Q4 2024 Macy's Inc Earnings Call
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this call is being recorded I would now like to turn the conference over to Pamela Quintile Yano, Vice President of Investor Relations. Thank you. Please go ahead.
Speaker Change: Thank you operator, good morning, everyone and thanks for joining US with me on the call today are Tony Spring, our chairman and CEO and Adrian Mitchell, our CLO and CFO.
Speaker Change: Along with our fourth quarter 2024 press release, a form 8-K filed with the SEC and the presentation has been posted on the investors section of our website Macy's, Inc. Dot com and its being displaced life during today's webcast.
Speaker Change: Unless otherwise noted comparisons we provide will be versus 2020.
Speaker Change: All references to our prior expectations outlook or guidance refer to the information provided on our December 11th earnings call or our January 13th sales and earnings press release, unless otherwise noted.
Speaker Change: On today's call, we will refer to certain non-GAAP financial measures reconciliations of these measures can be found in our earnings presentation, and our SEC filings available at Www Dot Macy's, Inc. Dot com slash investors.
Speaker Change: All references comp sales throughout todays prepared remarks represent comparable owned plus licensed plus marketplace L and owned plus licensed sales per store location unless otherwise noted.
Speaker Change: Go forward Macy's Inc. Comp sales include the approximately 350 Macys go forward locations digital and Bloomingdale's and Blue Mercury nameplates inclusive of stores and digital.
Speaker Change: Go forward Macy's comp sales include the approximately 350 Macys go forward locations and Macys digital.
Speaker Change: Lastly to further improve year over year comparability, we're providing quarterly and annual 2024 sales contributions historic crushers.
Speaker Change: All forward looking statements are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Speaker Change: Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today.
Speaker Change: A detailed discussion of these factors and uncertainties is contained in our filings with the Securities and Exchange Commission.
Speaker Change: Today's call is being webcast on our website a replay will be available approximately two hours. After the conclusion of this call with that I'll turn it over to Chuck.
Speaker Change: Good morning, and thank you for joining us today to discuss our fourth quarter and fiscal 'twenty 'twenty four results and our 2025 outlook. It's been one year since my first call as Macy's, Inc. CEO and the introduction of a bold new chapter strategy. Our three year plan designed to return the company to sustainable profitable growth.
The Boulder chapter is different from recent strategies as it firmly places our energy and focus on the needs of the roughly 40 million customers annually, who shop, our three iconic nameplates.
Speaker Change: Prioritizes and improved store environment, and Omnichannel customer experience as we reallocate capital from under productive Macy's stores and focus our resources and investments on our go forward business.
Speaker Change: In fiscal 'twenty 'twenty, four we realized substantive enterprise wide improvements these give us confidence in the long term viability of the bold new chapter in light of your one progress I want to extend my gratitude to all of Macy's things colleagues for embracing this important work and delivering a better.
Speaker Change: Experience for our customers.
Speaker Change: For the year, we improve Macy's, Inc. Annual comps by 510 basis points, the down 9% versus 2023.
Speaker Change: We posted four consecutive quarters of positive comps at Macy's first 50 locations.
Speaker Change: We returned to positive annual comps at Bloomingdale's and had four consecutive years of positive comps at Blue Mercury.
We achieved record annual net promoter score is that Macy's and bloomingdales, rising 160, and 90 basis points respectively.
Speaker Change: We closed 64 of our approximately 150 non go forward Macy's doors ahead of our annual plan of 50 closures.
Speaker Change: We lowered capex by 111 million to $882 million, representing the second consecutive year of reduced spend.
Speaker Change: We generated 679 million of free cash inclusive of $283 million of asset monetization proceeds of 71% from last year. We ended the year with a 1.3 billion of cash on our balance sheet of $272 million from last year, and we returned 192 million to shareholders.
Speaker Change: Through cash dividends.
Speaker Change: We are pleased with our accomplishments, but recognize there is still more work to be done.
Speaker Change: Recent results give us confidence that we've made the right strategic shifts and investments to successfully improve the overall Macy's Inc. Customer experience now we must scale. These changes in order to achieve our long term goals.
Speaker Change: For the fourth quarter go forward Macy's, Inc had its strongest comp of the year at plus <unk>, 6%.
Speaker Change: This along with positive Bloomingdale's and Blue Mercury results drove total Macy's, Inc. Towards 0.2% comp gain its highest of the year and best in 11 quarters.
We maintained a disciplined approach to margins and cost controls.
Speaker Change: As a result fourth quarter adjusted EPS of $1 80 was above our most recent guidance range, primarily due to better than expected SG&A credit card revenues and to a lesser extent improved shortage and asset sale gains.
Speaker Change: Now, let's discuss the fourth quarter performance and full year progress of each pillar of the bold new chapter strategy, starting with strengthening and re imagining Macy's.
Speaker Change: Total Macy's nameplate comps declined <unk>, 9% in the fourth quarter of 380 basis point improvement from the prior year. The first 50 locations achieved a positive one 2% comp.
Speaker Change: At these locations ready to wear beauty and women's shoes outperformed the rest of the fleet by approximately 320 basis points on lower discount rates and higher initial tickets, reflecting positive response to our improved product assortment visual presentation and staffing.
Speaker Change: Beyond the first 50, the incremental 100 doors that received enhanced women's shoes and handbags staffing in the fall continues to outperform locations without those investments.
Speaker Change: Formats of both the first 50 on the 100 test stores illustrate that when we invest in the customer experience, we can grow sales.
