of the third quarter and holiday 2020, or the top priorities I've ever at Macy's Coke.

So let's shift gears now and talk about the future.

Our vision for Macy's Inc. remains unchanged.

Vision is to be the leading multi branded fashion widget were from off price to luxury from online to offline.

On mall the off mall, we will offer convenient access to the fullness of our brands.

Customers weren't great fashion.

We carry the best friends in America, and outside of our own size and stores Popper the strongest expression, but these national brands.

Customers are omni shoppers and we will deliver a great experience, whether they're in our stores or sites or already.

Our customers come to us for the special moments of was for celebration special occasions for gifts and to create shared members.

And our Polaris strategy, which we shared with you in February remains direct strategy for us.

But weve reexamined every point that the strategy for relevancy viability and financial impact.

Yeah fine tuned our plans based on the needs of the customer today, and where we think the opportunity is in the future.

Our updated Polaris strategy focuses on areas, where Macy's can differentiate and drive competitive advantage. The first recovered the business and then try both top and bottom line growth.

Retail today, there's been disrupted and while that disruption creates challenges. It also holds opportunity.

With many competitors closing are struggling we see the potential to bring new customers into our brands and gain market share.

So let me take you through each of the five points of the quarter strategies that we shared with you in February and cover the changes that we but.

We always start with the customer in March and in the first point of Polaris is strengthened customer relationships, we remain committed to strengthening or customer franchise and building profitable lifetime relationships with each of our customers.

Loyalty continues to be important to us and we're pleased with the investments and Macy store rewards loyalty program that we launched in 2018 are paying off.

Absolutely sure shared during the enhanced federal unemployment payments, we did see a shift in spend away from proprietary cards, but on a positive note. We also saw a corresponding increase in sign up for our brands or tender neutral program.

Our loyalty program is helping us build relationships with new customers, which is important because in the second quarter alone. We acquired nearly 4 million new customers somebody sees dotcom.

A crazy values of thereby expanding burned every day events and adding more sturman goes and we are using our loyalty program to get our best customers back shopping with us.

Longer term, we see continued potential to enhance loyalty programs across Macy's Bloomingdales and Bluemercury. We also continue to move forward, our personalization, which strengthens customer relationships presenting the customer with the most relevant products and messages, we have more than 40 million new customers in the base you spread alone.

Personalization will allow us to improve their experience and drive engagement and we will continue to pursue onsite and offsite monetization as a future growth driver.

The second part of the player strategy is to curate quality fashion, we continue to build on or fashion authority Luxuriating national and private brands to support our customer self expression that all price sports from off price to luxury.

While our ambition remains the same the categories. We focus on have changed dresses in men's tailored to have a former destination businesses have seen in nearly 70% sales declined in the spring season.

While I believe these categories will come back over time, we don't expect that business to return to growth in cancer.

We bring examine category roles in light of current customer demand and future potential and we've honed in on what we call that focus for.

These are four categories, where customer demand is strong we have a dominant are growing market position and we feel we can drive profitable growth over a multiyear horizon.

<unk> these are fine jewelry beauty furniture, and mattresses and backstage off price.

And for Bloomingdales, the focus for our luxury advanced contemporary textiles, and bloomingdale's the outlet offers.

To support all of our product categories, we have access to some of the best friends in America.

We are weathering this crisis together with our brand partners and are committed to a long term vision of serving our share customers.

Maximizing or private brand offering remains an important part of the plan as these products have some of our deepest customer connections and highest margins. While there has been a significant sales impacts on some of our private brands, particularly in apparel. We have also seen strong performance in the private brand home and accessories category.

<unk>.

As we stated in February we intend to grow private brands that are 25% penetration and given the importance of private brands for profitability. We are accelerating the sourcing strategies that we shared with you in February.

The third point of the strategy is accelerating digital grows we will strategically invest across the enterprise to improve the digital experience building customer lifetime value and driving profitable digital gross.

In February we shared that we will improve experience across both dot com and already grow our omni channel customer base and improve profitability.

Just wanted to in our priorities, but everything on the digital agenda has been if silhouettes.

[noise] customers that migrated online at unprecedented rates by some estimates retail is seen 10 years of digital growth in just three months.

[music] companies were adequately prepared to fully serve these migrating customers and those are rapidly investing or just over each other infrastructure have significant opportunity.

In an odd way, we've been able to move farther and faster on our digital agenda because at this disruption as we announced in February we closed our San Francisco Office, where our digital business was formally headquartered we've been successful with recruitment and sound strong digital channels in the New York Metro area during the cold that epidemic. This.

Influx of new channel It does put fresh eyes and energy on the business and we expect that to continue.

Digital has a higher penetration of our sales have some significant applications on our business model.

Improving profitability of the digital business by identifying opportunities for margin expansion leveraging financial analytics for a sort of prioritization and optimizing marketing spend allocation.

Core to our efforts is improving the transparency into data that helps drive business decisions and delivering more granular data to all of the business owners. This information allows us to identify areas of growth and opportunities to course, correct. We can also prioritize assortments on or sorry can optimize channel mix to prioritize fulfillment where it is most.

Marketable.

This spring what we saw a significant sales impact from cobot, nine king and the rapid growth and digital we took the opportunity to we wire for cost structure and resource allocation to support a more digitally focused business you saw that them yesterday numbers, that's always your shirt.

The fourth part of the strategy was around optimizing or store portfolio now we become more broadly as optimizing the army experience. We are one today and optimize our stores supply chain and call centers to ensure every customer can shop, when where and how they choose.

The rapid customer migration to omni shopping coupled with the financial realities of our business, let us to adjust how we look at the stores aspect of the player strategy.

As always our strategy is built on or customers journey in for today's customer a strong omni experience as a baseline expectation.

Been tracking customer response, as we reopened the stores and it's encouraging to see consistently strong customer satisfaction scores.

And driving some of this customer satisfaction is the enhanced health and safety measures that we carefully check.

As it relates to our stores, we are pausing on investment in additional growth doors, although I will note that our prior investments over the past two years are paying off in the G. 150 continues to perform well as a reminder, through but she wants 50 strategy. We upgrade at the stores that accounted for half of our 2000 or 19 brick and motor sales.

So we expect to continue to benefit from those investments.

We pause on our market based ecosystem test, but we're now we're starting those albeit at a modified scale.

