Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Macy's Inc (M, Financial) achieved better-than-expected earnings results, with adjusted EPS of $0.53, significantly above the outlook of $0.25 to $0.33.
- The first 50 Macy's stores posted a 1% comp sales gain for the quarter, outperforming the total Macy's nameplate by 460 basis points.
- Luxury nameplates Bloomingdale's and Bluemercury delivered strong gross margin expansion and better-than-expected SG&A.
- Bluemercury achieved its 14th consecutive quarter of comp store sales growth, posting a 2% gain.
- Macy's Inc (M) is implementing women's shoe and handbag staffing tests in roughly 100 additional go-forward locations this fall, based on the success of the first 50 stores.
Negative Points
- Second quarter net sales of $4.9 billion were slightly below the outlook, with total enterprise comps down 3.3%.
- Macy's nameplate net sales declined 4.4%, and comparable sales were down 3.6%.
- The consumer discretionary environment remains challenging, with customers becoming more discriminating due to ongoing macroeconomic uncertainty.
- Men's apparel, handbags, and home categories continue to face weaknesses, requiring further adjustments and investments.
- Inventory levels were up 6% year over year, which was above expectations due to second-quarter sales results and the decision to invest in areas of product strength for the back half of the year.
Q & A Highlights
Q: Could you speak to the cadence of comps as the second quarter progressed and elaborate on changes in the consumer backdrop? What have you seen with early back-to-school or August trends relative to the second quarter comp performance?
A: The quarter played out softer than expected, starting to decline in the middle. Immediate actions were taken to strengthen marketing, improve product quality, and adjust receipts. These changes showed immediate impact and are continuing into the third quarter. The guidance reflects a conservative outlook for the remainder of the year, acknowledging a more discriminating consumer. The First 50 stores serve as a great barometer for future strategies.
Q: Can you walk through the drivers of back-half gross margin expansion despite embedding a heightened promotional backdrop?
A: We are pleased with Q2 gross margin results and confident in our outlook for the year. Key drivers include controlled inventories, lower shortage trends due to asset protection initiatives, and lower delivery costs through diversified carriers and minimized split shipments. These factors contribute to our positive gross margin outlook for the balance of the year.
Q: Can you help frame the potential tailwinds from the rollout of the First 50 staffing tests to additional locations this fall? What key factors will allow you to expand these initiatives more aggressively?
A: The First 50 stores have shown two consecutive quarters of comp store growth and significant improvements in customer satisfaction. We will expand beyond the First 50, with further details to be shared in the fourth quarter call. The 100-store test on handbags and shoes reflects our confidence in these categories. The guidance incorporates the potential impact of these initiatives.
Q: Can you elaborate on the adjustments Macy's is making to its promotion and marketing calendar for the balance of the year?
A: We are experimenting with our media marketing mix and focusing on value-oriented messaging. Adjustments include clearer value communication, enhanced in-store experiences, and strong visual presentations. These changes aim to resonate with the value-oriented consumer.
Q: What are you seeing in handbags and shoes that lead to acceleration, and what trends are you observing in women's apparel?
A: We are seeing green shoots in ready-to-wear with brands like Donna Karan and Karl Lagerfeld. Handbags and shoes have shown improvement in the First 50 stores, driven by staffing and merchandise quality. We are optimistic about the potential for growth in these categories.
Q: Can you expand on the trends within the credit card business, particularly regarding cardholders and delinquencies?
A: Net credit losses and delinquencies are in line with expectations. We are seeing slightly lower payment rates, with customers revolving balances longer but paying off their bills. This has resulted in higher balances and better-than-expected revenue.
Q: How did smaller formats, Macy's Backstage outlets, and digital perform relative to the core, and what are your thoughts for the back half?
A: We are focused on winning by market with a complement of small format stores, on-mall stores, and digital. The AUR increase is driven by improved product quality. We are well-positioned for the fall season with disciplined inventory management and targeted investments.
Q: What are your assumptions for the second half same-store sales guidance between go-forward and non-go-forward stores?
A: Non-go-forward stores performed better than expected, and adjustments have been made in our outlook. We expect sequential improvement in top-line performance due to ongoing changes and investments in stores, digital, and marketing.
Q: How are you thinking about inventory investments specifically in go-forward stores relative to the sales plan for the second half?
A: Inventory levels remain down double digits compared to a few years ago. We are focused on being in-stock for the customer, with a balanced approach to transitional inventory, clearance, and newness. We are confident in our inventory management going into the fall season.
Q: How are you seeing growth in the First 50 locations, and how do you communicate changes to customers to get them to come back to the store?
A: Growth in the First 50 locations is driven by increased traffic and conversion, with a combination of existing and new customers. We are using geo-targeted communication via email, search, and SMS to promote events, activations, and new products.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