Speaker Change: While pleased with the customer response to the first 50 and 100 test store initiatives. Another key component of the Boulder chapter strategy is closing under productive Macy's stores.
Speaker Change: These closures allow us to focus our resources and attention on our go forward fleet.
Speaker Change: We were executing store closures methodically of the approximately 150 announced in February 2024, as a part of our strategy. We took advantage of favorable dealmaking to remove 64 underperforming stores from the Macy's base in fiscal 2024 contributing to annual asset sale gains of 144 million.
Speaker Change: Although the closed locations benefited twenty-twenty for sales gross margin and EBITDA dollars. They are no longer as financially or operationally viable, especially when you compare their contribution to their monetization value.
Speaker Change: [noise] merchandising digital and marketing are also imperative to the macys nameplate success for.
Speaker Change: For the year the merchandising team continued its assortment matrix evolution, including the ongoing private brands enhancements, adding more relevant national brands scaling other brands to additional doors and editing brands that are no longer serving our customer.
Speaker Change: Digital improved site navigation search engine optimization and introduced a more competitive pricing algorithm, leading to a return to positive comps in the fourth quarter.
Speaker Change: In marketing, we put the customer top of mind going to where they spend most of their time during the fourth quarter, we reallocated marketing dollars to live events and top rated programming and increase the use of influencers throughout the year, we leaned into the iconic Macy's IP to allow for a deeper and more integrated storytelling.
Speaker Change: Across our digital platforms in stores.
Speaker Change: Turning to the second pillar of our strategy accelerating a differentiating luxury in the fourth quarter, both bloomingdales and Blue Mercury continued their positive comp trends. This gives us further confidence in their organic growth profiles and store expansion opportunities.
Speaker Change: Well I mean does achieved a positive six 5% comp the strongest fourth quarter volume in its history. Our exclusive wicket partnership garnered roughly 15 billion media impressions, which was three times higher than last year's holiday campaign.
Speaker Change: This along with from Italy with Love program are Prime examples of how our customers appreciate and respond to our unique product duration and differentiated brand DNA, which is aspirational approachable and distinctive in the luxury landscape.
Speaker Change: For the year, we opened three bloomingdale's stores, including our first Bloom is women's only location, which has been very well received our team continues to be methodical in their approach to bloomingdale's physical expansion Triangulating markets, where there is strong existing demand.
Speaker Change: At Blue Mercury, we achieved our 16th consecutive quarter of positive comps the team leaned into the gift of self care for the holiday capturing demand for beauty trends, including everyday wellbeing clinical skincare and fragrance layering.
Speaker Change: In September Blue Mercury had kicked off its 25th anniversary celebration with the introduction of our revamped website, an updated store prototype.
Speaker Change: With each new and remodeled store our team is elevating our service model and product mix duration to further establish room Mercury as the authority in its space for.
Speaker Change: For the year, we opened 17, new locations and remodeled seven at the end of the year roughly 15% of our Blue Mercury store base has been updated.
Speaker Change: The third pillar of our strategy is simplifying and modernizing end to end operations is focused on creating a more efficient network that benefits the entire organization.
Speaker Change: In fiscal 'twenty 'twenty, four we meaningfully improved our ability to meet customer demand.
Speaker Change: We improved both the percentage of orders delivered in five days or less and replenishment in stocks by about 400 basis points and shortened the amount of days from when an order is placed to shipped by roughly 1100 basis points, all while maintaining strong inventory discipline, which enabled us to end the year with improved inventory composition and Lee.
Speaker Change: Lower aged inventories.
Speaker Change: In fiscal 'twenty 'twenty four we made progress on all three pillars of our bold new chapter strategy, but we are not yet where we need to be.
Speaker Change: In fiscal 2025, we will work to improve the business with greater focus and determination.
Speaker Change: As the business evolves and we implement changes to strengthen our performance the annual metrics, we're holding ourselves most accountable for the beginning this year, our Macy's Inc. Go forward comp sales and core adjusted EBITDA on a dollar and percent of total revenue basis as defined as adjusted EBITDA excluding.
Speaker Change: Asset sale gains these two metrics represent our future state and we believe are the best proxy to measure the fundamental improvements as we stabilize our business and move closer to profitable growth.
Speaker Change: As we focus on go forward business performance, we are cognizant of the external environment and the ongoing myriad of unknowns.
Speaker Change: We remain committed to taking the necessary actions to meet our customers, where they are and deliver an improved experience.
Speaker Change: We will continue to reduce capex, while prioritizing investments that best support our healthier enterprise improve profitability have a strong ROI and benefit our stakeholders.
Speaker Change: And Macy's our focus is on go forward growth through a smaller more productive store fleet in early February we overlaid successful initiatives from the first 50 locations. So an additional 75 stores for a total one or twenty-five re imagine Macy's locations.
Speaker Change: The additional 75 stores have continued emphasis on customer experience and they build on our year one learnings.
Speaker Change: The 125 re imagine locations represent 36% of the Macys go forward store base compared to just 14% of the base with initiatives at the beginning of last year as.
Speaker Change: As we scale. These initiatives we're actively negotiating deals for the next tranche of non go forward closures as well.
Our investments in stores and customer service are most valuable when paired with a compelling assortment.
Speaker Change: 2025 represents the first full year that macys nameplate as bought under the cost accounting method.
Speaker Change: Which brings more transparency into item level profitability, including the cost of goods and discounts and should result in better buying and execution.