We're continuing to focus on the Dallas Atlanta in Washington, D.C. markets over the next two years, we will open several smaller format off mall, Macy's and legal touched a smaller format off mall bloomingdales in off price. We will open several additional freestanding backstage stores continue the expansion of bloomingdale's outlet.

And test backstage online.

As we shared in February every all small storable have full service for pickup and returns.

We continue to believe that the vessels in the country will thrive. However, we also know that Macy's and bloomingdale's have high potential off mall and in smaller formats.

I do want to note that the number of stores that we plan to close hasn't changed since our previous announcements. However, we are monitoring the competition and both store and mall performance closely and we will just our timelines if needed.

In this more omni world, we need to use our entire network stores supply chain and our call centers to maximize our capacity and serve our customers and they truly army experience.

From pre purchase browse into purchase or pick up to delivery and post purchase to returns.

With this we need to flux or network and fulfillment strategy given the acceleration of digital to focus on capacity expansion cost efficiencies and providing customers with more choice and control over their deliveries and returns experience.

For instance, we're developing a centralized fulfillment network demonstrate efficiencies and getting products to stores and customers more quickly the supply chain redesign that we shared with you in February is moving forward with her early emphasis on capacity planning and centralized fulfillment.

At the start of the code at 19 pandemic call Center volume in response time as a pain point for us and we had significant disruption with our offshore partners within the U.S. and the span a two to three weeks, we developed and implemented a work from home option for our call Center colleagues and we are diversifying or geographic footprint.

Enable us to provide continuity of service to our customers in the event of regional or global research answers.

The last one of the poorest strategy is reset the customers, we will show disciplined cost management and create a culture of continuous assessment to drive the greatest ROI on every dollar spent.

In February we shared that we would reset her cost base rightsize, the organization and expense base ballots topline and bottomline growth and improved productivity and working capital, including faster inventory turns the current environment has required us to make our organization even more efficient.

Our Polaris cost savings target of 1.5 billion that we shared with you in February has now expanded to 2.1 billion now all by the end of 2022.

We will continue our disciplined expense management to allow as much of the 2.1 billion as possible to flow to the bottom line. Recognizing this will help mitigate tire costs from our aggressive lean into the digital business over the next few years and some will be investment strategies that drive topline growth.

Through our continued focus on disciplined expense management, we have created a macy's that is better positioned to effectively compete today and in the future.

To sum it all up the update the Polaris strategy continues our work to strengthen customer relationships and build customer lifetime value.

Homes, our merchandise strategy to focus on categories that matter most to customers today and have a long runway for growth.

Aggressively accelerates digital.

Summarizes all aspects of our networks, including stores supply chain call centers to delivered the best customer omni channel experience and delivers profitable growth on a required cost base.

In closing, we're confident that we have the right strategy, we're fine to focus on what's important now in the future. We have resilient brands that will stand the test of time, we have an organization that knows how to execute through uncertainty by listening to our customers. Following the data leading the funds and pivoting quickly.

I couldn't be more proud of our colleagues and thank each of them for their continued dedication to the business.

The past six months that presented challenges that we never imagined it forced us to make significant changes in how we run our business, but the changes we've made not only address today's climate, but position us well for the future.

No that there are more challenges ahead.

But I'm confident that Macy's inc. will come out on the other side of this crisis stronger and ready to serve another generation of American consumers.

Thank you and now we'll open up the lines for questions.

Thank you.

People like to us that does this signal by pressing star going on your telephone keypad. It could using the speaker phone sees makes all your mute function is turned out until I guess thickness of each other equipment.

Against this bad one to ask a question.

Let's take a first question from Matthew Boss, some TP Morgan.

Please go ahead.

Oh.

Yes, the bus and if you don't mute teas, and you said line.

Yeah can you hear me.

Yeah, we're going to read them out.

Okay, great. So Jeff can you speak to the interplay that you're expecting between the negative 40% brick and mortar store comps and the moderation in E. Commerce that you saw exiting the second quarter as we think about the back half of a year and just anything materially different that you've seen so far in August relative to the trends.

Channel that you saw in July.

Yeah, So what I say, Matt is that we do expect that the trend line that we haven't stores that we experienced in the month of July that give or take we can pull that forward and that's a conservative approach but.

That's that's where we have planned that and August was in those expectations and in digital as we as we described on our last call. We do expect that to moderate it's still going to be it serves its still going to be significant but it's more of a line of what we experienced in the month of July so that is that kind of culminates between kind of the way we're looking at.

The back half of a year or down low to mid Twentys for the full enterprise of Macy's Inc. now, we're seeing lots of things in between that when you look at the month of August some things were better some things were worse, but in a isn't overall characteristic inline with what our expectations, where you know we've all talked about you know what happened in the back to school timeframe.

And what happened with the cessation of the unemployment benefits you know what happened with some of the resurgence.

There's also some some good tailwinds that we've also saying so what we've seen is that now that we've got our inventory in parity with the demand that we're expecting in the back half of the year seen some really good regular price sell throughs and categories from off price all the way to luxury.

Our freight he is is moving very well right now we've got good demand and we're getting good response in receipts coming into support that demand. So and we've got up we feel very good about the gift assortments that are coming to the fourth quarter. So we're taking a conservative approach to the back of the year or are you know are kind of.

Nobody is to all of you about what we said at the end of the first quarter really holds for this call as well, we're taking a conservative approach we have an upside scenario, we had a downside scenario, but we're staying really close to us where we're basically tracking where the customers going and and we've got the receipts there to support it.

Right and then just a follow up on the Polaris strategy and maybe thinking relative to the initial plan that you laid out at the analyst day Awhile back what are the largest changes that you're making multiyear post a pandemic because we think about merchandising assortments and the margin opportunity overtime.

Yeah, I think a big thing there is really what is the the mix of the business and when you look at what digital is gonna be of the overall business. So you know that is span a we do expect that to be it at least 40% of the business moving forward. You know, we're clearly seeing that in 2020 with the door closures, but we think that forever is changing the complex.

And with the business and so feel very good about our digital team and how they're going at that aware that demand is how they're responding to that demand how we're using that data.

How we're building the supply chain to to take full advantage for that to improve the profitability. So we're expecting a higher shipping costs, but we're expecting margin expansion based on all of up we're doing with personalization and new categories that were getting into.

We've obviously expanded vendor direct we're looking at new categories based on what we've learned from through co bed. So you know we have right now digital's gives us I contributes to our overall profitability and we have a clear line of sight about how to grow that overtime. So I'm you know where that's the biggest changes really what's going on with with with our digital business.