Speaker Change: Our teams are in market and working closely with our brand partners to increase variety and reduce redundancy, we're applying learnings across private brand re imagination to deliver more compelling assortments complemented by an established footprint of contemporary brands like effect with the answer song and free people.
Speaker Change: As well as new brands like good American in theory and.
Speaker Change: In addition, we continue to improve our private brands and leverage our online marketplace to test and discover new opportunities.
Speaker Change: Beyond merchandising, we also intend to better balanced top and bottom of funnel marketing, we'll invest in branding complements performance marketing and further strengthen our messaging while capitalizing on peak periods that are synonymous with Macy's, including key holidays.
Speaker Change: The Macy's Thanksgiving Day Parade is a perfect example, the 'twenty 'twenty four parade reached 32 million viewers. It was our most watched parade ever the number one program in the holiday season, and one of the largest entertainment specials of the entire year.
Speaker Change: We recently signed a new 10 year rights deal with NBC to unlock exciting content opportunities for both the parade and the fourth of July fireworks.
Speaker Change: Proceeds of our new rights deal, which is multiples of our prior agreement will help us fund growth, while maintaining our strong balance sheet.
Speaker Change: Turning to luxury Bloomingdale's recently introduced its white Lotus and Aqua collaboration exclusive our apparel and accessories collection is inspired by the hit series and is already sold out of several items.
Speaker Change: This builds on the success of the worker in Aqua collaboration during the holidays. These collaborations speak to how bloomingdale's has its finger on the pulse of unique cultural moments.
Speaker Change: Underscores its relevancy in the marketplace and its appeal to a multi generational customer.
Speaker Change: <unk> also recently launched their Flamingo state Carousel at 59th Street and online. It features a curated lifestyle products from the brand and special events like product customization, both white Lotus and Flamingo states. They truly bloomingdale's heritage service strong traffic drivers and put even more eyes on the brand.
Speaker Change: In addition to private label and pop ups. Let me does continues to be a powerful partner to major brands in the marketplace throughout the spring Bloomingdales has activations planned with contemporary brands like Alice and Olivia a mother and farm radio just to name a few.
Speaker Change: It will also be the first U S Department store to launch coaches viral coached hope your concept and has the global lead on Mason Francisco geography, Jens newest scent kirkey.
Speaker Change: Bloomingdale's is also actively introducing new points of distribution across its network with brands like Aqua Zera Skims and Reformation.
Speaker Change: Blue Mercury, we are also pursuing new brand partnerships and opportunities to expand sales growth and continue to be encouraged by the performance of our new and remodeled locations.
Speaker Change: And then end to end operations are state of the art, China grow with distribution facility is on track to open mid Twenty's twenty-five first announced in 2022. This 1.4 million square foot facility will leverage automation and streamlining inventory fulfillment and management across all of our nameplates, creating greater supply chain efficiencies at a lower cost.
Speaker Change: Cost.
To summarize with one year of the bold new chapter complete we are in a better position exiting 'twenty 'twenty four than when we entered and believe that the recent results illustrate that this is the right strategy to return Macy's, Inc to profitable growth.
Speaker Change: We're taking a prudent approach to our outlook, reflecting the external uncertainties that both we and the consumer are facing we.
Speaker Change: We will closely monitor sell throughs thoughtfully make adjustments that reflect our demand throughout the year.
Speaker Change: At the same time, we will further scale changes across all three pillars in order to achieve our long term ambition.
Speaker Change: And finally, we will continue to take a balanced approach to our capital allocation strategy, including returning value to shareholders through resuming share buybacks and consistent dividends all with solid free cash flow generation and with that let me pass it over to Adrian.
Speaker Change: Yeah.
Adrian Mitchell: Thank you Tony and good morning, everyone today I'm going to review, our fourth quarter 2024 results in more detail and provide guidance for 2025.
Adrian Mitchell: Fourth quarter net sales were roughly seven $8 billion versus $8 $1 billion last year in line with our most recent guidance as a reminder, the 50 <unk> week contributed $252 million to the prior year.
Adrian Mitchell: Total enterprise comps were up 0.2% our highest quarterly results since the first quarter of 2020 to Macy's.
Adrian Mitchell: Macy's Inc. Go forward comps rose 0.6%.
Adrian Mitchell: By nameplate Macy's net sales, which include all Macy's locations and digital were down five 3%, while comps were down 0.9% Macy's.
Adrian Mitchell: Macys go forward business comps were down 0.5% and first 50 comps were up one 2%.
Adrian Mitchell: At our luxury nameplates Bloomingdale's net sales were up 2% and comps rose six 5%.
Adrian Mitchell: Blue Mercury net sales were up two 4% and comps rose six 2%.
Adrian Mitchell: Other revenues were $239 million.
Adrian Mitchell: Credit card revenues of $175 million were ahead of our guidance due to better than expected profit share primarily from favorable net credit losses.
Adrian Mitchell: Macy's Media network revenues were $64 million up 7%, reflecting continued growth in advertisers and campaign counts.
Adrian Mitchell: Gross margin rate of 35, 7% was at the high end of our guidance and 80 basis points below last year.
Adrian Mitchell: The change relative to the prior year gross margin rate was impacted by macys nameplate conversion to cost accounting and this is the last quarter with a comparability impact.
Adrian Mitchell: Merchandise margin benefitted from favorable year over year shortage trends, which were offset by product mix.
Adrian Mitchell: Year end inventories were up two 5% year over year roughly half of the increase was due to the previously mentioned conversion to cost accounting with the remainder reflecting the timing of spring receipts.
Adrian Mitchell: Relative to our guidance year end inventories also reflect higher in transit inventory as we move products through the network faster.
Adrian Mitchell: Entering fiscal 2025, we are pleased with the level and composition of our inventories, having more newness and less aged product.
Adrian Mitchell: We have worked hard to create a flexible supply chain that allows us to mitigate the impact from potential disruptions to global trade and tariff activity.
Adrian Mitchell: SG&A expenses were $2 $4 billion as a percent of total revenue SG&A was 29, 7% 100 basis points higher than last year, reflecting lower year over year total revenue.
Adrian Mitchell: For the quarter, we recognized asset sale gains of $41 million contributing roughly 11 cents to adjusted EPS for the year, we had asset sale gains of $144 million, a 39 cent EPS benefit and asset sale proceeds of $283 million.
Adrian Mitchell: Results were above the high end of our original outlook for the year.
Adrian Mitchell: Fourth quarter adjusted EBITDA as a percent of total revenue was 11, 3% and adjusted EPS was $1 80, which was above our guidance range.
Adrian Mitchell: For the full year operating cash flow was $1 $3 billion, we grew free cash flow by 71% to $679 million inclusive of monetization proceeds.
Adrian Mitchell: When excluding monetization proceeds free cash flow of $396 million was 27% from the prior year.
Adrian Mitchell: We invested $882 million back into the business through capital expenditures, continuing our trend of reducing annual capital spend on a dollar and percent of net sales basis.
Adrian Mitchell: And we returned $192 million to shareholders through quarterly cash dividends totaling approximately 69 cents per share, reflecting a 5% annual per share increase.
Adrian Mitchell: Our capital allocation priorities center around generating solid free cash flow and include maintaining a healthy balance sheet, including driving working capital efficiencies strategically investing in growth initiatives, while lowering year over year capital expenditures and returning capital to shareholders.
Adrian Mitchell: Through a predictable dividend and share buybacks. This year, we plan to utilize a portion of our remaining $1 $4 billion open ended share repurchase authorization market conditions permitting.
Adrian Mitchell: We finished the year with an adjusted debt to adjusted EBITDA ratio of two five times.
Adrian Mitchell: As we look ahead, we will target a ratio of two five times or below in line with investment grade metrics. This provides us with greater balance sheet and capital allocation flexibility as we harvest the financial benefits of enterprise wide investments made over the past few years.
Adrian Mitchell: We entered the second year of the Bowl New chapter strategy, a healthier yet smaller enterprise highly focused on advancing our long term growth profile the.
Adrian Mitchell: The top and bottom line annual metrics, we are holding ourselves most accountable to our Macy's Inc. Go forward business comps and core adjusted EBITDA on a dollar basis and as a percent of total revenue.
Adrian Mitchell: As Tony mentioned, we are cognizant of the complex external environment that we're operating in.
Adrian Mitchell: At the same time, we do not expect quarterly results to be linear which is a reflection of your two initiatives gaining traction comparability impacts and the timing of asset sale gains.
Adrian Mitchell: As a result, we must be realistic and prudent in our guidance.
Adrian Mitchell: For the year, we expect Macy's, Inc. Net sales of 21 to $21 4 billion. Please keep in mind that fiscal 2024 store closures contributed roughly $700 million of net sales equating to about $170 million in each of the first and second quarter.
Adrian Mitchell: <unk> $160 million in the third quarter and $200 million in the fourth quarter, we expect.
Adrian Mitchell: Improvements in our 125 re imagined Macy's locations and digital to be offset by the roughly 225, Gulfport Macy's locations that have not yet received initiatives and the stores, we plan to close in 2025 and beyond.
Adrian Mitchell: Macy's, Inc comps to be down 2% to down 0.5% with the easiest comparison in the second quarter.
Adrian Mitchell: Macy's, Inc, Gulfport comps to be down roughly 2% to roughly flat.
Other revenues of $835 million to $845 million up roughly 75 basis points as a percent of net sales credit card revenues are expected to contribute roughly 55 basis points of the improvement, reflecting the stabilization of net credit losses, and a strong credit portfolio.
Adrian Mitchell: This will be supported by initiatives designed to increase credit card usage.
Adrian Mitchell: Gross margin as a percent of net sales to be roughly 10 to 40 basis points higher than fiscal 2024.
Adrian Mitchell: Rate improvement will be driven by the expectation for continued improvements in our merchandise assortments benefiting from product mix and disciplined inventory management, which are expected to support healthier sell throughs.
Adrian Mitchell: SGA to be down low single digits on a dollar basis, but as a percent of total revenue to be about 100 basis points above last year due to lower total revenue.
Adrian Mitchell: Please keep in mind that we plan to reinvest savings from store closures and customer facing growth initiatives that enhance the omnichannel shopping experience across nameplates and colleague benefits including compensation.
Adrian Mitchell: And for the year, we anticipate higher depreciation and amortization, primarily due to heightened levels of capitalized software investments made over the past few years, which are amortized over a four to five year period.
Adrian Mitchell: Asset sale gains of approximately $90 million in asset sale monetization proceeds of approximately $175 million for the year.
Adrian Mitchell: Adjusted EBITDA as a percent of total revenue of eight 4% to eight 6%.