Great Best of luck.

Thanks, Matt.

Thank you another take on next question from Oliver Chen from Cowen and company.

Please go ahead.

Hi, Thank you good morning regarding whats happening with the product assortment and consumer demand what are your thoughts on how you've been able to reposition the assortment to two what's attractive with at home demand relative to some of the caution points around apparel I would also love your thoughts on as we approach Black Friday just for general.

Really how do you see this evolving and what's within your control to drive a safe.

Yes compelling value oriented experience. Thank you.

Hi, Oliver So you know one of the benefits of being a department stores the range your brands and products and values that we can offer and we can pivot, whereas a customer takes us. So certainly encoded we've seen big changes in the overall merchandise mix and so it's you know everybody is talking about what's happened with the need for more casual and act.

Good and that's certainly as the case, but everybody being at home, they're making lots of changes with what their home be it in a new textiles, or new home decor, or new furniture, and mattresses and that is it department store if it gets us opportunities to grow those business just disproportionately. So we've added a lot of categories a lot of categories online.

Categories in store, when you think about food and beverage categories, there as well so the mix of the business is definitely has changed so we've added new brands, new skews, our strongest businesses have been in home store and I've been in beauty and in certain accessory categories.

As as we talked about in our upping our pre remarks, one of the surprises it's been the strength of luxury and that has been a so again being off price to luxury in our offerings. We've certainly seen out of bloomingdales, but we've also seen that in the luxury categories. It may see so when you think about luxury mattresses above a certain price point same thing.

In furniture luxury fragrances diamonds.

Look at all of those categories. They have been disproportionately strong. So a we expect you know we're we're reacting to all of that in terms of what we've got coming in for the balance of the year.

So I think that is a they know the merchandise mix is worth we're constantly responding to it was it relates to kind of Black Friday, we do expect as you're hearing this from our competition an elongated season. So we do want to when we recognize the concentration of customers that are going into our stores during the black Friday timeframe and we want.

To make sure that we are creating a safe environment for our customers and giving them options to purchase in advance. We also know the constraints with its much digital shipping that is gonna be done and ensuring that our customers are being able to get the values that they want them against that they want in time for Christmas and ensuring that they've got enough time to do that so.

We're gonna be giving them lots of opportunities for that.

The time between Thanksgiving and Christmas is still going to be incredibly important, but I do expect spreading some of that demand earlier and and we've got tactics and strategies to do that.

Okay or last question on on the new customers come Macy's Dot com and new customer acquisition.

What are you seeing in terms of maximizing in optimizing retention of the new customers and making sure that engagement can continue thanks, yeah that want to that was going to get all of our because weve. You know as we mentioned we have 4 million new customers that just came into Macy's dot com in the second quarter and of those 3.8 million of them are brand new to them.

She's brands and the majority of those are first out there, they're more diverse and they're much younger than our current day. So we're all over that to ensure that that first purchase it they're making leads to a second purchase that leads to them developing as an omni channel customer and so we're using our personalization prowess in order to see that we're looking at look alikes, we're starting to see.

He's them offers we're getting great advice from if we're getting these customers into our bronze loyalty program, which is really strong. So our main mission and all these new customers is to retain them and use the whole breath.

Our price points of our brands and bloomingdale's at Macy's as as over banner brands to attract them. So that's one of our top priorities is to make sure that these these customers that came in to that we develop a relationship with them that can lead to a profitable relationship with them over time.

Thank you best regards.

Thank you another Pico next question from clean badly Greenberger from Morgan Stanley. Please go ahead.

Great. Thank you so much good morning.

Felicia I guess I'm, just trying to parse through some of the commentary you made on the call. This morning about.

The second half outlook and the way August has started I think you indicated that that inventory levels are currently a little bit Oh, perhaps to lean.

But back to school season is off to a bit of a slow start so I'm wondering if and feel like your revenue trajectory. During the third quarter is being held back I mean inventories.

And then how should we think about <unk> inventory planning to the back half. The then closed start here the back to school and then some of the other challenges that you identified.

Hi, Thanks, Kimberly said across and I indicated that our ER.

Our second quarter inventory ended down 29% less supply share and actually all we ended claim that the plus employees going into the fall well and we believe we had really good sales on parity going into the fall season.

And that's going back to school started all lonely, but I think what was saying that back to school is a much more elongated back to school fees and you know we think about that goal traditionally.

And that can be as you know with the government orders and school districts changing at the time of back to school Basketball's now we have to think about back to school a lot different or.

With respect to and employee planning in the back half of the here are we are working very closely with our vendor partners to ensure we have but he thinks that they need to support asphalt plants and off whether we think that need as Jack mentioned in the right category.

So we feel good about a back half of your planning and we will continue to lead to a managing that inventory, which will drive on better sell plays and better working capital light and so we believe we've had the team on the agility in place a two to manage each one of the things like.

Well coming out of or doing a pandemic I'm not sure if anyone mentioned, but we have restructure or planning team, we combined into one or two all under the supply chain and rolling back is that opportunity.

Really make a decision that about it and then take planning about the placement in the profit channel and I think people all the evidence of that.

Combined innovative planning tools coming out of the second quarter, I think talked about the better small pool.

Tibet itself it took them back in the price Metzenbaum. So are we feel we're in good shape, if we're going to the back half over here and that we have the white team in place to execute in Tory, Oh, <unk> and home button.

Great that's very clear and helpful. Thank you so much and I just wanted to follow up on your question on coal that markets I thought that they're actually showing strength or sequential improvement here in August and that seems to be encouraging but I'm wondering if you can just expand on that thanks.

Sure sure. So we've mentioned that you know watching the cobot market really very closely I gave a couple of examples of you know, Texas and so our job, Florida I Love, we have seen both where that bodes well be area on deal Michelle resurgent what would fall in those market.

Is that the sales are coming back, but coming back slowly and and and but they are coming back and so that gives us.

Positivity, if you will going until the fall evil anything that we've learned what cobot importantly, we have to be very very reactive what is happening that they sort of flattish so close just Guam and.

A whopping store in Hawaii.

Let me close in the reacting to that cannot be aware that the California, California olivine out into a malls will close.

But we remain open because we have an expert area or the next you have exterior doors and opportunity to do curbside pickup on the California models to be open by the end of this way too early next week.

We will be acting to that I didn't quite what we're learning as we go through these how cold it and urgent but if we do have the ability to react to remain open to ship to close by absolute increase all fulfillment possible for affordable impacted by dampening effect. So they do expect as we had earlier with the coal.

Good to have a disruption to the failed.

I think that we're learning that we can react to it in order to minimize disruption.

Okay. Thank you and.

Thank you ever let me just had one thing to want to Lisa just said, which is you know when you run a.

Retail was really local and when you think about our brick and mortar. So this is something we've gotten pretty good at so we are we monitor all the public health data.

The colleague and the customer sentiment and we created to think all we have the watch list, which is really we look at the predicted increase in cases for the current confirm infection rate in each county, as a country, where our stores that ZIP codes, obviously and when it just gives you a broad side at the end of July we called risk, one or level, one or level, two and a risk category.

At the end of July we had 38 locations that were in that risk category that had you know resurgence was was really mounting at the end of August it was only six stores and as of as of this week that we're down to zero. So when we look at that got it shows us that our brick and mortar business that we have been modeling is.

On the on the side of exactly where we thought it was gonna be maybe even a little better.

So thank you for that.

Thank you.

And I would take when next question from pod snatched away from Citigroup.

Please go ahead.

Hey, Thanks, guys, a cultural meshing there to give you mentioned the pushing it was helped by both in February and July restructuring can you maybe walk through those two events both talk about the gross and net savings from from each other that you'll generate from on the on an annualized basis.

From those and also that you mentioned that cares and if you could also quantify.

What a that helps to keep fixed.

Yes, Paul I can say, yeah, yeah, Paul so on B S. Today.

Yes, I mean, a if you remember all the dip below the majority of our colleague because it depends on making what I've seen a benefit from that in the month of May and June.

But to have a structurally fourth ultimately call we announced in July that will land about 3900, our corporate in Nashville colleague and at the time they anticipate it but later this evening annualized benefit from that restructuring of about six months anything wrong about and so you'll see a bottom.

Oh that benefit coming through the second quarter.

Restructuring the reduction in force out will be permanent will impact the back half of the yet and they want them all but for low how about me Paul will then temporary I'm a big benefit the second quarter that will be Bose.

At the go through the fall season, and we have begun to grant colleagues back by the first part of July.

And they fall so they can't designed to bring back haul store call and let's just call. It all by scale on continues to improve and so that has been a floor to affect me Oh, they turned into my colleagues, but we expect that to ramp up at the fail increased in the back half everywhere and we fully expect to have.

I, probably follow that called back and so forth, but like I said, you know who as I said in my remarks, I'd ask you know they want to second quarter.

All of inflect, we'll have a higher I cant, suggesting right and what the quota carrying that will put us that people not because of that following along.

With respect to the killer App, we did have to benefit from the care Act that we talk about generally by one was on the SDMA line.

For the payroll tax savings that the care pack the loud and the other look on the tax line due to our ability to take those net operating losses back and take advantage of that arbitrage the difference between 35% in the 21% a differential on the tax rate well above that is there any benefit at the mill and the kids and the kids.

Act a little bit on also known as a long haul fall on the tax line.

Thanks, any quantification on that I mean I'm encouraged by.

I'm not going I can share.

Paul.

Okay. Thank you could just one follow up can you just tell us what inventory was down in units and the second quarter. Thanks.

Sure can I have my Kamada could get that back to I don't have it at my fingertips, sorry, I just have to 29.1 off a moment.

Sure. Thank you goodbye.

Oh and they don't let me just let me add one thing what Felicia set and that is when you look at IRA you are at the end of the second quarter.

We definitely yeah. You are was depressed based on all the clients that we had to move through and based on the clean inventory position that we have the hey, you are in the month of August has been significantly better than where we where last year based on the regular price and luxury sell throughs that we're getting a lot of categories. So.

We do believe it or inventory is in great position going into back half of the year and start to sales parity. We're in really good shape with respect to that and we've got you know receipts flowing to be able to react to customer demand and we're making ships all the time as that demand changes.

Right.

Thank you and I will take a next question from Lorraine Hutchinson from Bank of America.

Please go ahead.

Thank you good morning.

I wanted to ask about your gross margin how much fulfillment cost pressure do you expect in the third and fourth quarter and then build your outlook is for merchandise margin now at the current inventory levels.

Yes, thanks going up with respect to gross margin.

You know what we're thinking about it in three that category during and Ah with respect to at least the performance for the quarter and.

Somewhat apply to the back half a year I fell in the second quarter.

No we were aggressively liquidating seasonal merchandise other stores were closed.

Second impact that we've been experiencing that gross margin in the quarter, but the shift to digital in the core finding delivery expense impact.

Then the third area, that's just the niche, particularly the mix on the Macy's brand.

From a higher margin apparel business to a lower margin on home.

At this.

Instead of what they think about both margin and the back half a year of coal will they will continue playing into the digital business. They talked about the expected next between digital and brick and mortar and because of that.

Gross margin expectations have not changed for the back half of the year above the dark that thing Oh people in the market in the third quarter.

Really lucky Pat the implication on our fourth quarter margin due to the hard and let me explain and some about all these more politics I tried to such he got to companies that about a but importantly, as they think about margin for the back half of the bar flowing freshly seek and I'll be happy we took the fall very clean we are expecting.

From a faster that turns and that itself will only are keenly keenly focused on <unk>.

<unk>, maintaining appropriate inventory levels and more importantly, appropriate inventory level underwrite channel to ensure with satisfying customer demand and and to ensure that we are being flexible possible that those channels and as I said with the store opening one can actually have the white.

So, let me and unit and boil it all to handle buy online pick on four things they deliberately as well as that night, Oh mixture of mix and leading performance with the hand to support that ongoing disposable.

Oh.

Thank you and then just wanted to follow up on the comment that you made about receipts being sluggish.

How confident are you that you can get what you need to write mix of product.

I'm for holiday. Thank you.

I'll comment and then Jeff may at some additional color commentary.

Everything has to go to flow more reliably I did talk a little bit about that disruption.

And with a more you cannot the disruption, but not unique to Macy's, particularly on the supply chain side.

We saw some port challenges with the you know inbound outbound oh containers and not being sufficient all the time, that's consistent ground transportation challenges as everyone is faced with this higher digital demand more all competing for a capacity.

So those will not unique amazing and so what we are controlling stuff, but we can't control.