Adrian Mitchell: Core adjusted EBITDA as a percent of total revenue up 8% to eight 2% versus 8% in fiscal 2024.
Adrian Mitchell: Adjusted diluted EPS of $2.05 to $2.25, which does not contemplate the impact of planned share buybacks.
Adrian Mitchell: And we anticipate capital expenditures of approximately $800 million.
Adrian Mitchell: We will continue to harvest financial returns from prior investments and find further capital expenditure efficiencies across the enterprise.
Adrian Mitchell: Turning to the first quarter, our guidance takes into account the unusual external circumstances of the quarter, thus far and the assumption that pressure will continue for the remainder of the quarter.
Adrian Mitchell: For the quarter, we expect net sales of four four to $4 $5 billion Macy's, Inc. Comps to be down four 5% to down two 5%.
Adrian Mitchell: Core adjusted EBITDA as a percent of total revenue to be six 4% to six 6% versus seven 3% last year and adjusted EPS of 12 to.
Adrian Mitchell: The 15th.
Adrian Mitchell: Okay.
Speaker Change: To recap, we believe the fourth quarter and fiscal 2024 results demonstrate the progress we're making with our initiatives. While there are external factors that are beyond our control, which are impacting both our business and the consumer we are planning our business conservatively.
Speaker Change: Hopefully responding to the unknowns as they arise controlling what we can control and building on our recent momentum.
Tony Spring: With that I'll now pass it back to Tony.
Tony Spring: Thank you Adrian as we navigate the fluid nature of our business, we're highly focused on delivering a better experience for the consumer will.
Tony Spring: We will continue to make the appropriate investments that support our long term growth ambitions, while returning value to shareholders and with that operator, we're now ready for questions.
Tony Spring: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Tony Spring: A confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, we do ask that you. Please limit yourself to one question and one follow up.
Tony Spring: One moment, while we poll for questions.
Tony Spring: Today's first question is coming from Matthew boss of Jpmorgan. Please go ahead.
Matthew Boss: Great. Thanks.
Speaker Change: So maybe Tony on 2025, or a bold new chapter two could you walk through areas of strength relative to same store sales constraints that you're embedding in the down two to down 0.5% maybe relative to initial expectations for the return to growth and then Adrian.
Speaker Change: If you could elaborate on drivers of the SG&A rate pressure and in the 2025 guide and just what revenue growth multiyear is needed to hold or expand margin.
Matt: Thanks, Matt good morning.
Matt: We enter 2025 are far stronger than we entered 2024. So I think we look at the first year of the bold new chapter is being one of progress.
Speaker Change: First 50 stores growth all four quarters closing 64 under productive stores growth at Bloomingdale's and Blue Mercury.
Making progress on our our delivery and speed of delivery and end to end operations and I think that is the kind of the progress point for a year or two we added 75 more stores. We're at 125 stores and the re imagined environment, we lean into more growth both in number of stores at Bloomingdale's and Blue Mercury and.
Speaker Change: The organic growth and we continue to invest in <unk>.
Speaker Change: Leverage the benefits of our previous capital investments and intend to operation with better speed of delivery less our cost and delivering to the consumer and so I view it as being confidence in the strategy caution in the environment and the things that hold us back or the.
Speaker Change: On touch stores that remain within the fleet you know you still have over 150 stores.
Speaker Change: Whatever it is 175 stores that we have not touched as a part of the program and so those stores are not going to see the progress that we're seeing in the rest of the fleet, but we had digital growth in the fourth quarter, We had macys go forward enterprise.
Speaker Change: Perform better in the quarter overall, Macy's, Inc. Up as a comp in the quarter best in 11 quarters and I think if we were in an environment, where there were operating in I would be even more bullish on our potential but I think prudency is important at this point in time.
Speaker Change: Matt Good morning, let me touch on your two questions around gross margin as well as around SG&A and then I'll just kind of closed out with overall, how we're looking at at the year just to build on Tony's comments as it relates to <unk>.
Speaker Change: As it relates to gross margin for us, it's all about inventory control, particularly in this environment of uncertainty and we're really looking at it from three different dimensions. One is around from an assortment perspective, making sure that we're increasing the variety of items that customers actually want to buy and this is through the manifestation of new brand introductions.
Speaker Change: And things of that sort, where also reducing redundant.
Speaker Change: Redundant styles across brands. So the assortment piece is an important dimension as we think about inventory planning, we're investing in newness to drive full price sell throughs, we're managing the appropriate level of aged inventory to reduce liquidations, we had a lot of progress.
Speaker Change: On this dimension in 2024, and we're continuing to drive better allocation, which is driving better in stocks from a supply chain standpoint speed is really important, particularly with replenishment items, but were also scaling this year, our hold and flow capabilities to better allocate supply to demand at the store location now with.
Speaker Change: Regards to your question around SG&A. The key thing I would say here is that we are reinvesting the savings from closing stores back into the customer experience and as you saw in 2020 for many many proof points of investing in the customer experience in terms of driving growth for our business, we're offsetting that by by the actions that were.
Speaker Change: Taking with regards to end to end operations, we're simplifying our business, we're adding in automation, we're eliminating unnecessary work just a number of things to really make sure that we're continuing to be very disciplined on SG&A, but as we take a bit of a step back to the question that you posed to Tony and I are guidance really simply reflects for the year the heighten.
Speaker Change: Uncertainty in the environment, while giving us the flexibility to navigate that environment and still meet our results.
Speaker Change: Great Best of luck.