As Jeff mentioned, the reason or I've been to direct a bit capabilities to help fill in the white space like Lorraine I would say that we are confident and I believe two or work with implants apartments, we have great.

Brand partner, we're working very closely with them.

On the assortment and that level at the seats in the back half of you Wanna, Jeff If you want to comment a little.

No I think you said it well Felicia I think Lorraine you know when you think about the first quarter in the second quarter based on the pandemic hitting a with the sledge hammer in closing all of our stores you know in mid March we did a we canceled when you think about our private brands and our market brands, we canceled off the balance of first quarter, we dramatically curtailed what we were.

Bringing in for second quarter took a hair cut in third quarter and we're in a wait and see on the fourth quarter and so what I would tell you is that we've made it past kind of the receipt flow the first and second quarter everything that Felicia set in terms of getting you know the bottlenecks reports and freight were seen much more of a consistent stream of fresh goods coming in right now.

And expect that to continue to improve through the balance of third quarter and into fourth quarter. So we're feeling pretty good about our receipt flow on building on our current liquidity position and start to sales ratio as it stands.

Thank you.

Thank you for next question comes from Chuck Grom from called the <unk>.

Please go ahead is a good morning, thanks, its likely cool stuff you put the store base and provide cohorts, which as you mentioned slide and it's just wondering if you could give us through his perspective on on store closings down the road, particularly in those or first and second quadrants work yourselves per square foot is looks like it's a problem 50.

Yeah, I would assume that Chuck is that you know its Felicia said in her comments are what we announced in February in terms of closing the neighborhood stores over a three year window.

Then the amount of the store closures is gonna be the way. We're currently thinking about that is going to happen. The timing of that may change, but I think what we've learned through the pandemic and certainly through reopening our stores.

Yes, Ben you know the value of having these stores where customers feel comfortable.

They are using these stores basically for lots of basic transactions for returns for pickups for you know all the things that they do.

When they come into a store and having a clean environment, where they can do that in a safe place they're using that so when you look at the performance of our neighborhood all the way through our flagship stores, a it's amazing how well the neighborhood stores are performing when you look at it versus the overall average you know where flagships for more pressured as a result of the drop of Internet.

No and domestic tourism and just based on the the amount of office workers that are now operating from home. So you have kind of an adverse event, where your neighborhood stores are actually quite strong right. Now now there's a number of them are performing in malls, where if we'd had lots of competitive closures and and so I think overtime. These malls.

A number of these malls and B and C. Malls are kind of continue meet a b C. B malls are going to continue to be pressured.

Right now I'm very happy that we have the portfolio that we have and our customers are putting them to good use.

Yeah.

Okay, Great Lakes and then it is it's hard to unpack that but when you look at the pump and passion and maybe more so over the past two months.

But they just started to stabilize a little but how much do you think your traffic issues are considered to be having having some reversion to shopping in your stores versus.

The mix of product that yourself or I guess, you know how do you plan to that beyond Mahal into say this spring of 2021.

[noise] terrorism mixes that when you think about you know Macy's <unk> a good chunk of our strengths have then you know dresses businesses and you know the kind of important occasions in life and some of those like dresses and men's clothing women. So stuff you know if luggage, where we're obviously strong position luggage those businesses are down but also fixed.

Thanks of ours like fine jewelry in big ticket and textiles, a when you think about sleepwear. When you think about the active categories, where we are very competitive you know those we've got a bullet on them there they're doing quite well. So I think the mix of the categories through the pandemic is shifting now home is becoming much more important both soft home as well as big second we've been able to.

To satisfy that with our existing brands as well as when you look at the increases we've made in vendor direct interest treatment of vendors and skews about half of those increases have been in the home categories.

And we're satisfying customers through that and because we have so many eyeballs coming into our website. So I would tell you that the category mix is evolving I think with the new customers that are coming in and as to Olivers question the opportunity to convert them into omni shoppers is our opportunity as for we talk about 21 and 22.

We want to you know look we've got to get the baseline of the third quarter in the fourth quarter.

We we obviously had a three year plan that has changed as a result is not giving guidance for the for the plan of record. The one that we're in and as we get through the holiday season, we're thinking about those future years, obviously, we're working through all the you know the scenarios that we have.

And we'll give you more detail on that as we get farther into this this particular back half year.

And Jeff if I, just if I might add on just a little bit pass except with respect to how to consume a thought about shopping and I saw specifically, yeah. Our NPS scores only ask about health and safety.

And then later than Barnett dampier, causing that.

Fantastic bottleneck Watson as from Ohio, one that was a fool themselves.

We think organic a child, but that's not possible with respect to maintain a healthy and safety environment Black Hawk like when our colleague.

One other things are going on holiday for actual service that Jeff mentioned, we'll have a separate pick up into town area.

For our customers and our colleagues to keep them safe and so I was spending a lot of time and effort on maintaining that health environment for those people, who do want to come into the store and when we get that traffic we want to make sure that had the best healthier face to face a combined possible, but and I think our customers are telling us.

That that yet, but we're succeeding in that area.

Yep.

Thank you.

Thank you tend not to take up next question sounds really enjoy <unk> from bank of America.

Please go ahead.

Hi, This is Marianne for building for taking your question I said, it's just curious on your centralized fulfillment capabilities. When do you expect us to be fully built out and what kind of impact are you expecting that to have on your cost base now.

You want to take that Felicia.

Yes, so they're couple aspects of a centralized fulfillment that are part of that strategy. A one is one of them and they need more familiar with the holding holding flawlessly.

Widen that out the centralized fulfillment and that they look at the back half of the year.

We are looking at a couple of different areas location pricing. Okay. Some level I think we are testing that and expect a fully rolled out and follow up 2021, we're looking to optimize our pls strategies.

We're also looking at strategic sourcing from the bottom end point, Tom and as I mentioned earlier or are we have nearly and strong conditions in our supply chain area. You know, it's all about that I caught in the white channel at the right price and that the night time and so our sense.

Why fulfillment inventory allocation strategy is underway I talked a little bit about the fact that we bought the teams together. So now we have a vital to.

Hi, I'm lucky that granting too well under one umbrella.

Barely facilitating a disposal, making faster decision, making about placement of our inventory by ensuring that we get any like life, which listing a little bit of benefit.

Upturn.

In that area because of that decision.

Okay. Another pricing as I said little began testing that in October with a four will allow us to spring 2021.

Where are you expecting that to have benefit.