Matt: Thank you Matt.
Speaker Change: Thank you. The next question is coming from Brooke Roach of Goldman Sachs. Please go ahead.
Brooke Roach: Good morning, and thank you for taking our question Tony Adrian as I think about the opportunity for Macy's, Inc. Q returned to positive comps over the course of the next few quarters.
Brooke Roach: Are you thinking about engaging various customer demographics and then on recent trends can you talk to the trends you've been seeing and what you would view as transitory or recapture bowl and what might be a function of something that might persist. Thank you.
Tony Spring: Thanks Brook, good to talk to you.
Speaker Change: I think that these are times, it's good to remind everybody just the power of the Macy's Inc. Portfolio, you've got three iconic nameplates between Macy's Bloomingdale's and Blue Mercury, you've got 40 million active customers you have got a multi category business that allows us to the incredible agility and flexibility and liquidity to kind of move.
Tony Spring: To where the customer is going.
Tony Spring: You've got great partnerships in the marketplace, because we're yes benefit from private brand, we've got a lot of market brands and so we represent a major partner or the biggest partner to some of the biggest names in the industry. So I think it's in a moments like this where you say from off price of luxury our portfolio was well positioned to navigate.
Tony Spring: And uncertain environment, the five generations of customers that shop, our stores is an advantage not a weakness and you've got a lot of money, obviously and the baby Boomer population at some point, we expect that transfer of wealth. So the next generations of customers. We are the primary destination for prom season, we are.
Tony Spring: We are a great destination for the first suite for work. So it's our opportunity I think to leverage the strength of what a portfolio of business like Macy's Inc. Can provide build on the progress of the first year of the bold new chapter strategy, while being are well aware that we're operating in an uncertain climate and.
Tony Spring: And that our ability to use the liquidity that we have and the strength of our partnerships can position us to take a challenging environment and turn it into an opportunistic opportunity for this company.
Brooke Roach: Good morning Brook and thanks for your question, let me start with your question around short term trends and then talk a bit about the build over the course of the year that you were asking about <unk>.
Brooke Roach: <unk> entered the first quarter resist simply recognize as many that have mentioned that we're just as Tony.
Brooke Roach: Ted we're just in an uncertain environment.
Brooke Roach: There's a lot of changes that we're seeing day to day happening with tariffs, we recognize the inflationary pressure and obviously there were some unexpected factors in the early part of the quarter with the fires in cold weather that impacted results for the business, but for the first quarter, we expect that pressure to continue and we're really focused.
Brooke Roach: On what we can control the good news is that the investments that we're making in the customer experience are working and what we're doing now is scaling those initiatives to a larger portion of our business and so we do expect as we progress throughout the year to actually see momentum build even in this uncertain environment as you know where we're at.
Brooke Roach: Changes in an additional 75 Macy's stores, we're pleased with the luxury momentum, where we're adding new locations new points of distribution new brand launches the quality of our assortment continues to improve as we're increasing variety of eliminating redundancy. We have marketing moments that are still ahead of us as we approach holiday whether that'd be.
Brooke Roach: Mother's day or father's day or fourth of July and the execution continues to get better replenishing faster, we continued to see year over year improvements in our in stocks. So we're really being very prudent and disciplined and again. This year is just an uncertain environment at this point and just very much reflected in our guidance.
Brooke Roach: Great. Thanks, so much I'll pass it on.
Speaker Change: Thank you Brett.
Speaker Change: Thank you. The next question is coming from Ashley Higgins of Jefferies. Please go ahead.
Ashley Higgins: Hi, Thanks for taking our questions so sort of as a follow up to Brooks' question. I know you know you just talked about some of the factors impacting Q1, but maybe you can talk about just the overall consumer health that's embedded for the remainder of the guide and then same question on promotional levels I'm curious what sort of promotional levels do you have embedded in the guide thanks.
Ashley Higgins: Thanks, Ashley good too good to be with you.
Ashley Higgins: The consumer health you know in our opinion remains very similar to what we saw in the latter part of 2024.
Ashley Higgins: Under pressure navigating a food prices and the cost of housing in a stubborn inflation rate and yet wanting to indulge at times on things that make a hamburger are happy and I think that we are in that retail therapy business a place of escapism in opportunity to.
Ashley Higgins: Get away from all of the political noise that happens every day and we have to lean into that and so I don't think the consumer is going to feel a sense of relief in the short term I'm not an economist I can't tell you how long it'll go on I challenge. Our teams every day to think about what do we control how do we make what we're doing.
Ashley Higgins: More compelling for the customer whether that's the flow of newness, whether that's the launch of our new marketing campaigns, whether that's expanding as we said our partnership with NBC with the fireworks in the parade and other tentpole events that will come in the future the excitement that exists at bloomingdale's between White Lotus and.
Ashley Higgins: The partnership with Wick it in the fourth quarter and the launch of coach Topeka. There's so much energy that we are putting into the business. Because we know people are feeling a sense of a concern.
Speaker Change: And fatigue in terms of the promotional environment I just I'm in this business too long that I think when has it not been a promotional environment I like our inventory position, we're up a couple of points, maybe a point and a half two points more than I'd like to be but relative to the competitive set we look awfully darn good and I think the composition.
Speaker Change: Our inventory is much better going into the months now as we warm up so we've had some unpleasant weather in January and the beginning of February I think the weather now turns in our favor and as a team we have to lean into that opportunity.
Speaker Change: Actually the only other thing I would add to Tony's comments as there is an important correlation between inventory and promotional ality and as we entered the new fiscal year, we felt pretty good about our inventory position just to kind of build on some of the comments that Tony referenced on comp sales up in the fourth quarter versus prior year our.
Speaker Change: <unk> were up about two 5%, but half of that increase was actually driven by the conversion to cost accounting for Macy's last year. We also had higher in transit inventory because of the progress that we've made on the speed of the supply chain and to Tony's point with the composition of inventory, we have we have more newness and less aged inventory than we did.
Speaker Change: Last year. So we're quite encouraged from that perspective in terms of navigating the uncertainty we're working very closely with our partners with regards to known and unknown variables and really trying to get visibility to opportunities as they emerge we are a little bit more visibility as it relates to private brands, because we're working directly with factories.
Speaker Change: But we've been able to kind of manage and navigate some of those knowns, but we're really operating in an environment with some knowns and many unknowns.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you. The next question is coming from Oliver Chen of Cowen. Please go ahead.
Oliver Chen: Hi, Tony and Adrian on the Macys go forward comps, how did those trends relative to your expectations in the main deltas in terms of the categories or what.
Oliver Chen: Who are the main differences relative to the way you expected and related on the categories. It.
Speaker Change: It sounded like you had good momentum in ready to wear and beauty what's assumed.
Speaker Change: In terms of the category dynamics throughout the year, and any strengths and weaknesses and or opportunities to improve there, especially as we think about your private brands and driving differentiation versus competition. Thank you.
Oliver Chen: Thanks Oliver.
Oliver Chen: On the trends in the business I think we talked about the differential that we saw in ready to wear and in handbags and in women's shoes, particularly in the first 50 stores, where we had investments at Macy's So we.
We have a planned ourselves to be able to capture share in and ready to wear and continue to see the response in the expanded now 125 stores in those categories, where we've added additional staffing additional marketing and visual inspiration.
Speaker Change: You talked about at Bloomingdale's, the ready to wear and advanced contemporary business being particularly strong.
Speaker Change: <unk> seen growth in really the DNA of Bloomingdale's and it's just a great moment for them to have had in the fourth quarter the best quarter in the history of the company.
Speaker Change: The softness in the business I, you know I think the home business in general are being pressured by the interest rates and the housing starts and a competitive.
Speaker Change: Landscape in and so we're doing a lot of work to refresh our home business at Macy's. We have that was the last piece of our private brand refresh which will launch mid 2025. So we still have more work to do but I think again the benefit of being a multi category retailer is.
Speaker Change: That we're gonna be able to pivot we've got a lot of liquidity built into the business and be able to kind of watch the customer signals and be able to invest into those areas of opportunity in our marketplace had a nice growth.
Speaker Change: In 2024, we planned it for additional growth in 2025, and we know that comes with no inventory risk and the opportunity to take the signals that we also see in marketplace businesses and lean into the opportunity to expand those into our stores as well.
Oliver Chen: Good morning, Oliver just to speak to your a distinction between the go forward comps and the total ink comps I think this is an important dimension. Our destination is the go forward business and so it was important for us to articulate the difference in terms of our reporting this year between total and comps and go forward and comps.
Oliver Chen: As you saw in the fourth quarter, our go forward and comps outperformed total ink comps and that's really because of the composition of stores that have not received some of the changes and the closure of stores. So as we look ahead, we really want to focus the street really on the go forward and comps because thats really the destination that we're focused on.
Oliver Chen: And so when you look at total ink comps. This year you have 225 Macys go forward stores that have still not received the growth changes. In addition to remaining approximately 85 non go forward stores that last year experienced mid to high single digit declines year over year. So this is <unk>.
Oliver Chen: That will speak to you as we progress through the year. So that you can understand the performance of our core go forward business, but we're pleased with the progress thus far and have a bit more work to do as we lean into 2025.
Oliver Chen: Okay.
Speaker Change: Lee you mentioned and we discussed a lot of the first quarter pressure.
Oliver Chen: The assumption.
Oliver Chen: Is it could can just continue to have pressure throughout the year is that true or what's the dynamic of which doctors may or may not be transitory.
Oliver Chen: As you think about.
Oliver Chen: Hi, Middle lower income are you seeing anything in terms of greater pressure at the low end, where we continue to see these themes a bifurcation of other companies. Thanks a lot.
Oliver Chen: Yeah, Oliver I think there's a impact to all levels of the consumers and so we.
Oliver Chen: We come off of a position of strength and on our luxury brands, but I think the affluent customer Thats shopping Macy's is just as uncertain and is confused and concerned by what's what's transpiring. So you know our outlook tries to take into account are the pieces that we know and the things that we.
Oliver Chen: Don't know.
Oliver Chen: Our first quarter inventories are in good shape there'll be no impact from the pending tariffs as we look at the remainder of the year, we're taking a case by case basis and trying to react in real time as we learn.
Oliver Chen: More the second quarter were up against a softer quarter. So you know as you look at the kind of a flow of the non linear nature of our growth expectations, we have opportunity to perform better in the second quarter than we do in the first quarter.
Oliver Chen: And a lot of the initiatives that we're rolling out will benefit more of the back half of the year than the front half of the year. That's just the nature of implementing new programs. So I think the guidance assumes a level of uncertainty in the first quarter assumes more uncertainty and is consistent I think with how many are looking at the <unk>.
Oliver Chen: Current environment that we're operating in.