To drive for more proactive markdowns and helped the margin and also to help itself, though I. So taken as a whole a we oh really lean into muscle centralized fulfillment and all that strategy, particularly as we are focusing more and more on digital but the long term implications that we would expect to have a overall imprisonment.

Okay and margin as well as really really meeting the customer satisfaction goals, which he can't you know stressful mouse actually little more heavy into did you know the customers.

Customers need changes, a little bit with respect to timely quality and and 32 large ultimately metric. So oh, we are as I said keenly focusing very focused on.

Centralized performance, considering all about PPI from that area.

Great. Thank you.

Thank you.

Have you think the next question from does not have seen from seeks.

Please go ahead.

Good morning, everyone and nice to see the progress as you think about your charge card customers. What do you learning from them How's that penetration holding and then can you go on to any more commentary on the backstage concepts, how that's performing and when do you test online how do you expect that assortment to flow.

Hello versus what you see in the stores. Thank you.

So.

The credit card, Yeah, I think we're sensing [laughter], adding back bay, but I think Dana and thanks for the kind words, there basketball form it Oh with respect to credit the credit card performance and penetration at this it's been an interest in spring season as.

You talked about the credit penetration ban about 590 basis point off of last year, a quarter over quarter a at the end to end to August or we did see a moderation of bad gap.

In an improvement in that gap and impaired play we think that it's driven by a destination of economic stimulus.

That ended in July and as they saw that and industrial that direct deposit, but it took a single bank accounts come to an and wireless the loading of those prepaid credit cards, how consumers have been going back to wasteful, our proprietary Apple pie Terry credit cards, and so that that while making them.

<unk>.

Quite gap is beginning to narrow the other thing that we're closely watching our delinquency and again of the.

This is all empirically and we're looking at data he actually after 2008 to 10 to look at what happened.

Those keeping on the conditions on the trend there, but you know as they talk to our banking partners. They continue to anticipate that delinquencies at some point are going to provide a and will may fluctuate fool than anticipated because I because some of this has not been rules and so they think about mostly.

Credit losses portfolio, we are modeling like that we will be tend to have hobby lobby impact all consumer financial stress or beginning in the late part of the back half a year ago, little but really if they get into 2021 and.

And so I. Both ahead on that they are anticipating for Tony Tony went into one on a but the data at the moment or does that supported and same political pool delinquency rates pretty much cold relative consistent both quarter to second quarter, but we are watching with delinquency makes their their local.

And then identity or backstage question. So just the the broadest point on Frac stages that our customers love It and do they love I've prices, both the bloomingdale's brand as well as Macy's and you know over the 40 years that we've had it we've hit the right Formula and I think when you look at the brands or you look at.

The value, we're seeing that in our growing comps that even in stores were the main box might be declining backstage consistently is giving us positive comps year over year. We're also seen in margins. When you look at our emerging rates that we're getting in gross margin rates that were getting backstage versus our competitors, who got the right value formula and when you look at the sell through which.

Is really how the customer's demand is is responding to just the fashion component of that we're getting very nice sell throughs. There so our opportunity in backstage as really a distribution and logistics costs. So thats. What we are so when we reopened our stores. We've already added you know it doesn't shore or more backstage stores in stores you heard in our opening comments that.

We're continuing with our ambition and extend on rollout backstage free standing as well as bloomingdale's the outlet freestanding that's going to give us more portals. The more business, we do them or the logistics are going to be in line.

Profitability is growing in this particular business, it's not at the level of Macy's Inc., but it's growing in that direction, which is a real positive for US and then as I also mentioned to your question, we'll be testing backstage on line I know details to tell you one how we're going to do that are what you can expect or the timing of that but that definitely is in our in our roadmap for 22.

Anyone.

Thank you.

Thank you and everything but next question from God luck and half from TP Morgan. Please go ahead.

Hi.

Two questions here ones on Covidien cares and when do you expect can make up the rent payments that you were able to defer this year will that be can be had paid in 20 or is that a 21 payment and on the flip side with carriers. When do you get expects to get the cash benefits in the deferred taxes.

On the on the a change the I know I look back.

Okay, I will start with both the last one on the.

The pair <unk> move we will while our fiscal year Twentytwenty tax entirely a end of typically they fall into fourth quarter, all only part of the second quarter, which means the cash benefit, but oh people yet column at the beginning of the or corridor.

And so it really depends on when we're able to get I'd, probably within that 20 to 20 packs a time smiled find topics that are cold and hot it on a typically our normal expectation would be canceling 2021.

With respect to pull that.

Maybe just give me I just want to Mitch I asked to death, if I can I'm a cold that question.

Yeah, I guess, joining how much how much rent you are able to defer that you didn't Diana Huang cash and when do you have to make it up.

Yeah that we had one of those sharing up and just big picture I would say we've had some really I would say amazing conversations with our without without Oh retail partners on a land or are they have really had engaged really good conversation a we've set up an internal team a path for us today.

Oh lease by lease gondola vital anymore, they have to only gray conversation.

Although we have all deferred and negotiated the for all of them about that payment or all of that is pointing expense.

Oh, we are have been really respectful of each other's position with our landlord within a very engaging along calling that conversation very transparent very collaborative so from a cash standpoint, I guess I won't continue the specifics on how we're modeling the cash flow because each agreement that's really had Lou.

To that there's been a default audits and deferrals of Brent So the cans for all the bulk of the lots of different combinations, depending on the negotiation on but I can't say a you know we all we both parties haven't shared interests and making them off by plant and a good example customers.

And and I don't anticipate that will have any negative cash implications based on how well how these conversations are evolving and kind of into from a payment.

Okay.

And the degree to fix that makes sense itself, it's flowing through our book.

Right exactly are recognizing expense okay. Okay yep.

Yeah, I was just tweaking a couple of cash flow items, but on I'm, what I'm not sure on the storefront and it's really helpful. Like any other stores in town presentation of color. Thank you for that and how many dark store sitting on sort of closing, but you still and you can use up if and how many releases.

Come up for renewal and that's here too.

Yeah.

Oh, I don't have that information as Mike alluded to it.

Yes, Jeff that we are still committed to close the 97.

That may accelerate but I can get you the competition will be set the tone I just don't have it at my fingertips.

Great. Thank you for other color.

Well good.

Thank you cannot be Pico next question from Omar Saad from Evercore ISI. Please.

Please go ahead.

Thank you thanks for taking my question.

Thanks for all the information, Jeff Felicia I wanted to follow up on your comment about dresses and then suiting those types of categories being down really big you know as we move to its bit pandemic and things start to stabilize or you're seeing any signs of demand in those dressier categories.

And then kind of whats your medium and out term and longer term outlook do you see a more sticky shift of things that you mentioned like casual athletic home those categories.

Or do you expect that kind of desire because consumer desire for fashion and to get dressed up.

Come back sometime in 21.

Hi, Omar well first off I I believe that both men's clothing and dresses, particularly dresses will come back robustly right now to your question as kind of.

No that restrictions are opening up locally you're starting to see customers move towards cash addresses.

The career dresses remain very challenged and the real form addresses the you know social dresses remain challenged but casual dresses are definitely we've seen we've seen a pickup there, but I believe the dress category is going to come back robustly I think the American spirit, you can count on it and I believe that there will be a time, where when you think about what people are going to do.

For any dressy occasions, you know weddings, any anything with with with being able to go out and looking your best you know there thinking a Macy's is one of those one of those players. It's not just in dresses. It's also in dress shoes, and then and social shoes were seeing a total shift into athletic and casual footwear until hub.

<unk> side that improves when you think about wearing occasion is that changes so I'm expecting that we don't know the timing of it but we'll be ready when we do on and then suit side, what is going to happen permanently to you know kind of work from home you know what we're thinking about our own kind of you know scenario here with our corporate employees I think that.

Every every business is changing the way that they're looking at their workforce and how virtual has changed our perspective of that and I think all of us or kind of looking at as much like a whats much like schools are today that there's going to be some level of hybrid then we're going to have.

Times or a calendar that we come together will be collaborate and we brainstorm and there's other them are executing you know the business that we might be doing that virtually so I think that there's going to play into the wardrobe.

For both men and women and so men's clothing, because that was on a you know we were where the dominant player we have a major competitor.

In that particular business is suffering as well in this category I do think it's going to come back on certain it's going to come back and dresses and just the degree of comes back in men's clothing is to be seen.

Got it that's helpful and then I'd love to ask a follow up to on your comments earlier about the members maybe underperforming some of the non members in the quarter.

Can you see in the data who that is at a certain demographics or is kind of everyone across the board spending lots are they characteristics there as it maybe an older customer who is more afraid of.

Health and safety or any color there on that membership.

It's really as you know we benefit from having the bulk of our business being done with omni channel customers, but you do have a store cohort that are not comfortable online and they're generally older and they're in certain pockets of the country and their business definitely was it's been more depressed, but we're starting to see them come back you know.

As our stores have reopened then you know is Felicia talked about earlier there are certain states in which the malls have been close while the outside entrances or the anchors had been opened and so as the mall start to reopen in that area. It ends up being more of a destination. We're seeing those customers return more robustly. So I tell you the older customer has been it's been more.

Acted who are a stores only customer, but so many of our of our older customers are more mature customers, our omni shoppers and so we've not seen a change in their behavior. So we track so many different cuts of our customers, but to characterize that one end of it is what I just had.

Got it thanks for the information best wishes.

Thank you.

Thank you another Tayfun next question from Paul Trussell from Deutsche Bank. Please go ahead.

Good morning, and thinking for taking my question.

Maybe to start I wanted to follow up.

On your comments about the ever evolving role of a store.

Maybe you can discuss that im a bit more detail and frankly help us think about how you are maybe re measuring the profitability.

Of the store and the decision on whether or not to keep a a door open given its support for you did you go operations and as part of that maybe discuss a bit more about what you alluded to as the market ecosystem.

And the way you're going to approach small format, you know off mall in bloomingdale's outlet locations.

I'll start Paul and then Felicia anything you want to add you know look at the store remains very very important component of our brands and customers like the phone as of the options that they have between digital the app and stores.

In cases, like and co that they're not using stores to browse there they are coming to stores now that they're reopen for a place us I mean their mission based they are coming in for a transaction you know they've got an idea about what they want to buy their lingering slow in less time in stores and they're buying at a higher conversion rates. So that's the behavior.

There, but stores are going to remain very important to us for us to be able to show the fullness of our brands for customers that need inspiration. We have other customers that are getting nestle inspiration by browsing online. So we want to be we want to have all the right you know access points for customers. However, they choose to shop whenever they choose to shop, So we see big benefit.

In in contending with stores customers want you know immediate gratification, they're buying something want to be able to pick it up right away or they want to deliver that same day stores are always going to be important in terms of the fulfillment options of a national customer, so having or DNA as well covered with our stores and having those you know those up those portals ready to respond to customer.

Our demand 30% of our digital transactions are being fulfilled out of stores I see that increasing you know and what what we're building out in terms of our omni network and our fulfillment strategies, you know our opportunity to be able to satisfy customers. However, they want to shop in a store herbicide or same day delivery, we will be able to do that so stores or go.

To remain important you know as to the point about ecosystem, we make it if we made the call in February that we were going to look at three markets to be able to test you know what a small door format would look like and what up what off price in a freestanding format would look like and how the interplay would be for the customer that is shopping in between those units that are going to mall.

But also might go to off mall or they're typically an off mall customer with our competitors and they're not as comfortable going to a mile because of its its size or it's too cumbersome or it's not they feel it's gonna be crowded or whatever the issue might be you know how do we get the Macy's brand in the bloomingdale's brand into those into those markets. So that's what we're doing what we the decision or the announced.

We made this morning was that we were gonna be testing a small door format for bloomingdale's. It will be launched in the fourth quarter of 2021, it's under development right now as you know we launched a strategy in February or in January called marketed Macy's, which is a mini Macy's format with interesting content.

Service is fully built out hospitality as part of it we're going to build our second one or is it is going to also be in the Dallas markets. There will be in 2021, and then backstage free standing in which we started with the backstage concept free standing and those buildings continue to operate very profitably you're going to see us build those out now.

Those three markets and as mentioned continue with with with what we're doing with bloomingdales. So in all of those units basically will have full fulfillment.

Turn capability you can do buy online pickup in store if anything in the network use those basically for full customer access to the focus of our brands. So we're going to watch customer behavior I'm just to build on lifetime value does that help us recruit new customers into our brands. A you know using these ecosystems and being able to me.

Market Accordingly, it's going to give us a very good lens about does this have played beyond just the Sri markets. So we're going to learn in 21, and 22 on that as and well make adjustments as we as we move forward.

Well I can tell landed at Oh, well, Jeff younger has mentioned that is that.