Oliver Chen: Okay. Thank you best regards.
Oliver Chen: Thank you thank you Oliver.
Speaker Change: Thank you once again that is star one if he would like to register a question at this time.
Speaker Change: Our next question is coming from Dana Telsey of Telsey Advisory Group. Please go ahead.
Speaker Change: Hi, good morning, everyone as E C.
Speaker Change: I don't label portion of the business. How are you thinking about that penetration. This year I know, it's been an important part for you and what are you thinking about I think you had talked about some of the underperforming categories that you would focus on private label, how do you see that and how you're thinking about pricing overall and then Adrian if you think about.
Speaker Change: The store portfolio, how many closures do you expect in 2025 and is that 150 number of store closures any more further perspective on that going forward. Thank you.
Speaker Change: Good morning Dana.
Speaker Change: Private brand has been an area, where we have worked hard to re imagine the entire portfolio. We've we've now touched more than 20 brands will have by the middle of 2025 addressed all of the home furnishing brands.
Speaker Change: And it remains I would say a work in progress our private label penetration is down now where they are at an all time low so the opportunity to rebuild the business is advantageous from a long term margin accretion perspective, but also I think is good in this particular moment in time and that it protects us Oh.
Speaker Change: Our ice laces Insulates us a little bit from some of the tariff uncertainty I feel good about the work on some of the brands. You know you look at a brand like styling co or state of day.
Speaker Change: Or the strength of a brand like hotel those brands have done exceptionally well over time, and our big volume and represent leaders within their families of business. There are other brands that are more nascent or needing more work and re imagination and so I was with the private brand team yesterday kind of walking through fall 'twenty twenty-five I E.
Speaker Change: Look spectacular and you know the the challenge we always have in the business as things look look great. When you see them six months early and then they you know they hit the floor and the World has changed and you know you never know, but I was really pleased with what the team showed me yesterday I think it looks tasty I think theres great value in the brands, it's not about the lowest price.
Speaker Change: But it's about great looking product a great design and I take my hat off to the team because they've really worked hard to be a learning from the market brand environment leaning into white space and not have just duplicate of product in our private brand that's at a lower price and I think it'll position us well for the long term.
Speaker Change: Good morning, Danielle, let me speak to the store portfolio, we have not shared the number of closures. This year, but rest assured we remain committed to closing approximately 150 stores by the end of next fiscal year fiscal 2026. The reality is we continue to see that these stores are not financially and operationally viable, especially relative to.
Speaker Change: The monetization opportunity that we've recognized and demonstrated last year and frankly, Dana we're off to a solid start when you look at what we were able to close and monetize last year, we exceeded our own expectations that we actually shared with the street.
Speaker Change: Also we're very pleased with the momentum on the monetization side of those closures, we spoke to the range of opportunity of sales proceeds to come into the business. We really are pleased with what we saw last year, but we're just giving ourselves the flexibility over the course of this fiscal year and next fiscal year, so really be patient given the strength of our balance sheet and as those <unk>.
Speaker Change: <unk> come in we'll invest in growth initiatives and returning capital to shareholders, but we're very pleased with the progress and we remain committed to what we said we're going to do.
Speaker Change: Thank you.
Dana: Thank you Dana.
Speaker Change: Thank you. The next question is coming from Paul <unk> of Citigroup. Please go ahead.
Thanks, It's Tracy Kogan filling in for Paul I was hoping you guys could give a little more detail on the credit trends you saw in <unk>, but also have you seen any notable changes in any of their payment rates are loss is that quarter to date. Thanks.
I can go ahead and take that Tracey and good morning, and give my best to Paul as well what we saw in 2024 was a stabilization credit card revenues. What we expect in 2025 is a return to growth and so as you think about what we experienced in the fourth quarter and really in the back half of the year was <unk>.
Speaker Change: <unk> card revenue growth that was ahead of our expectations now we've been focused on a number of initiatives in 2024, that's going to be paying dividends in 2025, because we've seen the traction in the back half of last year, we're very focused last year in maintaining a healthy credit portfolio as demonstrated by the underwriting.
Speaker Change: We're working on with our partners as well as the FICO scores and that demonstration of a healthy portfolio has really stabilized net credit losses, given the health of the file that we that we currently have but we have a number of other initiatives designed to increase card usage at bloomingdale's and Macy's as well as some of us transactions.
We've been increasing year over year application growth was just something we have not seen in quite a number of years and also with the increase in APR early last year, we definitely seen the flow through of those benefits in the back half of last year into this year. So those are kind of a combination of factors, that's really driving the credit card business, which we're pleased with the <unk>.
Thus far but we recognize that there's more that can be done as well and we'll continue to lean in there.
Speaker Change: Great. Thank you so no no meaningful changes quarter to date.
Speaker Change: No meaningful changes quarter to date, we expect this year to be a return to growth as reflected in our guide.
Speaker Change: Got it thank you thank.
Speaker Change: Thank you Tracy.
Speaker Change: Thank you at this time there are no further questions I would like to turn the floor back over to Mr. Tony Spring for closing comments.
Tony Spring: Thank you operator, and thank you all for attending the call. This morning, we look forward to continuing to update you on our progress on the bold new chapter and our opportunity to take you to stores if appropriate and look forward to updating you on the first quarter call have a good morning, everyone.
Speaker Change: Ladies and gentlemen. This concludes today's event you may disconnect. Your lines are lock off the webcast at this time and enjoy the rest of your day.
Speaker Change: [music].