No. This over the past two years ago, we haven't made significant investment and our Oh boy. If we invested another 50 perform all of them isn't that both Macy's and bloomingdales and we expect to July benefit that's almost a growth investments that we made over the past two years, but any I shifting away.

Yes, yes, chipping away from and often on the physical building, although they think about our capital them over the next two years. We are very focused you know digital supply chain and technology and embedded in pulp knowledge. They take the opportunity to ensure that we're giving our call my best technological imports points of pop.

Well, it's up nicely marry up Oh physical.

We've been making over the past couple years.

Thank you for that additional color, but didn't just just circling the wagons back to.

SGN a you know the Polaris strategy pre Tobey I believe discussed a 900 million dollar run rate savings and that this market is not a roughly one and a half billion today.

Maybe just remind us of where the incremental kind of saving targets are coming from and where we kind of stand on data, where you expect the run rate savings to maybe be exiting this year.

Oh, yes.

Thank you. So you know it's about sort of laid out on slide 11 on the website, but I'll just sort of talking to it you are right in the so Paulo savings that we discussed that it back in February I quoted the Ftn a savings of about 900 million.

600 million on margin and then coming out of a code that leads coming out of particularly the downturn. We've had the additional reduction enforce that contributed another annualize that comes along and potential that channel fading local Paul to 2020 to 2020 pool one.

Like fading, but the big components I got 1.5 billion is really coming from the ability to leverage our marketing and as the as I've long term sale growth of about six in the supply chain efficiency like because little more to centralize form another one that buys.

I mean, why in the team that I talked about.

Questionable that's coming from stores up again, that's about a smaller company then able to love it Oh, what sells more efficiently and then as a big category, a corporate which is really a the reductions that we cook can cooperate admonishment pool or walking away and for that.

The high level break down about 1.5 billion and we are intensely focus as you can imagine continue a across the expense discipline.

And ensuring that we are looking at every borrower or if the pencil to the time above the dollar that pool Walmart will make it before we.

I think about what Jeff said about one about plus strategy.

Okay, well do a meaningful not continuing to be set our cost base.

That.

Bob is the movie's opening up the protein Ah Ah, it's almost all over the next couple of years.

Thank you investigation.

Okay.

Thank you and they'll be pick wouldn't next question from Boston boost from Guggenheim.

Please go ahead.

Hi, good morning.

Just a question on on mix really good better best and I guess, you think about trends it because of the customer around good better investing your stores, but also curious just in terms of receipts of you know you're planning and penetration of private branded merchandise versus national branded merchandise.

In apparel, and just sort of where that is in the commitments that you've made and how you think that plays out in the back half of your would be very helpful. Thank you.

And so on the mix question I think that it really is you think about some kind of off price luxury so that obviously as ours, our sweet spot. So we have backstage going out the door at about 12 Bucks and bloomingdale's is going to out the door at about 90 Bucks and so you've got the Macy's brand in the middle of about $35 and and the outlet is going up bloomingdale's out.

What is going out at about $33. So those are the you ours and we can depending on category. You know there's differences when you look at the category mix in between those four banner brands, so lots of opportunity for us to play with that.

Based on where the customer demand is and you know we've gone into some detail in the into the course of this call about new categories that are emerging how of responding to that we're getting that to the customer through either vendor direct horse your own categories in store online. So well we will continue that your question about private brands such as the first one that's come up as well.

We committed to continuing with our journey of getting private brand to about 25% of our total business and we've been really working on our sourcing model to to ensure that working with making sure. The lead times are dramatically shorter really working digitization and you know turning more of the responsibility it over to factory have fewer factories sharing fab.

Varex consolidating brands, adding new brands, so very happy with the progress the team is making obviously when you look at private brands a much of that is really the base of our apparel business. So happy with some of the early reads forgetting went to work for the team has been doing on that so we're committed on continuing to drive you know exclusive brand.

Content.

Through our private brands. So that's that's definitely our journey.

Great. Thank you.

You bet.

Thank you I never take on next question from Jay sole from you'll be [noise].

Please go ahead.

Great. Thank you so much just want to ask you about your comment is good so the holiday season could happen a little bit earlier, this year and trying to shift some of the said or could you talk about your comments and be able to do that sort of what are some of the tools you might be able to use to make that happen.

Yeah, It's great question, Jay because you know in the past its hard to look at a model in the past, where you would say that said that they'll holiday demand is going to move in between the goal post the Thanksgiving and Christmas day.

I think this I think this year is gonna be different and so you know we have lots of opportunities with values and so you know look we we've certainly seen through that our customers always respond to great values. They respond to great brands, a great values and so you know we know how to do that we determine that kind of trial run for us as always kind of black Friday in July.

So we're always using that it's kind of a dress rehearsal to look at what customers respond to and try and put on the holiday factor in sell through on top of that so we've looked at the entire promotional calendar you know really from you know before Halloween all the way through the month of November through Black Friday, and obviously cyber Monday into the last you know 10 days before Christmas So we're anticipating that there.

Is going to be customer concern for health and safety during those compressed periods Black Friday, and the 10 days before Christmas and so looking at what that demand might look like you know what then happens to the digital demand and what happens within sales and you're going to need to spread differently and what is the offering any events that are going to help you do that and.

Also hearing our competitors also talk about that and you know so I think that is it's definitely out there and the opportunities for consumers to two here all the competitive cycle talking about the opportunities to get great gifts at great values in time data shifts comfortably and safely filed by the time of either Hanukkah Christmas under.

Other holidays, but those are the two main ones. So I think this year is gonna be difference, but the base. If your question is in the past historically, we have not seen the opportunity to move demand earlier than Thanksgiving for a holiday purchase.

But I believe this year is the year that it will happen.

Got it is sort of like some of the effort to do that contemplated in the got it did you give them.

Gross margin Becca.

Correct, it's all baked into that so I feel comfortable you know, we're taking a conservative stance on that and but I believe we are we're in the ballpark right now.

Got it thanks, so much.

You bet yet.

Thank you it appears that I've no further questions at this time I missed a guy or I'd like to tender confidence back to you for any additional bookings anymore.

And alternate just want to say I.

I just want to say everybody I. Thank you for your retention as we went through a you know along that description of how we're well we're up to.

I appreciate everybodys interest in the Macy's and Bloomingdale's implement rebrand everybody had a great day.

This concludes today's call. Thank you for your participation you may now disconnect.